A summary of the iFX EXPO International discussion panel- From Ripples to Tsunamis: Riding the Waves of Liquidity

Despina Savvidou, our Chief Risk Officer, took part in the discussion “From Ripples to Tsunamis: Riding the Waves of Liquidity” during the iFX EXPO International, which took place in Limassol last month. Along with Despina, other experts appeared in this panel, including Michal Copiuk, the CEO of X Open Hub, John Murillo, the  Chief Dealing Officer at B2Broker, and James Alexander, the  CCO of 26 Degrees. The discussion was moderated by Mohammad Isbeer, Global Head of Brokerage Sales at Equiti Capital.

In this session,  discussants exchanged opinions on various topics such as what is a “golden rule” when investing in technology, what are the main threats facing the gold market, and what conditions should be provided to key employees.

We encourage you to watch the entire discussion or read the summary below!

Very low volatility period

Mohammad started the discussion by asking about low volatility and how it affects the brokers. Panellists agreed that record low volatility forces brokers to hedge more than in past years; however, from a broader perspective, this is not a surprising phenomenon given the characteristics of volatility. James Alexander noticed that the last years were packed with important events like the COVID pandemic and post-global financial crisis restrictions when interest rates were crushing. Volatility has been unusually good, and paradoxically, the current state can be called normal. According to James, the decrease in volumes experienced by brokers could get even worse, and to help them, providers should propose products that allow for differentiated hedge strategies. John Murillo added that the volatility will remain low for a long time, but it does not mean that all the brokers are hedging more than usual; on the contrary-  some of them tend to internalise even further. Hope for liquidity providers may lie in an individual approach and an innovative, tailor-made offer, which reflects the situation in the retail market. Michal Copiuk stated that professional brokers should always be prepared for a bad market, and there was plenty of time in the past to get ready for the current situation and adjust business models that are not too conservative but also not too risky. Those models should consider various scenarios and be workers out; companies have to be ready for multiple different occasions if they want to survive the awaiting storm.

Gold market

Despina started this part of the discussion by outlining a broader picture of the gold market situation in recent months. She stated that lately, there was an unusually high demand from brokers, as it was viewed as more predictable than other assets. According to our Chief Risk Officer, gold was affected by various factors, like central banks’ policies, inflation, and geopolitical tensions, but brokers could still make a profit using the right technical analysis. Michal Copiuk noticed that the problem was broader and concerned multiple instruments that tend to be illiquid in certain periods during the day, especially in the evening, which is caused by gaps between working hours on the biggest markets. According to Michael the solution to this problem is for brokers to find an appropriate liquidity provider with sufficient funds and access to the real market. Mohammad drew attention to the problem of the lack of connection between retail brokers and liquidity providers when it comes to the perception of liquidity for the most demanding instruments, such as gold. He asked the panellists for their opinion on that, and James Alexander stated that the main problem is that retail brokers assume there is much more liquidity in the market than there actually is and that the reason for that are liquidity providers competing with each other for their part of this potentially very lucrative market with artificially low spreads. He also stated that Credit Swiss’ exit from the metals market will increase caution among other liquidity providers and that this might be the right reason to reprice, which will immediately hit the remaining market and might change the broker’s attitude towards it. John Murillo emphasised the huge role of customer education and the importance of understanding market conditions by the end user. All panellists agreed that the right technology should facilitate an understanding of the market situation.

Investing in technology

Mohammad introduced another topic of discussion by showing how intensively companies have invested in technology like pricing engines, risk management strategies, smart hedging, etc., over the last decade – at first tier 1 banks and hedge funds, but now also institutional and retail brokers. At the very beginning, Despina emphasised that the most important technology feature for brokers should be its scalability so that the solutions can grow with the business and not block its development; she also mentioned choosing trusted and proven providers that could share their knowledge regarding risk analysis tools. She then shared her thoughts on offloading the risk and explained that at Match-Prime, we use routing engines that transfer the flow to external providers, and we offer this in-house-built functionality to our clients as well. Michal Copiuk added that it is important to offer risk monitoring tools based on the company’s own experience in retail operations so that brokers can benefit from similar solutions that providers’ trading and dealing departments use every day. The panellists confirmed that their clients are becoming more and more professional; they often use technological solutions that were not available to them until recently, and this is an unequivocally positive trend that is developing the market. James Alexander mentioned that apart from the technology per se, another key factor would be knowing your partners’ limitations, understanding their situation and establishing contact with a “common language”. Otherwise, there will be misunderstandings that will affect the quality of cooperation, as he showed in his example of flexible flow and how both parties can benefit from it. In his opinion, it is impossible to create a good technology without in-depth knowledge of how its partners operate. John Murillo added that the quality of human resources also has a huge impact on technology and its proper use, and ultimately it depends on employees whether it is worth developing some solutions within the organisation or whether it is better to buy something already used on the market.

Quantum era talents

Next, the panellists moved on to the topic of talent acquisition in the era of quantum mentality. The discussion was started by James Alexander, who stated that there has recently been a big problem with recruiting new employees with appropriate skills. He also proposed two solutions used in his organisation – early talent acquisition and high monetary gratification. A big challenge for companies is to create a space where the best talents will want to work and find opportunities for further development. When signing a contract with young talents, one should have a plan for them and be open to their suggestions. Building a team which employees don’t want to leave is, according to James, the best way to retain the most valuable minds within the organisation. John Murillo agreed with the previous speaker, stating that this is currently one of the most difficult challenges on the market. According to John, the problem is not only acquiring talent but also proper motivation and working on their mentality within the team structure and the entire company. He shared his experience that inappropriate positioning wastes enormous talent and suggested that structures should be carefully built to avoid this scenario. Michał also added that it is a matter of what level of business development the company is at – not everyone needs the greatest quant talents, and sometimes it is better to invest in an analytical team or allocate the budget for something else. He compared it to the development of technology – not everyone needs to build their own tools, and many companies are satisfied with ready-made solutions available immediately.

Advice for brokers

The last part of the panel was the advice given by the panellists to brokers. The advice included taking the time to understand what level the business is at, being able to assess its needs and not over-investing when you can use proven solutions available on the market. The next piece of advice concerned preparation for a crisis – the panellists noted that another black swan is only a matter of time, so you need to carefully build your organisation in such a way that it is as resistant as possible. This means refining your balance, adopting a more conservative approach, and carefully selecting the counterparties you work with so that your ecosystem is also prepared for more challenging times.

Riding the waves of liquidity

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