Modern brokers are highly dependent on technology and the environments they build. Software choice and how it’s set up can make or break a brokerage.
Today, we’re going to share a summary of the recent TFB webinar hosted by Marcus Ingram, dedicated to creating an ecosystem for a brokerage of any size and covering:
- What’s needed to get started.
- How to optimise a cross-server multiplatform setup.
- How to build an integrated technology ecosystem.
- Real examples of common pitfalls and how to prevent them.
Why is the tech stack so important for a modern brokerage?
We all know we should be proactive in our personal and business lives. Yet, it’s common for brokers to wait for an issue to emerge before they realise there is a risk and that they need a solution to deal with it.
There are several problems with this approach:
- You’re dealing with the consequences of what’s already happened, so it’s more costly and risky.
- There’s very little time to look for a good solution as the pressing issue must be handled ASAP.
- Handling issues as they arise leads to a fragmented infrastructure with incompatibility issues and an unoptimised setup that leads to lost opportunities and waste.
Issues that brokers face often scale along with the volumes, hindering the business’s growth.
If we design things in a way that controls risks dynamically and automates key and unnecessary manual processes, we end up with an environment that empowers growth and efficiently deals with changing environments. For instance, when introducing a new compliance requirement, a slight adjustment in the configuration may be sufficient to comply.
What are the key elements of a broker’s tech stack?
While every brokerage is unique, there are several solutions that all retail brokerages require to function properly in the modern day and age.
- Client-facing and management software, such as CRM solutions, are required to navigate the client experience, onboarding, and deposits. These solutions are integrated directly with the platform, and their main goal is to automate the processes as much as possible, for example, offloading onboarding to the system to free up time for the broker’s team.
- The core trading infrastructure, in other words, the trading platform and liquidity bridge. The choice of trading platform depends on each individual case, but the setup is the same for each. The bridge and liquidity are integrated on the other side to execute trades and provide A/B book risk management.
Tip: The best practice is to host the servers for all infrastructure elements in geographic proximity to each other and to most of your client base.
- The back office stack focuses on reporting, monitoring, and alerts of potential real-time risks. With TFB, you get everything built into the Trade Processor liquidity bridge, so you don’t have to deal with a new interface and yet another layer in your environment.
- Add-ons and plugins are usually based on client demand and each broker’s goals. These include tools to attract clients, such as copy trading, PAMM systems, or bonus systems. This also encompasses the areas of automation and risk management where a broker sees room for improvement.
Tech stack for a startup broker
If you’re a startup broker, the initial primary goals are:
- Simplicity
- Speed to market
- Basic risk management
In terms of the tech stack, this translates to:
- CRM for client onboarding and payments
- Trading platform (possibly a white label)
- Liquidity bridge
- Reliable liquidity providers
This setup is the minimum viable product that is crucial for anyone launching to market fast but diligently. It builds a solid base with which you can scale and later consider adding more specific solutions for your needs.
Once a startup broker starts scaling
With more volume, you’ll need to be able to handle the growth from both risk management and technical perspectives. It’s a good time to look into adding more depth to your risk strategy, through things such as tiered leverage or dealing functions. Tiered leverage can protect brokers from the risk of high-leveraged large positions wiping out their book by dynamically adjusting based on the position size.
By now, a broker should better understand their client base and book. It’s important to utilise their bridge’s full potential to:
- Understand their exposure
- Find the best opportunities to hedge
- Get the most value out of the current flow
Tech stack for an established broker
For an established broker, the main goal is to optimise efficiency.
We are currently looking at a cross-server setup, utilising multiple trading platforms and liquidity providers. It’s important to have central monitoring for all of the above, and a robust liquidity bridge serves best as a tool to get real-time risk updates.
Established brokers should consider backup and failover options to ensure no downtime even when issues occur with just one part of the system.
It should also be a priority to automate key processes that are done manually, i.e., processes that are time-consuming, labour-intensive, and error-prone. These include:
- Swaps management (both on the symbol level and for swap-free accounts)
- Leverage
- All risk management
Last but not least, as the business grows, optimising memory usage on servers and hosting locations becomes necessary to ensure the company is not wasting resources.
Common tech-related bottlenecks that brokers face
Now let’s look at some of the most common tech bottlenecks that delay operations and limit a broker’s growth.
#1 Systems aren’t able to deal with volume spikes
The infrastructure must be prepared for the busiest times and not just the average load. Special attention needs to be paid to how the system handles abrupt spikes in load, as that’s where most issues lie.
Tip: Good execution and bridging solutions allow you to react quickly, change spreads and book of execution on the go, and manage margin on liquidity providers.
#2 Latency
Just because there is higher trading activity doesn’t mean execution should falter. If the server capacity is sufficient and aggregation is used, trading can always remain seamless.
Tip: Evaluating market depth and execution speeds for your liquidity providers can help further optimise execution during volatile times.
#3 Poor integration between systems
When system elements aren’t properly communicating, and tasks are done manually and require approvals, that’s when onboarding slows down, and so does growth.
The best way to solve this issue is integrating CRM and PAMM systems.
With integration, the whole workflow, from deposits to connecting to money managers to creating accounts, can be automated, making the client experience much smoother.
#4 Demand exceeds capacity
Operational bottlenecks create a lot of risk for a brokerage. Often, they lead to situations where demand exceeds capacity.
During the 15 years on the market, we have dealt with many client cases where they manually:
- Charged swaps
- Adjusted leverage
- Fixed negative balances
All of this time is time taken away from the hours a client can be trading, affecting client satisfaction and revenue.
Growth can become limited by the size of your team or the number of hours in a day, when it doesn’t need to be. All of these processes can be automated and handled stress-free.
Smart tech stack leads to resilience and sustainable growth
We can think of change in two main ways: those macro-level changes that are external and need to be responded to and planned for, such as regulation or changing client preferences, and short-term adjustments based on what’s going on in the markets.
Your technology needs to be ready to handle both.
For the former, there needs to be an easy path to add new components or make changes based on what the market demands, whether that’s a new trading platform or asset class.
When a new regulation is announced, the system must be straightforward and modern to adjust to new rules.
It’s important not to be locked into long-term contracts with inflexible ecosystems that limit your ability to respond to change.
For short-term market changes, it’s crucial to be able to detect these changes. For example, within Trade Processor, there is a built-in risk detection and exposure analysis, so you can be made aware of the changes and respond immediately.
What’s next? Book a demo call with a trusted technology provider
The things we discussed today will give you a good starting point, but if you want to thrive in the current competitive climate, the solutions and the setup you choose for your brokerage must be customised and tailored to your needs and circumstances.
If you’d like to launch a new business or revamp your existing operations, book a call with one of our specialists to go through your challenges, needs, and wants, and outline a plan for bringing your brokerage to the next level.
Please email us at sales@t4b.com, and take a first step towards a brighter future for your business.
