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Welcome back to another issue of the C-Suite. Usually this is once a month but as I had no time to do one in January, I figured we’d double up in Feb. And this is a good one!
Automated trading systems aren’t new for brokers, given that traders have been able to programme them since MT4’s launch almost two decades ago.
And yet the world has seen a surge in interest in all things AI since Chat GPT was launched at the end of 2022.
So who better to speak to about the subject than Will Thomas, CEO of ThinkHuge?
ThinkHuge runs ForexVPS.net, as well as several brands that operate across the B2C and B2B space.
We look at growth in demand for VPS services, how brokers benefit from offering them, growth in emerging markets, what’s driving that, competition among different trading platforms, and more.
Most importantly, Will explains servers in such a way that even a Luddite like me could understand them.
DK: ThinkHuge is a large company at this point but I would imagine there are still a lot of readers who aren’t actually familiar with you. So can you give some background on yourself and the business?
Sure, so I’ve always been involved in hosting and ran a couple of companies in that area out of college. But the thing I’ve always loved is software development. That ultimately led – in a roundabout way – to ThinkHuge, which ForexVPS.net is part of.
The very start of the company was a piece of copy trading software called SimpleTrader that I made in 2012. I don’t actually remember why but I wanted to get trades from one MetaTrader platform to another and there was no way to do it at the time.
So I wrote a piece of software that could do that and through that I met my co-founder Nick, who is based in Sydney.
Over time the business has evolved and we have several B2C and B2B lines. On the former, there are servers and trading education sites and the latter is partnering with brokers so they can offer VPS services to their clients.
Some services are also more complicated, so helping brokers with cloud solutions for their own infrastructure. But VPS on the B2C and B2B side is what is doing really well at the moment.
DK: I am a technical philistine, so I have a very basic conception of what hosting and VPS entails. Can you explain it in simple terms?
I suppose hosting encompasses a really wide set of services. But if I’m talking about what we do specifically, the biggest ‘thing’ is virtual servers. So that is where you have a virtualised desktop environment sitting in a data centre somewhere in the world.
From the user’s perspective, you log in to this on your computer or mobile and it looks exactly like a standard desktop lay out. The difference is that it is running in that data centre, which could be anywhere – so London, New York, Tokyo, and so on.
In the context of trading, traders use them to keep their trading algorithms, so trading robots or Expert Advisors, running smoothly.
DK: Something I wondered is how that set up works. Is it kind of like Airbnb but with computers in a data centre? So you lease servers and then go and find people to rent them out to?
Kind of. In very simple terms, we will pay a data centre for rack space. So there are thousands of data centres but in the financial services industry, Equinix has really become the predominant player. For multiple reasons, this is just a thing they have nailed.
So we pay them for rack space. We then go there and put our own hardware in and set things up. That’s the simple overview but things get a lot more complex when you start factoring in the right hardware to use, network routing, and so on. We strategically work with data centre locations that give the best performance to brokers.
DK: And if I am a retail trader, why do I care about this stuff?
It really depends on the individual and where they are based. Usually, it’s about latency, uptime, or power supply.
So if you are in South Africa, which is a big, big market at the moment, then you have rolling blackouts. If you do not have a VPS and you are running an Expert Advisor, then a blackout is obviously a disaster.
But then if I look at the US, which is another big market for us, it is more likely to be about latency. So the question for those traders is, how can I get sub-millisecond trades executed with my broker?
Those are the broad reasons, but it’s basically about how can I make sure my trading account is running 24/7, without having to make sure that my phone or PC is also running it 24/7.
And there could be loads of idiosyncratic reasons for that. It could be as simple as a trader not wanting their kids to mess up their trading account when they are using their PC!
DK: You mentioned that brokers also come to you for this. So from their point of view, I am assuming that you are not giving it to them for free, what is the benefit? Does a client look at one broker that doesn’t have a VPS and another that does and choose the latter?
If you had asked me a decade ago then I would have said no. Today that is absolutely the case. So the short answer is yes they would. And that is one of the benefits for brokers, it increases acquisition.
Then you have to think, a lot of brokers are not offering clients what you call a ‘material item’. Most of them run on third-party platforms, which means it is not hard for a client to move between brokers. You cannot move your VPS to another broker, right? So you are giving the client an added benefit but also cementing them as your client.
You also have to keep in mind that this is not a freebie that brokers hand out to everyone. They customise the offering, so that only clients which meet certain parameters get access to the VPS. That subset of clients tend to trade more volume and this helps that process as well.
And I would say the proof is in the pudding here, as we’re up 43% in newly launched B2B partnerships in 2023 and now have most of the big brokers working with us. These guys are cost-conscious, they are constantly looking at the amount they spend on acquiring clients and the revenue that generates.
There is a clear link between how you structure your offering with us, where you only let clients that deposit or trade a certain amount get access to a VPS and the amount of revenue you generate. So if you consider the cost of the VPS as a component of your client acquisition cost, the answer is, yes, it delivers a return on investment.
DK: Maybe this is a dumb question but functionally, if I am on the VPS and have my EA set up, what does that look like? So if I am given one of these by a broker, does it look like I am just on some broker branded desktop page and then if I pay for it directly as a B2C client, it has your branding on it?
Yup, it really does just look like a desktop. In terms of branding, it is always our details that are there, regardless of whether you are coming via a broker or direct to us. We don’t white label it.
That is intentional because, from the broker’s point of view, if something ever did go wrong then they can look culpable, which obviously looks bad and also isn’t true. So the client can’t blame them if something goes wrong, if that makes sense. It also means that if the trader ever has questions about their VPS, then they come to us – the broker doesn’t need to handle the support, we do it all.
DK: A lot of brokers have had a tough 18 months or so. You have education, which is more marketing oriented, and also the technology side. So you can see how clients are signing up but also what they are doing when they have signed up. Are there any interesting trends you see at the moment with that bird’s eye view?
We’re lucky because we’ve got 12 years to think back on. If we were a new business, it’d be really hard to tell you to what the market is doing.
But I would say Covid was a game changer for financial markets, a huge game changer. I think people realised, firstly, life is short. And then working from home became a thing. And I think it’s created both a change in mindset and opportunity, that people want to have something more than their nine to five job.
At the same time, access to the financial markets is now at its most streamlined level ever. If you go back 20 years ago, I remember opening an account for share dealing with Fidelity. You had to fax them stuff. Can you imagine doing that now? It took about three months to open my account. Today I could open an account with Hargreaves Lansdowne and place a trade, probably within 20 minutes.
DK: So it hasn’t been a tough 18 months or so?
When we first saw rates rising we were worried but no, not for us. Demand for VPS services is up 64% since then so we are doing well. I would say that is also reflective of this surge in interest in more AI-driven trading strategies.
Algo trading is not new but the launch of GPT has really increased the number of people who are aware of it and have realised, ‘ok, I can just follow a strategy, leave it running and that’s it’.
DK: Is that purely an AI phenomenon?
It’s a mix of things. You have to remember that the ability to code EAs has existed since MT4 first launched, so it’s not a new phenomenon. The difference is now that you have a much, much larger number of people around the world who can code and so naturally a knock-on effect is that you see more automated trading systems.
Another component is just accessibility, it is so much easier to access brokers than it was two decades ago. So again that plays a role.
AI has been a big factor as well, just in driving people’s interest in this area. And then you also have the ability to do prompts that write code, without you needing to know any coding language. That is in its early days but it is absolutely happening.
Overall I would say AI was more like the final driver – you already had all these other factors that were building up to increase algo trading but the launch of Chat GPT really catalysed things.
And so, naturally, all of this is positive for us because you have a knock on effect. If you want to be serious about running automated trading systems, you basically have to use a VPS.
DK: From what I understand there are still some regions, like Europe, where point and click trading is much more popular than using some kind of automated system. So if I am a broker, particularly if I focus on those regions, is the cost-benefit there?
That’s true and, like I said, automated strategies are not a new phenomenon. I’d say Asia in particular has always had this more affiliate-driven model, where a lot of clients trend follow some kind of EA. Europe and the US were less like that.
But over the last five years things have changed a lot and the proportion of trades that are automated now is substantially higher than it was. That’s true globally. So if we speak in 10 years’ time, I would put good money on automated trades being more than half of all volume for retail brokers.
DK: Have you also seen demand for this in the prop side or funded trader side, whatever you want to call it?
Prop trading has become huge. It’s come out of nowhere. That’s another industry that I think, if Covid hadn’t happened, would it still be where it is today? I don’t know. But it definitely looks like it’s here to stay. We are working with the bigger players in that sector already to provide VPS, so yes we are familiar with it.
What I find particularly interesting about props is they are tapping into a younger market, so people really under 30 – 35. And that is also an audience that seems much more attracted to automated trading. So on the broker side I would add that is something we see too, where brokers often see a lot of good results marketing to younger clients by offering a VPS service.
DK: One of the points you made was that some clients are drawn to a VPS because of latency. Latency is something I find interesting because a lot of clients clearly aren’t that clued up. But then latency is made into this really big deal by a lot of brokers. So my question is how can a client want a VPS for low latency if that just isn’t on their radar?
I completely agree with you that, for a large number of people, it probably isn’t something they care about at the start. The stability of uptime is more likely to appeal to that sort of client.
But then that goes back to my point around retention. Someone who starts trading may not care about latency. As they become more experienced and understand its significance, there’s a good chance they will.
I’d also add, even if you aren’t particularly sophisticated, it’s not difficult to spot the fact you have not been filled at the price you wanted. So latency is something that becomes obvious quite quickly.
DK: This is probably quite a broad question but are there any areas of VPS provision that are more idiosyncratic for forex brokers?
Well, latency is quite a good example. Let’s say your trading server is in New York. Your client is India. You’d assume that New York would be the best place to put your VPS for them.
But the client’s experience doing that is going to be dreadful. They will probably have 300 milliseconds delay in execution. Their connection will be patchy. So in reality, a VPS in Mumbai is likely to be much better for them.
Their uptime will be amazing and then they would actually get better execution than they would via a New York centre, because we can route orders for them much more efficiently. But if you are dealing with a VPS provider that has no understanding of this sector, that just won’t be obvious to them.
Another one is how brokers scale. So some companies will enter this market and suddenly onboard thousands of clients. If you are offering a VPS and using a hosting provider run by Joe Bloggs then they are very unlikely to be able to scale with you, whereas we can.
DK: So keeping in mind I’m a tech noob why would that be the case? As in, why would the guy in India controlling his New York VPS be slower than a VPS in Mumbai?
The simplest way to think about it is imagining a package being delivered from one place to another. You want that package to take the fastest route.
When you are trading on a VPS in New York from India, your internet provider is not set up to deliver that ‘package’ in the most optimal way possible. So even if the time between servers in New York is great, the route to New York provided by the local Indian internet provider will not be the optimal one.
In contrast, they probably will have a very good connection to the Mumbai data centre. From there, our servers are set up to reach New York much more efficiently, which means shaving off 100 milliseconds or more.
This is something we have to work with brokers on all the time. I mean literally this morning we were talking to a broker about why they should not move all their traders on a New York server.
So you are asking about the specifics of this industry, if you went to a more general hosting provider, they probably just wouldn’t get this and wouldn’t have the same capacity as us to deliver on service.
I would also add on that point that we handle tech support, which is a huge benefit from the broker’s point of view. So the broker doesn’t have to worry about, ok, some client can call me up on the weekend and start asking why latency in LDN4 is playing up. We can handle all that for them.
And if you think about using a generalised provider for this, I mean, just imagine you have no idea about forex or trading, and someone calls your company up and starts saying his MetaTrader account isn’t executing dollar-yen trades properly. You would have no idea what they were on about!
DK: To go back to the India point, I always viewed this as a market that was off the table. Is that not the case?
I mean, you asked about trends. One of the biggest trends now is brokers just going only for Tier-3 jurisdictions. We see that very clearly on the VPS side across the B2C and B2B divisions. And there are some players that are doing incredibly well from it.
DK: Yup, I see that 100%. My sense is it’s a regulatory thing. Europe is now too much effort, so stick to regions where it’s ‘smoother’ to do business.
I think payments is actually the driving factor. A decade ago payments providers would not touch these jurisdictions. Now they will absolutely do it. So it was really a case of the client just not being able to deposit their money with you.
And then I think you have to ask, do you think in another decade, these places are going to be more inaccessible, more difficult to reach or the opposite? I would say absolutely the opposite.
If you look at Equinix, they are in the process of building a data centre now in South Africa. They focus heavily on financial services. Would they really be doing that if they didn’t see a future in the region?
DK: On the VPS side again, do you see any change in behaviour with trading platforms, particularly given some of the stuff that’s happened in the last 18 months or so with MetaQuotes?
This is quite a fun area because we are effectively agnostic, we host whatever platform you want to use. I think the interesting trend there is between MetaQuotes and TradingView.
TradingView have done a lot of good stuff and have built this amazing platform, which has really boomed in the last couple of years.
In my opinion that really made MetaQuotes sit up and take notice. And if you look in the last 6 months or so, MetaQuotes have added a lot of good features to MT5. People seem to get really riled up about platforms for some reason, but if you remove the emotion, I think MT5 is basically an excellent piece of software.
The other part of this though, is that TradingView have been very careful to position themselves as a charting tool or tech provider. So there is no platform there, it is just charting, so integrating with them is not easy for lots of brokers.
That’s why if you look at who is on there, it does tend to be the bigger brokers who have their own technology. I don’t see that changing to be honest, so I don’t think MetaTrader is going anywhere.
DK: Any other thoughts to finish off? What should people expect in the next few years in this industry?
First off I’d say I think the industry is just going to get bigger. You know, you speak with brokers and it’s like they are always worrying that it’s the end of the industry, but from our point of view, it’s the opposite.
I’d also say you are going to see continual growth in tier-3 jurisdictions. It is kind of like where we were in Europe or other markets a decade ago and I think the cat is out of the bag, it’s not going to slow down.
The other point I’d reiterate is that I think you’ll see a larger and larger proportion of retail flow being automated. There is a perfect storm for this taking place.
Purely on demographics, there are more and more regular people in the world capable of building these strategies and the tools to make them are only getting easier to use. Then the level of interest, because of this hype around AI, is only increasing. So like I said, I think if we come back in a decade and chat again, the majority of flow at forex brokers will be derived from some sort of automated trading system.
If you would like to contact Will and the team for advice about your infrastructure, VPS or to discuss the algo trading market, email partnerships@forexVPS.net
