Cryptocurrency trading has taken the FX world by storm, with many if not most Retail FX and CFD brokers offering at least a limited menu of crypto products for trading.
However the issues of leverage, liquidity and connectivity still remains hot ones, and difficult to solve for many FX brokers.
We’re pleased to speak today on these topics and more with Artur Azizov, CEO of B2Broker, a liquidity and technology provider for brokers.
LR: Hi Artur, and thanks for joining us today. We last spoke with you nearly a year ago, after B2Broker had just launched a suite of MT5 broker solutions. How has the past year gone for you? What are you focused on now?
Artur: For us, 2017 was very productive indeed. We greatly refined our products and advanced technologically in a big way. In 2017 all our services launched into ”Live” mode.
To be specific:
- We very much improved the Trader’s Room for MT5. This is now evolved into a platform that has a lot of intergration with various blockchains. Any broker can implement both deposit acceptance and deposit nomination in MT5, in any cryptocurrency and tokens. Ethereum can be added in 5 minutes and the top 15 of all the blockchains have already been integrated.
- We have integration with leading CRMs.
- We have integration with all payment systems.
- We have updated web interface possibilities where the broker can offer any desired design. In just 2 weeks we can provide the client with a complete customized Trader’s Room.
- We have updated API, which allows brokers to program their Web-interface themselves.
- We have extensively updated our products for brokers who work on MT5. This is not only a forex broker turnkey, but also a crypto broker turnkey on MT5, where trading accounts are already nominated not only in fiat but also in cryptocurrencies. MetaQuotes made improvements on our behalf so that the base currencies of deposits nominated in cryptocurrencies could be made on MT5.
- We are very advanced in terms of Liquidity. In our pool there are 29 of trading pairs, the 29 most liquid cryptocurrencies which have given us a strong competitive advantage. No one else offers liquidity for 29 cryptocurrencies (CFD crypto-currency liquidity). Most will offer just 5-10 cryptocurrencies. We have integrated with OneZero, Prime XM, MT5, MT4. Any broker will be able to receive our liquidity via Fix, via the trading systems they are currently using.
We are now focused on finalizing our Gateway for brokers with their MT5 and their Trader’s Rooms, so that they will be able to connect their cryptocurrencies as a method of payment in 5 minutes. We believe that now that many people are involved in cryptocurrencies and have their own crypto wallets. If the client wants to trade using a broker, it needs to work that way, whereby any broker can accept money in cryptocurrencies and fiat and add it to a trading account.
LR: Crypto trading seems to have driven volumes and revenues at a number of leading FX and CFD brokers (IG and Plus500 come to mind). What are the key challenges for FX brokers in adding or growing leveraged crypto trading?
Artur: There are only a few, perhaps one or two companies offering marginal liquidity for cryptocurrencies. We are the first company to do this professionally and in large volumes. Practically all those who offer cryptocurrency liquidity for brokers are offshore regulations who are not allowed to work with European regulated brokers. European brokers have one main problem: the regulator. The regulator is the only one capable of providing permission to offer customers the opportunity to trade with cryptocurrencies.
The second problem is an adjustable counterparty that can offer trading and is ready to offer a solution for European regulated brokers. All the other brokers have no problems connecting to cryptocurrency liquidity with B2Broker, made possible by signing an agreement with our licensed company in Vanuatu.
Next, there is a very big problem regarding integration with crypto-exchanges, on aggregating liquidity and ensuring this liquidity. For example, it is very dangerous to work with a single cryptocurrency exchange – today this exchange exists, but tomorrow it may be hacked or closed. It happens all the time and you can get the whole business into a long stop. That’s why we need to work with at least 3 exchanges. Nevertheless, working with 3 exchanges still presents problems.
It is necessary to allocate deposits to each exchange and keep them there. If you give the client a leverage of 1 to 3, you will need to keep triple the deposit. To work normally, you have an exposure of 100k, you need to hedge, then you need 300k to keep on every exchange. The total is 900k on three exchanges. Naturally, this is a huge problem for brokers.
In this way, B2Broker acts as Prime Broker by already making those deposits. We have launched an institutional crypto exchange and taken the allocation of these deposits on ourselves. When a broker comes to us and needs to cover 100k with a 1 to 3 leverage, this is not a problem. We are hedging our own money, regulating the risks and disposing all the money. The client works with us and saves huge amounts on commissions, risks, leverages and deposits.
The next problem is integration and execution. Stock exchanges usually have very bad systems. The broker’s order may be unperformed or rejected, or hang for 15 minutes, or executed only partially. Due to the fact that we aggregate exchanges, we always have a very tight pool. Brokers have no slippage and 99% of orders are executed without any refusals and slippages. We have already done all the integration and aggregation systems.
These 3 major problems i.e. regulatory, the problem of integration and execution are solved by B2Broker. More than 30 of the world’s leading brokers are connected on our stock exchange and we look forward to welcoming new participants! Each new member actually adds the value to the others.
LR: How does the provision of crypto liquidity differ from the liquidity of FX / CFD? What are your main problems and broker problems in its risk management function?
Artur: The three main problems are: 1) the integration and execution of orders, each exchange has its own API, its own order types and its own features for opening accounts and additional restrictions, 2) the execution may face a lot of rejections and hangs, and 3) the broker needs to keep three times more money when working with the exchange alone, and if you need good liquidity you need to work with several exchanges which is very expensive.
There are regulatory problems such as KYC. Exchanges do not like to work with brokers and don’t want to open accounts for them, so there is no way that an account can be opened quickly. For us, the opposite is true. We provide the whole service for brokers so they can open an account and quickly gain access to our crypto liquidity.
LR: ESMA has proposed limiting crypto leverage to 2x (i.e., 50% required margin). Do you believe that is a fair figure? Given crypto volatility, what do you think the right number is?
Artur: If the European regulator proposed such a number as a fair one, we cannot argue with them. In Europe, for regulated brokers, this is currently a normal number. It is necessary to understand what leverage the regulator has introduced, not only because there is a large gap in crypto-volatility (this is the second problem), but the primary problem is the lack of crypto liquidity.
The regulator’s concern is that the broker will not be able to find a good counterparty to provide its customers with deep liquidity. Volatility is not the most important problem. On the contrary, if the crypto currency was not so volatile it would not have been so interesting. Why is there such a leverage in the forex (1 to 100)? Because the forex market is not so volatile and only the hundredth leverage makes it so interesting. But forex is super liquid because any volume can be hedged from any bank or liquidity provider, the contractor will fulfill its obligations and the regulator will guarantee it but with cryptocurrencies the regulator is not sure of the reliability of these contractors and the performance of their liabilities. Some of the tools do not have liquidity at all, and if the broker cannot find liquidity from the exchanges, then the clients (the retailers) lose money – this is the main concern of the regulator.
On our part, we give our offshore license the opportunity to trade 1 to 3, so we make a full STP, we work on the prime brokerage model, when the broker puts one deposit per account and trades with all exchanges we have integration with, and we are not taking any risks on ourselves. 1 to 2 and 1 to 3 is the most optimal option with the current liquidity. When there will be more liquidity, you can talk about a bigger leverage.
LR: What else can we expect from B2Broker in the coming months?
Artur: Right now, we are actively preparing the launch of an improved version of our crypto-payment gateway, to make sure that any broker, merchant or site that wants to expand the payment line for its customers will be able to visit our site and click on the button to integrate it in the course of an hour and to begin accepting cryptocurrency from their customers. This is the case when he needs crypto-crypto. If he needs crypto-fiat, the merchant will need to pass KYC, sign a contract with us and we will open a special merchant account for him where the broker will start accepting cryptocurrencies from clients and transfer them to broker’s bank account.
We plan to connect several thousand merchants to our system, including brokers and online shops, salons, websites and payment systems. We will create a whole subdivision that will deal purely with crypto-processing and we hope to become a leader in this industry.
We are developing our institutional crypto-exchange and our goal is to connect at least 100 brokers within a year and are therefore heavily focused on obtaining licenses.