Analytics for brokers: where to start, the true cost, risk management, and more

Author: Lola Negmatova

Earlier this week, TFB and DGM got together for a webinar to discuss broker analytics and the role they play in risk management, boosting volumes, and managing your business.

This post provides a summary of the webinar highlighting the main ideas covered.

Where to start with data analytics

First things first, everyone should be working with data. The more information you have, the better decisions you can make for your business. Having data in front of you also means you can proactively approach anything that comes your way rather than facing the consequences of things that have already happened. 

Data analytics is all about knowing key metrics about your business to manage future objectives and challenges. You need to know where the company is going.

If you want to make the most of working with data, always keep the end goal in mind. Is it client retention? Or do you want to understand your trading conditions better and improve them?

The goal that you have will dictate where you start and what data points to look out for. Also, as you work through the analytics, you’ll start to see other trends and nuances, leading to more digging and a better understanding of the workflow.

When it comes to reports, most brokers start with and stick to the available reporting solutions in the systems they use to facilitate their trading process. For example, the Trade Processor liquidity bridging system includes reports that show the main trading process metrics. This helps clients see the data in a familiar console and not worry about exporting or importing data.

The true cost of data analytics

The solution with the lowest price tag is not always the cheapest.

As you begin to look into different solutions, you must look at the total cost of ownership. The price for the license itself is only one piece of the puzzle. There is also the ease of use, and the built-in functionality versus what extras you’ll need to add. Then, there is the need to integrate the tool with everything else in your environment. If the data analytics tool you choose is not fully compatible with the rest of your solutions, you’ll end up with errors, crashes, and possibly even downtime. Lastly, there are potential risks associated with the lack of proper technical support.

All those aspects need to be considered when looking into data analytics.

Also, there is the opportunity cost. How much business could you have generated with advanced data monitoring and reporting in place? Indeed, brokerage profits are more complex than simply running data analytics and changing your strategy accordingly. However,

Minimising trader losses and maximising broker profits

There is sometimes a misconception in the brokerage world  that trader loss equals broker profit.

This is far from the truth. Brokerages earn with various commissions and markups for the services they provide to traders. So, in reality, the more successful traders are, the more volumes they generate, and the more profitable the brokerage is.

In terms of helping traders avoid losses, brokers need to check local regulations to see if they are obliged to introduce trader protection measures, for example, by enforcing StopOut when significant losses occur and the equity falls below a certain point.

Overall, though, the main focus for brokers should be keeping their system up and running so the trading process is uninterrupted, there are no delays, and traders are not missing out on profits because of a system freeze.

Automation vs humanity: what is the future of data analytics

Can you just install a tool and call it a day? For example, put a risk management tool in place and be done with it?

Unfortunately, not just yet. Today, data analytics tools are not magic solutions, but there are systems in place that can minimise the work you need to put in so you can relax a little. Still, every system needs monitoring, tracking, and updating. With time, there maybe more progress on that front.

We see this happening with AI technology. As it’s slowly progressing, we become increasingly reliant on it, and we’re slowly letting it work on itself more than we did five years ago.

Risk management for brokers

What exactly can brokers use to protect themselves with data analytics?

First and foremost, they can implement monitoring to ensure uninterrupted feeding as interruptions are not good for your reputation and are also very risky.

What if a black swan event happens, and trading goes offline? The uptime of trading platforms is critically important and you should be investing in system availability and tools to track it. Indeed, some factors are outside your control, but you can still run an analysis and ask yourself, ‘How can I mitigate any possible risks?’.

For instance, if your London server goes down, how can you minimise the risks and consequences? For example, a replica server and a backup server can be used to run monitoring.

If something bad has ever happened to you, what did you do with that experience? Have you analysed it and learned from it? What have you changed since then? The work you do in the aftermath of a disaster is the best time to learn and improve your workflow.

Final thoughts on analytics for brokers

If you want to start or re-launch your data analytics, you do not need to waste time working it out on your own.

There are other companies that have gone through something similar to what you’re planning, and it makes sense to benefit from their expertise. Professionals are knowledgeable and have helped countless businesses over the years. They’re there to help you and facilitate your growth, and you can kickstart your data journey in much less time when a reliable partner is guiding you.