What Technology A Forex Brokerage Needs | Apexum

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What Technology A Forex Brokerage Needs

June 24, 2019

  1. Technology:

Internal Technology:

A Forex Brokerage Needs to have the capability to support its business and its Clients services, through technology a Forex Brokerage has the capability to achieve effectiveness and efficiency, a thorough research was done to provide the relevant information below, this information will be illustrated to fully aware Apexum’s client’s of the best Practice’s and Procedure’s needed to achieve the required goal’s a Brokerage need’s.   

As seen in the diagram above, a Forex Brokerage needs to have the competencies in providing services to its clients, a Brokerage must have at first its own capability in order to provide clients with such services, in conclusion the technology diagram can be categorized into two section, these will be explained below:

  1. Broker:
  1. Website:

Design: A Broker Needs to have a website that is User Experienced and interfaced design (UX/UI), to which the Framework of the website is build on customer anticipation and prediction of client action (many designer’s are aware and capable of doing so in designing a website)

Page Number: A Forex Brokerage website needs to range from 10 – 15 Pages, an example is provided in this website: http://fxlinked.com/.

Content: Relative and Descriptive.

  1. Customer Relationship Management (CRM):

Management: A Brokerage Needs to have a CRM in order to manage clients whether their new clients or potential ones, a CRM gives the capability of having information about a Brokerage clients and managing them, this gives a Brokerage an advantage of being efficient and effective in complying to their client’s needs, an example is provided to give a conceptualizing idea of a CRM: http://www.apexum.com/crm.

  1. Affiliate System: A Brokerage Needs to have an Affiliate network, an Affiliate Network is one digital channel used in marketing, it is used by Forex Brokerage’s as it is one effective method in client acquisition (High conversion rate), it gives a competitive advantage over other Digital Channels as it guarantees a Lead to a Brokerage in exchange of commission.

https://apexum.com/partneribaffiliate/

  • Client:
  1. Trader Room:

the central hub where Forex Brokerage clients can manage their accounts and trading activities with their Brokerage. Within the Trader Room area, a Forex Brokerage has the ability to access a wide range of features such as registration, opening new accounts, deposits and withdrawals, uploading documents, Fund transfer between multiple accounts and even contacting a client service representative. 

http://www.apexum.com/trader-area

  1. Trading Platform:

A type of trading software used to help currency traders with forex trading analysis and trade execution. Currency trading platforms provide charts and order-taking methods, These platforms could be leased (White label, Grey Label) or bought by a forex brokerage, there are a few providers of these platforms as they are highly costly to maintain and develop.

Platform Providers:

  1. Metaquotes: MetaTrader 4, MetaTrader 5
  2. ACT Forex: ACT Trader.

                          And many more.

External Technology:

A Forex Brokerage needs to have certain Technology in order to connect with the Forex Market and provide the Service feeds for the Brokerage clients, these are the External Required Technology needed to be established in order to provide the services intended for the Brokerage end-clients.

  • Trading Platform Server:

A Trading platform such as the MT4 (MetaTrader 4) consists of both a client and server component. The server component is run by the broker and the client software is provided to the brokerage’s client’s, who use it to see live streaming prices and charts, to place orders, and to manage their accounts.

  • Trading Platform Bridge:
  1. Trading Platform ECN Bridge: A technology which allows users to access interbank foreign exchange market through the MetaTrader 4 (MT4) electronic trading platform. MT4 was designed to allow trading between a brokerage and their client’s, brokers do not operate the bridge, so a Forex Brokerage client’s get the prices as they are from the liquidity providers.
  1. STP (Straight Through Processing Bridge): Straight-through processing bridge software has been developed over the years to allow the MT4 server to pass orders placed by clients directly to an ECN (Electronic Communication Network and feed trade verification back automatically.
  • Fix Connector:

Allows attaching MetaTrader system to any FIX compliant destination, such as brokers, exchanges, ATS. It supports all asset classes and order types which are available in MetaTrader. Groups of MT4 accounts could be structured in a way to route orders to a specified destination.

  • Routing Engine:

Handles communication with various Liquidity Provider’s via FIX protocol and allows to dynamically change the hedging parameters (forex brokers can switch on/off particular LP, add markup etc.)

Technology Strategy and Procedures:

Trading Platform Strategy:

Platform:

As a platform, a brokerage offers the platform to the end-clients, a Forex Brokerage must place certain mechanism’s and strategies in order to meet required Standards, these Procedures have been listed below:

  1. Security:
  • Authentication: Verify different authentication methods used in trading platform and test these authentication methods.
  • Encryption: Provide encryption methods used on platform and test them to see how viable are the functionalities.
  • Firewalls: Verify installations and functions of customers firewall in order to comply with the highest security standards.
  • Authorization: Comply with customers identification with privileged access to the platform in order to state the rights for each account.
  • Administration: Verify the presence of written security charts and provide appropriate fundamental training for the information Technology personnel.
  • Testing: Testing should be conducted in accordance with customers support team where the Broker should have an internet service provider approval in conjunction with customers datacenter team:
  • Verification of Firewall.
  • Authentication, verification of any security breach (Ex: Dictionary password attack).
  • Verification of password robustness.
  • Verifications of physical security precautions for personnel.
  • Installation of a network analyzer, network monitor and its usage when necessary.
  • Verification of physical security management and restriction to customer datacenter zones.
  • Capacity:
  1. General Standards: Forex Brokerage’s must handle customer orders through adopting and enforcing written procedures reasonably designed to maintain adequate personnel and facilities for the timely and efficient delivery of customer orders and reporting of executions. Furthermore, Forex Brokerages who operate trading platforms must adopt and enforce written procedures reasonably designed to maintain adequate personnel and facilities for the timely and efficient execution of customer orders. The procedures must be reasonably designed to handle customer complaints about order delivery, execution (if applicable), and reporting and to handle those complaints in a timely manner.
  1. Capacity Review: Forex Brokerage’s should adopt and enforce written procedures to regularly evaluate the capacity of each electronic trading system and to increase capacity when needed. The procedures should also provide that each system will be subjected to an initial stress test. Such test may be conducted through simulation or other available means. Capacity reviews should be conducted whenever major changes are made to the system or when the Brokerage projects a significant increase in volume which should occur at least annually.
  1. Disaster recovery and Redundancies: A Forex Brokerage should have contingency plans reasonably designed to service customers if either the system goes down or activity exceeds reasonably expected peak volume needs. The Brokerage should use redundant systems or be able to quickly convert to other systems if the need arises. These backup systems can include facilities for accepting orders by telephone.
  1. Advance Disclosure: A Forex Brokerage should disclose, in advance, the factors that could reasonably be expected to materially affect the system’s performance (e.g., periods of stress) and the means available for contacting the customer during a system outage or slow-down. This disclosure should be provided to each customer at the time the customer opens an account using a method reasonably calculated to ensure that the customer becomes aware of it.
  • Difficulty Precautionary: When operational obstruction occurs, A Forex Brokerage should provide prompt and effective notification to any customers affected by the operational difficulties. Notification can be made by a number of methods, including:
  1. Message on the Brokerage website.
  2. e-mails or instant messages.
  3. Recorded telephone message for customers on hold.
  4. Recorded telephone message on a line dedicated to providing system bulletins to existing customers.
  • Credit and Risk-Management Controls:
  1. General Standards: AForex Brokeragewho handle customer orders must adopt and enforce written procedures reasonably designed to prevent client’s from entering into trades that create undue financial risks for the Brokerage or the Brokerage’s client’s. Regardless of its business model: (dealer or straight through processor), a Forex Brokerage must also have policies and procedures in place to monitor its own proprietary trading, including open positions, and the impact those positions and any potential market movement or adjustments may have on the Brokerage’s ability to meet its capital requirement.
  1. Account Controls: An electronic trading system should be designed to allow the Brokerage to set limits for each customer based on the amount of equity in the account or the currency, quantity, and type of order, and the Brokerage should utilize these controls. The system should automatically block any orders that exceed the pre-set limits.
  1. System Control: An electronic trading system should also be designed to identify trading anomalies or patterns that indicate a system malfunction, especially a malfunction that could result in undue risk to the Forex Brokerage.
  • Recordkeeping:
  1. General Standard: A Forex Brokerage who handle orders must adopt and enforce written procedures reasonably designed to record and maintain essential information regarding customer orders and account activity.
  1. Profit and Loss Reports: Electronic trading platforms should be able to produce upon request a report showing monthly and yearly realized and unrealized profits and losses by customer. The report should be sortable by the person soliciting, introducing, or managing the account.
  1. Daily Trade Records: Each Forex Brokerage should examine daily electronic report of trades, the report must contain the following data:
  1. All order transaction records on a daily basis.
  2. A list of executed trades on a daily basis.
  3. A list of all money managers on the first day of reporting, with any changes being reported daily.
  4. A list of all price adjustments made by the Forex Brokerage on a daily basis.
  5. A list of any unusual events, such as a system outage or “fast market” on a daily basis as applicable.
  1. Assessment Fee Reports: Electronic trading platforms (Ex: Metatrader 4) should generate month-end assessment fee reports for a Forex Brokerage. The report should summarize the number of forex transactions executed during the month and the size of those transactions.
  • Trade Integrity:
  1. General Standard: Forex Brokerage’s must adopt and enforce written procedures reasonably designed to ensure the integrity of trades placed on their trading platforms.
  1. Pricing: Trading platforms must be designed to provide bids and offers that are reasonably related to current market prices and conditions. For example, bids and offers should increase as prices increase, and spreads should remain relatively constant unless the market is volatile.Furthermore, if an Forex Brokerage advertises a particular spread (e.g., 1 pip) for certain currency pairs or provides a particular spread in its customer agreement, the system should be designed to provide that spread.
  1. Slippage: An electronic trading platform should be designed to ensure that any slippage is based on real market conditions. For example, slippage should be less frequent in stable currencies than in volatile ones, and prices should move in customers support as often as they move against it.
  1. Settlement: An electronic trading platform should be designed to calculate uniform settlement prices. A Forex Brokerage must have written procedures describing how settlement prices will be set using objective criteria.
  • Rollovers: If an electronic trading platform automatically rolls over open positions, the trading platform should be designed to ensure that the rollover complies with the terms disclosed in the customer agreement, including those provisions dictating how the rollover price is determined. A Forex Brokerage should adopt and enforce a written policy detailing the procedures it follows to calculate rollover or interest charges and payments. The policy must include the factors that are considered as well as the names of any sources for these factors.
  • Periodic Reviews:
  1. Review: ForexBrokerage’s should conduct periodic reviews (at least annually, but more frequently if the circumstances warrant a more frequent review) of any electronic trading system it utilizes. This review should be designed to:
  1. Assess the security of the electronic trading system.
  2. Assess the reliability of the electronic trading system’s credit and risk-management controls.
  3. Ensure that the electronic trading system maintains required data and is capable of generating the reports required by this Notice.
  4. Ensure that the electronic system protects the integrity of the trades placed on it and executes customer forex orders in a fair manner.
  5. The Brokerage must prepare a report of the periodic review, noting the scope of the review, any findings and corrective action and maintain a copy of the review for future purposes. The results of this review should be reported to the firm’s senior management, including the Forex Brokerage Chief Compliance Officer (CCO), and any follow up should be recorded and signed by senior management.

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