Avoiding common broker risks: tips for every brokerage

Author: Alexey Kutsenko

Every broker knows that risk management is a journey, not a destination. There is no point in a company's life when you can sit down and think, ‘Phew! We are fully protected from now on!’. But why is that so? First of all, the financial sector is intense. When you are operating with someone else’s money, the pressure is always high. Secondly, investments and trading are highly time-sensitive and technology-intensive, so there is little room for error.

And while you might look at that and decide to give up, there are ways that you can protect your brokerage against the most common risks and be proactive in spotting unexpected events early on. Today, we will give you a few tips on how to do that.

Tip 1: Know your strengths and weaknesses

Knowing where you are winning and where there's room for improvement is an excellent way of being one step ahead of the risks. It helps prioritise and adapt your projects, budgets, hiring, and even making marketing plans more efficient.

And as obvious as it may sound, many companies do not keep up with their current situation. Usually, that happens because many daily tasks are more urgent than strategic planning, so we push the analysis and evaluations until it is too late. Once something bad happens, we use hindsight to find the logical explanation and what we should have done. And most of the time, we can indeed prevent the risks or minimise their consequences. But to do that, we need timely and regular evaluations and planning.

Tip 2: Use your data

When it comes to brokerage technology, there are many great solutions out there that have the ability to collect, structure, and analyse data. But we don’t use them. Working with data is one of the best ways to be proactive with your risk management strategy. You can spot trends (both positive and negative) and act immediately.

Here are some of the examples of what brokers can do:

• Run reports for internal use to make data-driven conclusions on their performance.
• Notice trends among traders and adapt a strategy to reduce the risks and maximise efficiency. Don’t forget that missing out on potential volumes and revenues is also a risk.
• Categorise traders into target audience groups based on their behaviour for better targeting with marketing offers, promos, and services.
• Set up live alerts to track what your traders are doing. You can use this information to stimulate traders with special conditions or catch traders with questionable tactics.

Tip 3: If you can automate something, do it!

One of the most unfortunate risk types for brokers, arguably, is human error. No matter how professional and experienced you are, if you are dealing with large volumes of data in a stressed, time-sensitive environment, you will make a mistake sooner or later.

To reduce the workload and the risk of making mistakes, you can automate the following:

• A lot of the brokers’ work is associated with updating data, like swaps and margins. There are many tools that you can configure to do that mundane task on your behalf.
• End-of-Day reports don’t have to take hours and can easily be automated.
• All reports, in general, can be automated. Especially with reports for regulators, automation can eliminate the risk of mistakes and make sure all important data is included. If your report is incorrect, you might be fined or even have your license suspended or revoked.

Tip 4: The eggs and the basket

Everyone knows that you should not put all your eggs in one basket. And brokerages are no exception.

Don’t limit yourself to the services that you provide. Yes, it is good to focus on one thing at a time, especially in the launch phase. Yet, it is dangerous to stick to your old ways and not experiment with new solutions for your existing and new audiences. For example, you can try offering money management solutions to attract beginner investors. Another tactic is offering additional services to existing traders, for example, alerts that will notify them about different events on their accounts. Here, brokers manage two risks at once: they work with different client groups, and they offer different products. So, if one of the services loses popularity or a big client leaves you, there are other projects and traders to support your brokerage.

Another way of protecting your company is not relying too much on certain employees. The team is the most important asset of any business, but you should be prepared for a moment when someone decides to leave the company for whatever reason. The way to prepare for that is the standardisation of processes, sharing knowledge, and making sure more than one person can execute the essential tasks. The last thing you need is to have someone get sick, and your company starts losing money and clients because no one knows how to do the job.

There is no single right policy to manage risks. Every brokerage will be unique and will have its own set of struggles and strengths. If you are currently looking for risk management solutions or any other tools for your brokerage, please feel free to email us at sales@t4b.com, and one of our team will be happy to find the right products for your individual needs.