How Brokers Can Differentiate Themselves

This article was written by Steve Nauta, co-founder of Daticks.

It’s a tough time to be a broker. With the cost of customer acquisition, and the virtual sameness of brokers, it’s hard to really thrive being a broker.

As if those two things alone don’t make it tough enough to be a broker, you have to factor in

- the saturation of the market

- the ease of becoming a broker with MT4 and similar products

- the increased savviness of traders

- the connection speeds of High Frequency Traders

- the increased regulations by U.S. and other regulatory bodies

These are just some of the main concerns. You also have to consider Risk Management Risk Management One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, Read this Term, decreased spreads, and so much more.

Ways that brokers have differentiated themselves historically

A broker must differentiate themselves from other brokers. What makes you better? What makes you deserve my business?

At the brokerage where I worked, we claimed to have superior customer service. Maybe, we did, but probably not.

I remember the experiment with guaranteed stops. You know. Everyone gets their price on stop orders. That lasted until the first non-farm number came out. After losing millions in minutes, most brokers decided something needed to change.

For a while, lightning fast order execution was a differentiator, but now, everyone has pretty fast execution. Do retail customers really need microsecond fills? No, they really don’t.

My favorite is the 'no dealing desk' broker. How does that work exactly? Who gets the orders if not a dealing desk? Who manages the risk? Who does the customer call? I’ve heard that customers would call the customer service people (who typically can’t answer dealing questions)…then, when they can’t answer a question, the customer service person will transfer them to a dealer/trader. Wait! I thought there wasn’t a dealing desk!

All of these things are attempts by brokers to differentiate themselves. All of these things are gimmicks that are easily imitated.

New ways to differentiate

How does a broker differentiate themselves now? It seems like everyone has the same offerings. Advance charting with every indicator under the sun. Check. MT4. Check. Instant execution. Check.

In my opinion, there are a couple ways for a broker to really differentiate themselves:

1. Care

2. New Product/Offering. Offer new products that help your customer be better traders.

3. First to Market. Be the first to adopt products that help your customers.

4. Niche’. Be the best at one thing…the thing most important to your target market.

5. Do What You Do Best. Farm out the rest.

6. Gamify your offerings in a way that shows you care.

Care

In today's world of ZIRP and NIRP, people are looking for ways to make some money from their hard-earned money. If you can help them be more profitable, that will go a long way to making a life-long customer.

Caring about your customer goes way beyond any of the other suggestions. It infiltrates every part of your business, and it emits a fragrant odor that will attract customers. All of the other suggestions, for differentiation, start here.

Care. It seems like a simple thing. It’s not. It requires more time, energy, money, and attention to detail, but you will be rewarded over time. It will require you to build better products. It will require you to do things differently as a broker.

You will find that you have better customers. And those customers, they will be your best advertisement. Your best PR.

New product/offering

The idea here is offering something new. Something that changes the way people trade…for the better. Something that helps people trade better and make more money.

Easy right? Coming up with something new and revolutionary can be hard. Most brokers don’t have the time or money to spend on brainstorming for new ideas…not to mention the time it takes to develop these new ideas.

Still, if you are making an effort to help your customer, it will be worth the effort. You can’t go wrong in helping your customers.

First to market

You can’t always provide the ingenuity to your customer, but you can be an early adopter of products/services that help your customer.

Partner with other companies that can provide you the creativity and ingenuity customers want and need. You don’t have to jump at every new product, but if you can find key ones that are trying to help the customer, the benefits can be exponential. The key is to jump on new products that help customers improve their trading.

Niche

This is kind of the movement the last couple years. Focusing on something that helps traders, in your target market, can be a huge step in getting you significant market share.

I’m thinking of a stock broker that has a couple things that they do really well: API and low commissions. They haven’t always had the easiest product to use (although it’s easy for veterans), but their low commissions and ease in connecting via API are huge for their target market.

Maybe, you have the best technology, lightning fast trade execution, or the ability to easily connect any outside plugin or API. It can really be anything, but it must provide a solution to a good portion of the trading community…especially the portion of the market you are targeting.

Focus on what you do best

There are a lot of things that go into running a brokerage. Stick to what you do best. Everything else can be handled by someone else.

Maybe, handling risk isn’t your thing. Don’t do it. Let someone do it for you.

How about compliance? There are people, and firms, that know compliance in and out. Trust them to do it for you.

You can always take these things over later if you want to, but to get started, why not let someone take the stress out of your business for you.

Rewards

Offer rewards like other industries offer. Find a way to do a friends and family. Some brokers offer contests, but can you gamify it in a way that shows you care? Sure you can.

Let’s touch on contests for a moment. Traditionally, brokers have used contests to attract new customers. Most contests are won by traders that have over-margined their accounts. Their success cannot be duplicated on a demo system, not to mention the live market. This is not helping your customers, and it is not helping your business.

There is a balance of rewarding your customers with a contest while still helping them trade better. You can do this by making payouts on your contests based upon risk adjusted return, instead of overall return.

Conclusion

In trading, specifically Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term trading, traders often think it is traders versus the brokers. This can lead to a combative relationship with your customers. However, could you make a significant improvement on that relationship by helping the traders improve?

Can traders call in and not fully understand the market? Yes. Can traders get frustrated about losing money on a trade and post something on a chat forum blaming you? Yes.

Often the most frustrating thing for a trader is not understanding. Sometimes, they don’t even know what it is they don’t understand.

How are you going to handle that? Can you step in and provide understanding? Does this take time? Certainly, how would you want to be treated if the roles were reversed? That is how to figure out how to help people and how you can know that you are truly caring for your customers. That is the differentiator.