If you are a financial trading broker and you are not yet changing your tactics and adapting to the recent changes in regulatory measures, I am sorry to tell you that you have sentenced your brokerage to death by comfort. There is simply no way for brokerages to continue conducting business as usual with the current landscape of the FX and Binary Options industry and if you haven’t figured that out yet, you need to be freaking out. Plain and simple.
Up until now, the FX and BO industries have welcomed brokerages of all sizes that with not much more than a few bucks and an idea, hire a call center and design a marketing and sales strategy based on high bonuses and low commissions with little regards for customer satisfaction.
Along comes CySec, the FCA and other regulatory bodies, and in an attempt at exercising over-protectionism of consumers in response to negative press about aggressive sales tactics causing traders to lose their life-long savings, establish blanket penalties that affect not just those unregulated brokers with little to no regard for the public’s safety, but also the good, ethical brokerages that make an effort to abide by the law.
And so for the past year or two, a new course has been set for the financial trading sector, one that in the short term will hurt many brokerages, but that in the long-term, will benefit the industry as a whole. The gaming industry has already seen these changes happen and has Andy Dufresne’d its way through them (you know, it has crawled through 500 yards of sewers, only to come out the other side clean as a whistle.) In many ways, the Forex industry follows the footsteps of the gaming industry and if brokerages manage to adapt to the current changes in regulation, they too will be able to crawl through crap and come out cleaner and stronger, as part of an industry that receives higher respect and trust from clients.
How then can brokerages adapt in order to survive these challenging times?
Counteract the leverage cap.
High leverage levels cause traders to cycle through higher amounts of their funds than if they were trading without leverage thus helping increase a brokerage’s trading volume. These higher volumes benefit the brokerage in the short term, especially binary options ones since it is losing trades that make them the most profit. In the long run however, a lower leverage means less traders will blow up their accounts, which would bring about happier traders and therefore a higher lifetime value.
Increase volume with Social Trading.
There is one solution that can help brokerages avoid having to choose between short term revenue and long term loyalty, and that is social trading. To compensate with the hard cap imposed on leverage levels, which affect the initial reduction of volume traded, brokerages can promote the use of social trading tools, which in essence will have traders cycling through their funds at a faster pace as they copy more masters. While leverage has traders cycling through higher amounts of money, social trading increases a brokerage’s volume at a faster pace.
Deal head on with the ban on bonuses.
Bonuses have traditionally been the main and most successful way of acquisition for FX and Binary brokers. As the market has become more competitive, a trader’s loyalty has been to the highest paying brokerage and this new ban on bonuses most certainly puts brokers in a bit of a bind. While it will be challenging in the short run, brokers should take this as an opportunity to get creative in the way in which they reward their customers. Consult with your legal counsel as to how you can compensate traders within the frame of the new law. You should also use this time as an opportunity to focus on real value; being unable to provide bonuses should push you to pay attention to customer service, thus building long term relationships with traders, a benefit that will far outweigh an initial deposit.
If you asked a trader today the name of the last three brokerages they did business with, they will most likely not know their name. That is because differentiation in the Forex and Binary Options sector is as low as it gets. Most brokerages have a branded version of the same white labeled platform, they all use the same selling tactics, sounding the same on the phone, and they offer the same bonus structure and high leveraged accounts. You can’t blame a trader for not being able to tell broker A from broker B. People tend to change the most when faced with challenges. Use this challenge to revamp the face of your brokerage and differentiate yourself from the competition in your spreads and commissions, in the types of promotions you launch, in the way in which you conduct business.
By optimizing and automating your brokerage’s conversion process, you can shorten the time it takes to convert a client, reduce your sales staffing needs and increase your reach, all things that will put more money in your pocket. More money in your pocket should translate into broadening your marketing strategy.
Up your service.
When people find that they can’t throw money at a situation to fix it, they opt for being nice. Brokers can begin following this principle and focusing on providing above standard customer service to their traders, as opposed to giving them higher bonuses to keep them engaged. A more satisfied trader translates into higher lifetime value, which means higher profits long term. You can begin by rewarding sales agents who go above and beyond for their customers, as much as you reward those who bring in deposits.
With the new changes in regulation, and more that are surely to come, in order to succeed, brokers will need to differentiate themselves with a solid brand, satisfied customers and a great product. Take this challenges as a chance to shine and become an everlasting brand that customers talk about and recommend to their friends and family.