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Towards the end of last year, I spoke to someone in the technology space, who brought up some changes in the bridging side of the trading industry. The simplified version of what they said was that bridging felt like it was at risk of becoming a race to the bottom on fees.
I thought about that again last week because of the formal announcement from cTrader that their bridge – cBridge – is now live. The company says they can cut costs on existing bridge infrastructure by 80%.
At the same time, Match-Trade Technologies also announced last week that it will offer customers a free bridge.
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“We simply figured that since we’ve already developed a bridge, why not use it to make our liquidity offer more attractive,” said CEO Michał Karczewski in an interview on TradeInformer last week.
“For years, we didn’t focus on selling the bridge commercially and mainly used it in‑house, because the market already has several strong bridge providers catering to highly demanding clients. What we also saw, though, is a large group of brokers who only need a bridge for straightforward A/B‑Book execution, without all the fancy add-ons.”
Perhaps because of this, we are starting to see a shift in what the technology landscape looks like. Previously providers were siloed and only operated in their individual niches. Now companies are branching out into new markets or launching separate products.
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Over the last couple of years, for example, oneZero has made a huge push to expand into the ‘real’ financial sector, by catering to FX desks at banks and other financial institutions. The company has also bought technology provider Autochartist and is in the process of launching its own trading platform.
Part of that may be because oneZero is owned by private equity firms now and they will want to increase revenues, then offload the company at some point in the not too distant future. Adding new products is a way of boosting revenues and increasing the value at which the company can be sold for. But it’s also easy to see it partly being a defensive measure aimed at orienting away from the risk of having just one product.
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We are seeing similar behaviour elsewhere in the industry. Centroid Solutions has launched its own trading platform and trade server. Your Bourse now offers a back end trading platform, which brokers can use to manage their risk. MetaQuotes has also added a product – Ultency – that effectively does a lot of the work a bridge does.
A number of factors may be behind this. Firstly, the increase in the number of bridge providers appears to have had a knock-on effect on price. As one industry executive noted, in the past providers could charge as broker volume scaled. Now they are usually capped at how much they can charge per month.
With costs lower, bridge providers have been incentivised to form arrangements with LPs and also add back-end trading platforms to increase revenues. That in turn has pushed other providers who are impacted by those decisions to respond.
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Will it all end in disaster? Probably not because, although firms are competing with one another, there is still an incentive not to ‘kill the golden goose’.
“The interesting thing you see in the bridge space is the oligopoly effect,” said an executive at one liquidity provider. “No one wants to come out and say ‘ok, it’s $1 per million’, [otherwise] competitors will instantly follow and ruin the game for each other. Personally I believe risk suites attached to bridges are the future of how they differentiate.”
Another factor is developmental costs and domain-specific knowledge. Much like brokers can end up spending a lot of money on their own platform, providers may find it harder to move into a space that has its own nuances and technological hurdles to overcome.
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“I don’t think [firms] have the capacity for it,” said one industry executive. “[It’s] always easier to outsource in order to get a great product at a low cost than trying to do everything on your own and the result is subpar, while you accumulated millions in developmental debt.”
To top that off, a lot of bridge providers already seem to have a specific niche or set of services that people go to them for. For example, Gold-i has been a lot more active in crypto than some of its peers. On the other hand, it’s easy to see a firm that does not have some sort of speciality or ‘go to’ product being left behind by the changes we’re seeing.
Ultimately that seems likely to be the big change – if you have a good product, you’ll be good. If you don’t, you won’t. In the meantime, we asked one risk manager at a prop firm / broker what he wanted from a bridge.
“Reliability, speed, tools [for] most situations,” he said. “If a bridge has the options and settings I need then I’m happy.”
