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Creating a niche in an overpopulated industry

With the forex market at its most prominent, a number of companies are taking a step back, addressing regulations, and making sure measures are in place to find solid footing The financial markets have gone through a vast amount of change since the mid-90s. The internet affected the nature of financial execution forever. There’s been the rise and fall of hedge funds, the popularisation of algorithmic trading, and markets affected by global depression and geopolitical uncertainty. Governments – ever mindful of appearances – compound weak economies with disastrous economic policies. The world of financial markets has certainly been diverse, and no doubt it will continue to be so. Within this world is online forex, a strong growth market for many years now and one of the most engaging yet stressful industries to be involved in. It was an unknown industry 15 years ago, whereas now there is a proliferation of forex trading providers. As more companies continue to enter the currency execution market, it remains to be seen whether the more recent newcomers will fare as well in the industry. A numbers game Already there are too many competitors in the forex industry. A few years ago, there were very few. Today, forex has become very popular, and brokers who were early to get involved have been very successful, expanding into global companies. It is estimated that there are over 200 currency brokers currently in operation. Every day there seems to be a new broker starting up somewhere in the world, and many will find the competition is tough, and the profit margins are not what they used to be. There are many bad reviews on large corporations, banks and the financial sector in general, and as a result, many people assume forex brokers cannot be trusted and the accepted wisdom seems to be that if you’re involved in forex brokerage you must be dishonest in some way. It is true that some brokers have not been concerned about the financial health of their clients, some specifically aim to profit from client loss, and provide negative execution or bad pricing. However, whatever decision is made in business, good or bad, the displeasure of the consumer will eventually determine the future of that company. Many people who have never created or managed a new business do not seem to understand that whatever business you’re in, whether it’s online forex brokerage or not, if you’re dishonest, and do not provide value, you will not succeed. Business longevity Business relies entirely on the interest of the consumer. By not providing quality execution, a forex broker is doomed to fail. Sustainability and long-term profits are smart business, which is why building a reputation for good practice is so important, because it provides the most sustainable revenues over the long term. It is estimated that there are over 200 currency brokers currently in operation. Every day there seems to be a new broker starting up somewhere in the world, and many will find the competition is tough With the mixture nowadays of debt crisis, growing budget and government deficits, a situation has been created where financial institutions face increasing regulation, which inevitably slows growth and forex is no exception. Whether it’s politically driven by exchange lobbies – a way to fill the coffers of the treasury – or due to legitimate concern for the wellbeing of the small investor, today no commercial enterprise has complete and full sovereignty over its own business decisions. At Liquid Markets we deal with thousands of transactions every day, millions per year, and differentiating the business is key. Execution in forex is everywhere, so on its own, it is not enough, as the customer has a huge choice of where to go and trade. Today if you want to gain market share you’ll have difficulty obtaining it unless you severely tighten spreads. Although it is possible to do so if you have the expertise to run an extremely efficient execution business, the J-curve for a new execution business can actually be very long. Consequently, it becomes increasingly important to find a way to provide some real value to clients in order to drive sustainable flow through your core execution business. You can do this by specifically focusing on added value services, which fundamentally provide a measure of decision-making support to the end client – such as technical and fundamental analysis, and then give real insights into macro news. But the value of such services is obviously open to interpretation. Exploring the fund management services route or social trading may be an option, but that can be a difficult activity to develop to a core execution business. In today’s market you’ll need to find a unique way to differentiate yourself, or find you need to consolidate with larger forex players in order to be successful. Not that long ago, if you wanted to have a stable and happy family life you would go and work for a bank, as it was considered respectable. Today, if you want stability, it is thought the best employment is in the public sector. Currency brokerage appeals to those who want to work in an industry that is challenging, fun and profitable and in which no two days are ever the same. I’ve spent a significant amount of time involved in financial markets – especially forex trading – and eventually even I could not resist the overwhelming urge to trade my own money. I made a lot, lost a lot and have now made it one of my life’s goals to generate long-term alpha by researching, developing and putting into practice absolute return trading models coupled with solid risk management techniques. Trading money in equities markets is difficult, and is even more challenging in the forex market, but it is a testament to how appealing currency trading is that even the brokers end up trading it themselves.

Friday, 10 May, 2013 / 9:33

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