How Do You Choose Your Broker, And How Does Your Broker Choose You?
Have you ever wondered how online trading brokers select their clients? This has been a moot point among some of the more diligent financial services regulators around the world for a few years now.
Trader Relationships
So ingrained is the lack of interest in revolutionizing the means by which relationships are conducted between all parties involved in approaching traders, as well as how they are brought onboard, given access to pricing and market structure, that it is almost never discussed.
Attracting and retaining clients is now one of the biggest challenges for brokers as the FX industry matures and as CPA (Cost Per Acquisition) which is a major factor within an online advertising model grow higher, averaging $1000 per funded client in western countries.
To tackle the issue, some of the smaller retail brokers to whom cost of acquisition and retention is extremely important, have been ever more active in developing their differentiation angle via various means, ranging from promoting the social trading experience to offering deposit bonuses and cash rebates, as well as loyalty programs and interactive marketing campaigns, while automating data intelligence for the sales teams.
On that note, trading platforms such as MetaTrader 4 may pose an issue given that the ubiquitous trading platform acts both as a key facet with which to onboard clients and as a retention problem.
It becomes one of the main criteria when choosing a broker to open an account with, which also means those brokers risk being easily substituted following a minor incident or an aggressive marketing campaign by a competitor.
Acquisition Cost
This may well appear as though it is a complex lesson in mathematics; a matter in which accountants must balance the cost of leasing trading infrastructure from a third-party platform supplier against the cost of buying media and generating leads, then subsequently factoring in the cost of sales staff to call the leads and then add up the profit post-conversion.
Most importantly, however, aside from the 1231 near-identical MetaTrader 4 retail entities that currently exist, is that the execution model required nowadays means that brokers should do what brokers are supposed to do:
Charge a commission for processing trades to their liquidity provider and provide their clients with an aggregated price feed consisting of prime of prime liquidity from Tier 1 banks and non-bank market makers.
Thus, brokerages which do not invest in developing their own platform infrastructure and rely on using a platform that was designed for affiliate marketers to enter the genuine financial services arena are often not aligned with the trading interests of their clients.
Proprietary Platform
It is prudent to check whether your brokerage has its own trading platform, and has its own in-house technology and infrastructure, this way you can be sure that it is a bona fide company that will be able to service its own traders properly.
They can offer a genuine trading environment rather than serve as an affiliate marketing platform which has no connection to trading whatsoever.
Companies wishing to reduce their costs and increase the quality of their client base, which in turn will increase the image and reputation of the broker should look toward partnering with entities that can help them get their message in front of dedicated traders from bona fide regions who have had a long period of activity and therefore will have a longer lifetime value and be more of a sensible read-across for the broker.
It is not simply a case of acquiring leads from popular retail websites with large traffic, for the reasons already stated here.
It is also very clear that entities and individuals peddling leads at $20 to $30 per lead have either stolen them from their previous employers or are offering recycled leads with very little chance of conversion.
Markets such as Britain, Australia, Canada, New Zealand, Malaysia, South Africa, Singapore and Hong Kong are excellent regions for retail business, and can be accessed by working closely with entities in Anglophone areas with a strong following.
There are methods of achieving this, and especially methods that align your brokerage with the clients that expect good quality, have longevity and in turn elevate your business away from churning leads in an old-fashioned manner which is not profitable.
Shady Business Practises
Lying to customers about the actual product, disguising a gaming platform which is weighted in favour of the house as a financial markets system, about the names and location of the firm and other important matters is one thing, but stealing leads from each other demonstrates the lack of moral standards which run deep among firms which do not invest in their own trading environment and do not have their own intellectual property.
Over the years, many lead buying advertisements have proliferated LinkedIn, which is intended to be a business networking site, not a place to peddle recycled customer data for which the vendor has no intellectual property rights.
My experience of explaining the rules of intellectual property to many binary brand owners has resembled attempting to explain to a hedgehog how a hot film mass airflow sensor works.
The answer, and I quote verbatim, from one particular large binary options brand that also has a lead buying and gaming business was;
“We target people who are addicted to gambling. We look to get leads from all sources and funnels, and if people working here can bring leads then this is better.”
All in all, the best way to ensure complete peace of mind is to conduct several checks online and see if your brokerage has its own platform.
Check if there are dialogs on forums about the broker and if it is a white label of another firm, or a brokerage in its own right.
These are fundamentally important matters.
Those brokers with a long time in establishment, their own infrastructure and who engage properly with their customers whilst providing access to a genuine multi-asset environment will be the ones that will continue to evolve, and to be able to refine and innovate your trading environment as the electronic financial services environment grows.
Risk warning: Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73.18% of retail investor accounts lose money when spread betting or trading CFDs with ETX. You should consider whether you understand how spread bets or CFDs work and whether you can afford to take the high risk of losing your money.
Monecor (London) Ltd is a member firm of the London Stock Exchange. Authorised and regulated by the UK Financial Conduct Authority (FCA) with Financial Services register number 124721 and the South African Financial Sector Conduct Authority (FSCA) under license number 50246.
