Experts on B2C vs B2B brokerage at Dealers Connect 3.0

Last week, Dealers Connect 3.0 became the focal point for groundbreaking discussions on the future of FX trading.

Hosted by Your Bourse and Yourfintech, the event was aimed at FX dealers from Cyprus and beyond, and designed to facilitate networking, knowledge sharing, and professional development within the FX dealer community.

This exclusive gathering, which attracted 200 attendees, took place on February 29, 2024, at La Caleta restaurant in Limassol, offering a variety of engaging activities such as a panel discussion, an open bar, a buffet, a shisha lounge, and DJ music to create a conducive atmosphere for relaxation and networking.

Among the event’s highlights were the engaging insights shared by Elena Pedersen of Your Bourse and Roman Garanin of Yourfintech. Addressing two critical questions posed by FinanceFeeds, these industry experts dissected the intricacies of liquidity provider (LP) selection and the nuanced distinctions between B2C and B2B risk management strategies.

How to Choose a Liquidity Provider?

Elena Pedersen initiated the discourse focusing on the primary concern of ensuring gapless pricing from liquidity providers. This fundamental aspect sets the stage for deeper scrutiny, ensuring that brokers start their LP evaluation on the right note.

Roman Garanin broadened the scope, emphasizing that pricing serves merely as the initial indicator. He advocated for a comprehensive evaluation encompassing execution quality, overnight rates, and adaptability to diverse trading strategies, painting a holistic picture of what truly constitutes a high-quality flow from LPs.

Further elaborating on the criteria for selecting LPs, Elena highlighted the importance of monitoring fail and rejection rates. These metrics emerge as crucial indicators of an LP’s reliability, offering tangible evidence of performance beyond the attractive numbers often presented upfront.

Roman Garanin raised a critical flag regarding the eagerness of LPs to accommodate any request. He cautioned attendees about the potential pitfalls of such willingness, urging a critical assessment of LPs’ business models to ensure their promises don’t compromise the quality of service or lead to undesirable outcomes. “Every liquidity provider seems eager to fulfill any request. However, once collaboration begins, execution quality, pricing, and trading conditions often shift. A significant red flag is when a provider is too willing to meet all requests in a desperate bid for onboarding, prompting us to question their monetization strategy.”

Addressing specific industry trends, Elena pointed to the unsustainable practice of offering swap-free accounts for B2B transactions. This example served as a cautionary tale, illustrating the misalignment of certain offerings with the market’s financial realities.

How different is risk management in B2C and B2B?

The conversation transitioned to the core differences in risk management strategies between B2C and B2B operations. Roman detailed the unique challenges faced by institutional brokers, who must manage a vast array of trading flows without the luxury of client profiling available in retail brokerage. This complexity necessitates a nuanced approach to exposure assessment, underscoring the critical nature of understanding these differences.

Elena advocated for exposure-driven pricing strategies in B2B operations, highlighting the departure from recycled price feeds common in the retail market. This approach ensures that pricing reflects the underlying risk and exposure profile, aligning with strategic financial management. “The brokerage industry, especially in retail, is predominantly B-book dominated. Many liquidity providers attempting to transition into B2B overlook the importance of managing exposures.”

Roman concluded the dialogue by spotlighting the pervasive issue of financial literacy among brokers. He underscored the fundamental misunderstanding of how various offerings impact P&L, advocating for a grounded understanding of basic mathematics as the cornerstone of effective risk management and dealing in FX trading. “The essence of risk management and dealing lies in basic mathematics. Understanding simple arithmetic ensures effective risk management. Without this knowledge, pursuing exposures and client onboarding without a sustainable strategy leads directly to potential disaster.”

“Surprisingly, many brokers do not grasp that their revenue is fundamentally the product of volume and spread. They mistakenly equate deposits minus withdrawals with their revenue, neglecting realistic swap charges. Despite the availability of tools, the critical factor is understanding how to utilize them effectively,” Elena added.

Your Bourse and Yourfintech hosted Dealers Connect 3.0

The insightful exchange at Dealers Connect 3.0 between Elena Pedersen and Roman Garanin illuminated key aspects of FX trading, from LP selection to risk management nuances.

Your Bourse is recognized for its sophisticated software solutions catering to both retail and institutional MT4/MT5 brokers, showcasing a significant increase in client usage and trading activity, as evidenced by their reported record monthly trading volume of $1.08 trillion for December 2023. The company has marked significant growth and achieved key milestones in 2023, offering services such as a Matching Engine, Bridge Solutions, liquidity aggregation, and a FIX server for liquidity distribution​​.

Yourfintech complements this by providing technology and advisory services for both traditional brokerage and crypto businesses. They offer a comprehensive range of services designed to support the launch and operation of businesses, including turnkey brokerage solutions, crypto provider solutions, trading platforms WL, CRM, and 24/7 administration, maintenance, and risk management​​.