FX Bridge's New Stealth Weapon – ProTrader Plus
Following on from last week's announcement of their deal with Alpari (US), I spoke yesterday with James Friedman, who is Chief Operating Officer of FX Bridge Technologies Corporation. Our talk was largely concerned with how FX Bridge got to where they are today, that deal with Alpari, and the future for OTC FX options in general, and FX Bridge in particular.
James told me FX Bridge was founded by Joe Cunningham back in the final days of the dot com boom. He himself had joined them in 2002, and he has been "evangelising" about forex options ever since! In 2008 Steve Reich (cofounder of Hotspot FX) arrived as CEO, and the decision was taken to improve the user interface of FX Bridge's flagship product, ProTrader, to make it more attractive to retail traders.
With the help of $2.5 million in venture capital from Total Technology Ventures, who just like FX Bridge are based in Atlanta, Georgia, FX Bridge completely revamped the user experience and added a more robust support facility to handle the challenges of international business. The current product, ProTrader Plus version 5, is what Alpari (US) customers will be able to install on their desktops later this year, and includes a number of features designed to allow retail traders to choose option strategies appropriate to their market outlook from amongst the literally thousands of possibilities. In August of this year, Steve Best had arrived from State Street Global Markets as FX Bridge's new CEO, with the brief to plan and manage the future growth of the by now much more mature business.
James particularly stressed the benefits of FX options as a risk management tool. Most retail traders have had it drilled into their heads by a thousand eBooks that "you must use a stop-loss". However that is not in fact true. You can use options instead, and once you get the hang of them they are much more flexible than the conventional "here I am, please come and hunt me" resting stop order.
If there are potential advantages for the trader, there must be something in it for the broker as well, or Alpari wouldn't be bothering to offer forex options at all. According to James the advantages from a broker's point of view are:
- Profitability – The mark up on options is greater than that in the extremely competitive OTC forex arena!
- Differentiation – It allows a broker to stand out amongst all that competition.
At this point I asked James about how much competition there is between FX options liquidity providers. He told me that currently there were just two banks offering to provide liquidity to retail brokers, Citi and UBS, which is obviously far fewer than in retail spot forex. He also told me that FX Bridge are themselves building a "cut-down ECN like" infrastructure which will include smart order routing.. We'd already discussed how traders might avoid losing money, and how Alpari might make money, so the obvious question then was how will FX Bridge make money from the Alpari deal? James told me FX Bridge charge an initial fee for consultation and customisation of ProTrader Plus, followed by "transactional based revenue". That is "a small cut of the spread" in spot forex terms.
At this point I told James he'd sold me on the concept, and I wanted to open a segregated account with an FSA approved broker here in the UK. He told me that was currently not possible. I could obviously wait until Alpari (US) launched their live accounts later this year. Alternatively if I was really keen I could always try WSD Direct in New Zealand.
At that point I thanked James for the tip, as well as his lively conversation, and hung up. Then I wondered if the vast majority of retail traders would be as excited as I am by the prospect of an alternative to interminable stop-losses. I also wondered whether I should call the Antipodes as soon as they open for business over there, or wait instead for something much closer to home before experimenting to discover if retail FX options are in practice all they're cracked up to be in theory.