Hello again from Boston Technologies’ HQ. I’ve reviewed again this post and I’d like to add a few comments about what we’ve done to help build better brokerages, and talk about an additional tool we have brought to the market to increase transparency for the trader.
To begin, Boston Technologies is a technology partner, we do not trade and only offer liquidity through our affiliate, BT Prime. We offer MT4 to brokers via an ASP delivery model, lowering the barriers to entry for individuals, like Damon, who desire to build better brokerages.
BT Prime was founded to provide a competitive source of liquidity for nascent brokerages. BT Prime uses a price aggregating software technology to monitor the best Bid and best Offer from 6 major banks that make markets in retail FX, and present this executable price to the brokers. As Damon pointed out, neither Boston Technologies nor BT Prime have any management interest in the brokerage that we help launch, so the type of business model they chose, market maker, pure STP or some hybrid, is their decision.
The advantages to the trader of a brokerage using a Prime Broker such as BT Prime are such:
1. The trades sent to the market from the broker completely hide the traders’ identity or strategy. BT Prime sends trades to the market from dozens of brokers and institutional trading accounts. Beyond the additional layer of anonymity, traders are opening positions with the best current Ask, and closing on the best current Offer (or vica-versa), as such, there is no way for the liquidity providers (LPs) to distinguish a “winning trade” and as such thwart it retroactively. It may be that Trader A from Brokerage 1 opened a position on EUR/USD and Trader B from Brokerage 2 closed it minutes later, as far as the LP is concerned. All the while, Trader A and Trader B are trading along according to their strategies, and as such, their positions may still be open.
2. The broker is empowered by its relationship with BT Prime to participate in tighter spreads, and should a bad tick occur, to request reconciliation from the bank with the leverage of 50 brokers on their side. In turn the broker can pass any benefits along to their traders.
Here at BT we also provide a product call Depth of Market plugin, as a trader you can ask your brokerage to provide this capability. And yes, they must be a client of BT Prime to use it, and here is why: the plugin shows all the bids and asks reaching the BBO system in real time, with the available liquidity at that price. For a broker, it enables them to prove that there are multiple sources of liquidity behind their quotes, and it eliminates the perception of slippage on large orders, as the “second book” price is clearly displayed, and the fill the trader receives is a straight forward average of the volume purchased at each level.
Finally, I would like to address the issue of disclosing the Terms of the Agreements with liquidity providers. Ultimately, online retail trading is inherently risky for the trader. Let’s have a look at the major players, leaving out utilities that keep the power on, and force major: Market Maker, Trade Server Application Provider, Prime Broker, Brokerage, Internet Service Provider, retail traders’ old laptop. Clearly there are many potential fail points, and each business along the chain is going to protect their business as best they can against risk. Ultimately, the trader is left with the most risk, as they are using a service that many other people are using, and that is being provided at great expense and risk by a number of companies. I suppose that’s why this string is titled, “Can we build a better broker?” and not “Can we build a perfect broker?”
Thanks for reading, please don’t hesitate to contact me offline if you have additional questions.
Ian Danielson
Business Intelligence
Boston Technologies
Skype: iandanielson
idanielson@bostontechnologies.com