Defining a Web 2.0 Strategy for Online FX Trading Portals

Current FX trading volumes stand at an impressive daily total of US$1.9 trillion. By 2010 this figure is expected to rise to over US$3 trillion per day. Online trading is expected to play a substantial role in this growth.

Such transformations in the FX market present new opportunities. However, the combined impact of surging volumes, a growing range of execution venues and liquidity pools, plus the ever-growing demand for real-time executable prices across FX instruments puts existing online distribution channels under great strain. Put simply, the technology deployed in response to the first wave of online trading is not advanced enough to cope with the demands of today’s market-savvy participants.

Banks therefore have to re-evaluate, re-invent, and re-build their online trading presence. For many, the focus is on enhancing their single dealer platform by embedding it with functionality and services targeted at specific client segments.

Developing a Strategy

The advent of Web 2.0 technologies and Rich Internet Applications (RIAs) has created a wealth of new possibilities for banks. To make the most of these opportunities, banks must not only define a strategy for second generation online FX trading portal, they must also focus on four key areas to ensure their strategy delivers real competitive advantage.

• Latency: To cope with the increase in message traffic, banks will have to drive down latency in their core platforms. In many cases, they will have to radically upgrade and overhaul their connectivity and pricing engine capabilities. However, this investment will increase the scope of their services and lead to real competitive advantage.
• Core functionality distribution: To meet ever-increasing demand for real-time executable pricing, banks must prepare themselves to deliver core and differentiated functionality to clients over the web. This means implementing fully optimised, scalable web-streaming solutions.
• Multi-product alignment: There is growing client demand for banks to increase efficiency by combining FX trading services with other asset classes. To meet this need, banks must develop an integrated delivery service that operates via a multi-product portal. As banks continue to combine multi-product trading into single transactions, the requirement for a common distribution platform is climbing the agenda.
• Web 2.0 technology: These days, all the functionality of a desktop trading application can be delivered in a browser using Ajax frameworks and similar RIA technologies. These approaches also allow integration with external web facing services, such as research and news feeds. Making an effort to understand each client segment and identify the services that suit their needs at this stage will allow a reasoned decision to be made.

Many banks have, quite rightly, focused separate business units on particular asset specialties and customer groups. However, in doing so, the systems that support these operations have become so disparate that attempting to combine them and offer any sort of integrated service is either impossible or prohibitively expensive.

To resolve this conflict, banks that are considering the web 2.0 paradigm, and in particular the use of Ajax frameworks, need to ensure that design includes a common capability as well as the segment specific trading functionality essential for large user bases. Those taking this approach should be able to build intuitive and flexible trading solutions that require no downloads or installation processes and, depending on the underlying streaming technology protocol used by the platform, no changes to client security settings. Ultimately, this will provide a new generation trading model that delivers competitive differentiation and, more importantly, fast, direct feedback on client behaviour. All these benefits will drive growth and bring additional value to clients.

As the market for online FX trading continues to grow, the challenge for banks is to compete for profitable client flows. Whether they are top tier global ‘super banks’, or mid to lower tier banks who need to carve out and retain their client relationships, success will increasingly depend on their ability to implement low latency platform architecture, and deploy highly scalable browser-based client applications.