The strategies to manage risks have changed drastically for brokers. A-book and B-book models are still at the core of risk management, but many are focusing on hybrid models. In a Finance Magnates London Summit (FMLS:23) panel discussion moderated by Anya Aratovskaya, the VP of Institutional Sales & Marketing at Advanced Markets, industry experts offered valuable insights for company executives navigating the complex world of risk management in the retail forex market.
Hybrid Risk Management Takes Center Stage
The traditional A-book and B-book models where brokers either take the opposite side of client trades or act as intermediaries, face increasing competition from hybrid approaches. As Maria Pittashi, the General Manager at PLUGIT, pointed out: "One of the things that people are finding out is that you know everybody knows the full sort of shortcomings of both [A-book and B-book models], and what we pitch sort of is a hybrid model to do sort of in the middle." These hybrid models allow brokers to tailor their risk management to different client types and instruments, offering greater flexibility and potentially mitigating risk.
Accurate pricing and data analysis are crucial for effective risk management in today's dynamic market. Nick Serff, the Senior VP of Trading at Exinity Connect, emphasized: "There is not really one answer for every broker, and every broker sort of has to customize for every kind of client for every currency instrument right kind of their own." Brokers can significantly improve their risk management strategies by leveraging data to understand client behavior, optimize pricing, and make informed decisions about client placement and hedging.
Nick Serff, the Senior VP of Trading at Exinity Connect stressed that while AI can be a valuable tool for analyzing vast amounts of data and identifying patterns.
As Drew Niv, the CEO at TraderTools, highlighted: "The super narrow price is good for small clients this is not good for large clients right so we how people do their pricing, and then obviously the third component how do you hedge it," adding that human expertise remains essential for interpreting data and making strategic decisions.
Hybrid Model Is the Future
Brokers running internalization models managing client orders internally without going to the broader market must be particularly aware of concentration risk. This risk arises when many clients are positioned in the same direction on a particular instrument. Additionally, the cost of offering swap-free accounts, which eliminate rollover charges for holding positions overnight, has changed significantly in recent months. To avoid compromising profitability, brokers must factor this into their pricing and risk management strategies.
Niv concluded: "I think the hybrid solutions of risk management is something that a lot of brokers are definitely looking into. It is a must to keep up with the times, and as we say, risk management itself is also evolving."
Tools like dynamic margin engines and AI-powered analytics empower brokers to manage risks proactively. Angelos Gregoriou, the CEO and Co-Founder at Dynamic Works Syntellicore, emphasized the broader risk landscape: "There are many other risks obviously in a company in a brokerage other than the dealing related risks. We've seen and experienced risks from the inside of the company from the staff." Technology helps address these internal and external risks.
Effective risk management is no longer an option for retail forex brokers but a critical necessity for survival and growth in the competitive market. By adopting the strategies and insights discussed by the experts in this panel, company executives can equip their brokers with the tools and knowledge needed to navigate the ever-changing landscape, optimize their operations, and build sustainable businesses in the years to come.
