“A new industry is growing within our industry. It's an event that occurs once every 10 years,” Ran Strauss, the Co-Founder and CEO of Leverate, told Finance Magnates, from the company’s headquarters near Tel-Aviv, mentioning the recent boom in the prop trading industry. Highlighting the challenge posed by the dominance of MetaTrader trading platforms and its stringent licensing policies, he referred to this trend as "the rise of platforms."
“That's really amazing," Strauss stated. "We have a true opportunity to showcase our products and offerings, and things that we have been working on so hard for so many years now. We have a very aggressive road map.”
How It All Began
Leverate, which has been in existence since 2008, offers technology to financial services companies, especially brokers, in offering trading with forex contracts for differences (CFDs) and crypto. It entered the prop trading space last year with the launch of a specific turnkey solution.
“We have been following the prop industry since 2022,” Strauss disclosed. “We saw sales leads asking for a product in a new category, but had no idea what it meant. After 6 to 12 months, we saw that it was steady and growing and started to plan for it and decided to build a product.”
“I'm sure that 2024 is gonna be a very strong year for prop trading firms. This is why we also put a lot of resources into it.”
The prop trading industry has boomed in the last few years. Although there are only a few big names in the space, there are more than a hundred, if not more, prop trading firms presently in operation.
Further, the recent alleged crackdown by MetaQuotes on the use of its platform by the unregulated prop trading firms have created an opportunity for other trading platform providers. Although MetaQuotes did not officially confirm, multiple prop trading firms and brokers publicly stated that the technology provider forced the termination of the use of its MetaTrader platforms for onboarding US-based clients by the unregulated prop trading platforms.
In a span of a couple of weeks, multiple brokers restricted or terminated grey-labeling MetaTrader licenses to prop trading firms, creating a major disruption in the industry. These prop trading firms were forced to look for MetaTrader alternatives to operate within and outside the US.
An executive of another trading platform, Devexperts, a provider of trading platforms earlier disclosed that it "signed and launched" a dozen companies in only five business days as prop trading companies were rushing towards MetaTrader alternatives.
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Today, MetaQuotes decided to abruptly halt services, due to…
And, how well did Leverate do? Mentioning the growing demand for tech, Strauss said: “In the first two months of 2024, we had more than 30 brokers going live with Leverate. That's quite an impressive number for us."
"A Huge Shift of Brokers"
The aggressive growth in the industry pushed Leverate and other similar technology providers to enter with prop-specific products.
“Leverate is one of the few companies that can offer everything under one umbrella,” the CEO stressed. “We offer technological products, a trading platform, and regulated liquidity at the same time. We are extremely open to any mix and match: companies can come to us and integrate a broker partner or take only the dashboard or the trading platform.”
However, the sudden disruption is not confined to the prop trading industry. The entire brokerage industry is witnessing a disruption in technology demand, mostly a shift from the dominance of MetaTrader.
"Just a few years ago, most of the market was dominated by one platform," Leverate's CEO said. "Consequently, approaching a broker and suggesting different platform posed greater difficulty. However, today, brokers are constantly switching, and they're all open to discussing additional trading platforms."
"We saw a huge shift of brokers that are looking for additional trading platforms... Brokers were in a hurry to save themselves. They needed a trading platform the next day." Hinting at the elephant in the room, Strauss added: "I think that it's very clear now: the popular platform for prop trading will not be the most popular trading platform in the world."
I have tried cTrader and MatchTrader in the last few days and I have to say that each platform has many flaws. MetaTrader 4/5 was also far from perfect and people got used to it.
— ImperfectTrader (@ImTraderFX) March 15, 2024
Only those who adapt will survive.
A Fixed Price Model
When it comes to integrating third-party tech, price matters. Many companies in the prop trading space operate in a revenue-share model; although this can save money in the beginning, it can turn out to be very costly when the operations scale. Leverate, on the other hand, offers fixed-price products.
“The price proposal is usually generic but based on size and volumes of trading, putting the companies into a specific category,” Strauss said. “Usually, the best indicator is the number of accounts.”
Although the fixed cost might vary, Strauss revealed that it can be in the range of $3,000 to $10,000 a month, “more or less.”
"Some companies offer technology at a fixed price of $3,000 for unlimited use. I think such a company cannot give a proper service," the CEO of Leverage added. "On the other side, I think that companies that are asking for $20,000 do not price themself in the relevant range that the market is looking for."
"Non-Regulation Would Have a Dramatic Impact"
The prop trading industry is not regulated at this moment. They do not handle clients’ money for investment or trading like a broker, so the existing rules in place for brokerages across the globe would not apply to these prop trading platforms.
Prop trading platforms sell the so-called “trading challenges” and then provide funded accounts to the traders who passed those challenges. Further, most of the trading, even on funded accounts, takes place in demo accounts.
According to Strauss, regulations for prop trading firms should mandate the display of the success rate of challenges, which will be “equivalent to the numbers of clients losing money with brokers.”
“Regulators must minimize and monitor the conflict of interest between a prop trading company and the client,” Strauss added. “It is extremely important to make sure that prop trading firms are managed in the right way. They must not provide investment services unless they are regulated as investment firms.”
“If we don't see regulations soon for prop trading firms, it's going to hurt the industry in a very dramatic way.”
"We Reject 10 to 15% of Signed Deals"
While tech providers do not fall under the regulatory purview, they often face many business challenges. Earlier, FPFX, a technology provider, ended its contract with a prop trading firm, publicly alleging fraudulent practices.
"I think that's something we have encountered many times in the past, It's not new," Strauss stated about the overall cases of fraud faced by technology firms. Although he stressed that he does "not know the whole story" about FPFX and the prop trading, he, nevertheless, never saw something as "bold" as FPFX going public with its contract termination.
No one, including technology providers, wants to do business with a shady company. And, such risks become higher in a space without any regulation, like prop trading.
Strauss revealed that before closing a deal with any prop trading firm or other company, Leverate does “mandatory, proper background checks.”
“Since trading technology is not regulated, every company should implement its own mechanism guidelines and supervision,” he added. “I'm very proud to say that we are probably among the companies that are most strict relative to others.”
“On a monthly basis, we reject around 10 to 15 percent of deals that are signed. These are companies that decided to work with Leverate,” Strauss said. “Once a company submits everything and we understand that it does not meet criteria, we do not work with such a company.”
