Exclusive FNG interview… Gold-i, one of the pioneers of crypto trading technology, is seeing an increase in interest from retail brokers looking to add cryptocurrencies to their offering. Gold-i CEO Tom Higgins talks to FNG about shifting attitudes and why it’s easier and more cost-effective than ever for brokers to offer cryptocurrencies to clients.
FNG: Hello Tom. Brokers have been aware of the opportunity to add cryptocurrencies to their offering for a long time. Why are you seeing an increase in interest now?
Someone: I think brokers liked the idea of offering crypto before, but it wasn’t that easy to do – the options weren’t that enticing. They could either open with an Exchange, which probably wouldn’t be allowed on any regulated broker. They could B-Book cryptos and get a price feed, which they didn’t want to do because of the volatility. or they could choose a third-party liquidity provider that could provide crypto.
Many traders chose this third option, but the spreads were quite wide, there was not much market depth and there was only a small selection of currencies. This option did not appeal much to brokers who wanted to offer a wide range of currencies, with tight pricing and deep liquidity. They waited until the market matured and a more suitable option became available.
The collapse of FTX and the scandals at Binance triggered this change, resulting in a greater emphasis on risk management, particularly by separating custody and risk diversification.
Now brokers usually have an aggregate feed consisting of different venues and market makers or different exchanges and ECNs. This gives them the best depth, the best spread and the best set of coins. And it is precisely at this point that we focus our technological construction – on our own MatrixNET which facilitates this by allowing clients to access deep liquidity from multiple exchanges and market makers, spreading risk across multiple counterparties. We have seen larger brokers get their own aggregate feed or go through a Prime Broker, and smaller ones tend to use the services of a Prime of Prime.
We are one of the only technology providers to meet the needs of all ends of the market, so we have a truly compelling offering for FX brokers, funds, backers, Prime Brokers and Prime of Primes. Some Prime Brokers and Prime of Primes have fully integrated our technology, which means that client funds do not need to be stored on the exchange.
FNG: Low FX volatility has brokers looking for additional revenue streams. Why crypto and not any of the other asset classes?
Someone: Low volatility means low trading, so to make more money, brokers need to look at other asset classes. Many have already expanded into indices and commodities, so they are looking for an additional asset with volatility that behaves like a commodity or currency. Cryptocurrencies tick these boxes. Top cryptocurrencies like Bitcoin or Ethereum are volatile, but they are a little too commoditized for some brokers, so they are starting to look down the list of altcoins as well.
FNG: What level of investment does a broker need to start offering crypto?
Someone: This is the big change – it’s basically nothing. Some Prime-of-Primes have no minimum amount to deposit or start trading. Obviously, the more your customers want to trade, the more you’ll need to deposit into Prime of Prime to get margin – but you can start with almost nothing. You just get a FIX connection, plug it into your liquidity management platform – and if you don’t have one, we’ll be happy to provide one – and away you go!
We usually see brokers decide to A-Book – they know who their counterparties are, those counterparties are generally regulated and they know where they are so they can do KYB checks. The risk level now for a broker to enter the crypto space is very low. This is largely because some entrepreneurial Prime of Primes have taken the risk and created the right environment to allow brokers, funds and professional traders to access crypto.
FNG: Gold-i has been ready for this moment for a long time. Have you evolved your MatrixNET or is there now more market demand for a product that was released several years ago?
Someone: It’s a continuous cycle of evolution with this kind of technology. As a result of market changes, we are in the fourth phase of our technology. Our latest version allows a reliable stream to come from somewhat unreliable sources. In the world of forex or stocks, market makers and LPs are generally quite stable. The world of cryptocurrencies is very diverse. Some LPs say they make a price at a certain depth, but you can’t run that price, so we’ve developed smart technology to be able to deal with that, providing the right price flow by removing providers who don’t play fair.
You also get a lot more rejections in the crypto world, so you need very strong analytics, which is another area we’ve focused on. Our technology identifies why and where orders are rejected and enables brokers to set their own parameters for how to deal with these rejections, such as not using spaces that do not meet their criteria.
FNG: What should brokers look out for if they want to offer crypto as an additional asset class?
Someone: My advice to brokers is to remember the following:
- It’s a 24/7 market, so they’ll need some form of cover on their trading desks over the weekend – that’s something that wasn’t needed in FX.
- They will need an execution management system for crypto that can be integrated into their existing liquidity management platform – they don’t need to replace their entire technology stack. And if they choose a provider that is already integrated with major market makers, exchanges and ECNs, then offering crypto is a very simple step up from FX.
- Make sure FIAT banking is available so you can receive crypto payments.
- Be aware of current and planned cryptocurrency regulatory regimes.
- Cryptos behave differently than other asset classes. Choose a technology provider that is well experienced in managing crypto and market makers. The technology provider will be able to handle the complexities on behalf of a broker. This means that the main focus for the broker will be on marketing the offer, providing customer support and making more money.