Know your enemy: top risks a broker should watch out for

Author: Albina Zhdanova

The Internet has countless articles, videos, and tweets about risks that individuals have when trading in Forex markets. Although they are, of course, relevant and worth acknowledging, we think it is somehow unfair, that there are almost no resources focusing on the risks that brokers endure.

Like any other business, Forex brokers face various difficulties that might not be obvious until they happen. That is why we decided to list the most common risks that brokerage companies have and how they can be mitigated, if not eliminated completely.

Financial and Economic risks

On top of being responsible for other people’s money (even though it’s often indirect responsibility), brokers work in the highly volatile and competitive markets, forcing them to live in constant stress. Things like credit and leverage risk can keep you up at night, but luckily, most of the risks can be mitigated with the help of the right technology.

Technological risks

Just like we said, technology can save you from many issues, but it just as likely can cause the issues if left unattended. Outdated technology that fails, cyber attacks exploiting security vulnerability — all of those things we see way too often on the market.

Strategic risks

If you do not know where you are going — you are probably going nowhere. Strategy is vital for a company's success as you need to understand the steps that must be taken, communicate these steps to the team, and simply know what needs to be done.

The strategy cannot just be “let’s make 1 billion by 2025”. It must be thought-through, detailed, with a clear path, and thorough analyzis of your markets, clients, and competition.

Operational risks

Once your strategic risks are assessed, it is important to look into our business operations, identify and analyze them, and work out a plan to avoid and mitigate potential issues.Your operations must support your strategy, not jeopardize it.

At TFB, we like to come together as a team and regularly discuss potential risks and problems that the company might be facing. It is worth checking in with every employee and ask them for opinions and suggestions. Some of the topics that we like to bring up are potential quality issues, business processes optimization, human errors, and more.

Reputation risks

This risk is often neglected by brokerage companies that follow the laws. Brokers that are not involved in malicious activities should still analyze their business, look at all their processes, and check that there is no room for ambiguity.

It is worth asking yourself: do we provide the most full, timely, and accurate information to our traders? Is there anything obvious to us, but might not be apparent to our clients?

This is a time consuming activity, but it is better than having to deal with negative reviews, angry calls, and, potentially, lawsuits. Educate your clients, make them feel comfortable, and you will see your revenues go up.

Regulatory risks

Dealing with regulators is rarely fun. Yet, if you are falling under certain regulation, it is worth staying up to date with all the latest requirements. The last thing you need is a fine that could have easily been avoided. Many of the brokerage companies that TFB has worked with over the years dreaded regulation simply because they did not want to deal with reporting. If you are in the same position, you can invest in the software to do everything for you. For example, our monitoring, reporting, and risk management solution — BBI — has both regulatory reports and custom reports for internal use. The cost of the software will be well compensated by the relief provided by full and automatic reporting.

That concludes our list of top risks that brokerage companies face. What do you think? Which risks are giving you the most headache? We would love to hear from you! Please reach out to us on sales@t4b.com