The Three Most Often Overlooked Pitfalls In Risk Management

The Three Most Often Overlooked Pitfalls In Risk Management

The topic of risk management has been making headlines ever since the SNB crisis proved that no one in the Forex industry can feel safe. Many called it “a lesson taught to everyone.” But even after all the media buzz, technology improvements, and leverage decrease, are brokers seeing the full picture? What if there was something important missing from the very start?

There Is No Risk Policy In A Brokerage

Who is always on the front checking the risk exposure or trade reconciliation? In most of FX brokerages, this job is done by dealers. What background does an average dealer come from? Finance? Management? Math? Nope — all wrong. In fact, some dealers have almost no experience when it comes to understanding the nature of market risk and volatile environments.

The only solution to keep them in check is an internal regulation document called Risk Policy. Written by a single person from the company who has vast experience with risk management and approved by the board of directors, it will serve as the backbone of everyday operations.

The dealer found a position mismatch? Look for the corresponding clause in Risk Policy. Want to make something not specified in the Risk Policy? Make a suggestion to Risk Policy.

Over the course of time, the document will be filled with more details and cases, so it will cover the vast majority of a dealer’s routine and ensure the stability of the business, even if a key employee decides to leave the company.

Your STP Flow Can Be As Vulnerable As B-book One

Until the 15th of January, 2015 brokers have been working under the assumption that “full STP” is much safer than B-booking or any hybrid model. One way or another, if a broker decided to pass all trading risk to your liquidity providers, he is protected from the toxic strategies of clients or volatility, right?

Well, that’s never been true. If you look at the aftermath of the Black Swan, you can see that it was A-book brokerages who suffered most of the losses — FXCM, Saxo, Boston Prime, Alpari UK, just to name a few. Moreover, institutional clients (small and medium brokers) who kept accounts in such companies also took losses, yet we will never know their names.

While the capital requirements for opening a STP brokerage are significantly lower than for opening a B-book one, the broker should take extreme precautions to protect his money from possible events like position mismatch, stopout on your LP’s account, errors with execution reports, cancellation of already executed trades, and so on. Another issue to watch for is segregation of funds. If your liquidity provider uses your funds as collateral for its own trades, then your trades are as vulnerable as your LP’s trades. Furthermore, any insolvency of the liquidity provider will put your business in danger as well.

Keep An Eye On Your Clients, Not On The News

Let’s imagine a risk manager on Friday preparing for a busy week ahead. What is he looking for? Economic calendar, news, announcements, forecasts, etc. And what will he find? Experts’ opinions of all sorts: “We’re decreasing leverage to 1:25 on all pairs,” “some currency pairs switched to ‘close only,’” “watch out for that massive spike on EURGBP” — all the regular fluff.

While I’m not judging whether what they say is true or false, one thing is clear: they are giving advice based on THEIR clients, not YOUR clients.

It may look like traders are the same everywhere, but in fact, when technology and liquidity in retail FX can be roughly equal, the real difference between brokers comes down to sales approach and their clientele. When it comes to what decision a risk manager should make, it must be based on his clients, not others’ clients.

He should develop a routine to gather and evaluate all trading flow stats: how did traders respond to a non-farm payroll or central bank announcement? Which trading hours are the most active and how do they correlate with the news? What’s the distribution of the clients’ trading patterns? The more data he has behind, and the more he extracts from it, the better he will be prepared for the future.

Black Swans Are Important, But Not For Everyone

Once something huge like SNBomb hits, it attracts the attention of the whole industry. Its damage is massive, but in my opinion, the reception of the whole event was overblown. Yes, some companies took huge losses, some dissolved, but the majority of the market participants got away unscathed.

If you look at the whole history of retail FX, it is clear that most companies went down not because of Black Swans, but because of running their books poorly. I hope that this article will help you avoid their mistakes.

Posted by Valentine Piotrovich, Head Of Business Development at Takeprofit Technology

How To Build Trust On A Broker’s Website

How To Build Trust On A Broker’s Website

One of the most common statements in sales is that the first thing a salesperson should do is to create a trusting relationship between her and the client. Some companies mistakenly think that the sales process starts with a call, email, or meeting. No, the first point of a company’s communication with people is its website, at least in regards to a Forex brokerage business. So if you want to widen your sales funnel, start to create trust right there.

Help Your Client To Understand

To make your potential clients read all 45 pages of your site and then make them write a list of questions to your support email is not a good idea. It means that site visitors don’t understand which information is important for them and which is not. They don’t know on which pages they can find answers to the questions. So, only the most patient ones will go all the way to the end. If you want to help your clients to find necessary information, start with these first steps:

  1. Write in language that your clients speak. Of course, explaining something to the experienced stock exchange traders is completely different from speaking to housewives and retired people. Ask several clients to take part in the experiment. Give them an assignment to explain what is written on your site to another trader in the most understandable way. Believe me that the value of this information is even higher than it seems in the beginning.
  2. Describe a workflow of the most important processes in the most detailed way. It may be evident to you that to open an account you just have to create a login and password in the top right corner of the main page, but it may be not so obvious to a beginner. Show all steps in screenshots, write short comments, and suggest calling a specialist via a toll-free phone number. It doesn’t matter that this number is also given on the “Contacts” page.
  3. Explain how your business earns money. What a beginner trader sees on any brokerage site—“Tiny spreads, 1:5000 leverage, $100 bonus, invest $10 and get $10,000”—looks a little bit exaggerated. Demonstrate that it is not a scam by opening some brokerage business mechanisms.
  4. Make headings to clients testimonials. Put a main message in the heading. That way, readers don’t need to scan through all the text. It will help them save time by reading feedback that contains the most interesting and pertinent information to them. Also let people rate feedback, so it will be clear which aspects are more important to your clients. I’ve never seen something like this on a broker’s site, but here is a good example from the touristic business. Look at Booking.com’s feedback:

Surround With Care

A lot of brokers think that they have an excellent customer care system, as their support specialists are highly skilled and all replies are worked out individually. However, why would a new site visitor figure that out and trust you?

  1. Pay attention to your “About” page. Try to make it more humanizing. A reader should imagine a person after reading this text. It should be a person with a certain character, principles and attitude. If it creates a pleasant image, it means that this site visitor will already like your company and trusts you.
  2. Make them feel safe. Use all means possible to assure visitors that they are safe working with you. Write that you won’t use their private information in an improper way, and write about your regulations. Also your site visitors will feel that they are safe if they see that you are an expert. It is long and hard work to build expert status (write articles, educational courses), but it will go a long way in making people trust you.
  3. Start to collect statistics about questions that are asked most frequently. You can get such information from your call center and customer service email. Then put the answers on site. I don’t recommend putting all of these questions on a “FAQ” page. Make a logical chain to understand where the answers for these questions should be placed on the site and put them there. You may think that it doesn’t make sense to put all of the information on the site, because it is better to have private contact with a potential client when he asks you these questions via email or phone. You may be right if the number of people who reached out to you is bigger than those who went to your competitor’s site after not finding the necessary information. Are you sure that most of them will call you?

Create A Sense Of Over-Delivering

Don’t make too many big promises. It will raise doubts. When overly high expectations meet an imperfect reality, there will be a strong negative effect. On the other hand, imagine feedback where your client writes that he was given better service, better conditions, and a bigger income than was promised. I’m sure that your potential clients will want to be over-delivered in the same way. You can read more on creating a WOW effect in “Delivering Happiness” by Tony Hsieh.

To bring all of these recommendations to life you need to study your clients.There is no need to order a big market research project with a special agency. Just do it any way you can. Ask your sales managers to make a list of clients’ values according to their own notices, invite several clients for an interview. The information you get this way will help you understand how to make people trust you from their first site visit.

Posted by Katya Yun

Takeprofit Technology At The iFX Expo 2016 In Limassol

Takeprofit Technology At The iFX Expo 2016 In Limassol

Last week we took part in the iFX Expo in Limassol. It was a great time for our team. We were happy to meet our existing clients to discuss common projects.

Of course, we got a lot of new contacts and ideas. Now we see the main trends in Forex brokers’ technological needs, and after taking part in this networking, we can definitely say that our products like Klondike Bridge, Ashira dealer, Easy MAM, and others absolutely satisfy them.

We are looking forward to attending such an event again.

Posted by Katya Yun

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