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A big debate today is whether brokers should add some kind of funded trader programme or not. Some have already done it, including a few big brands like IC Markets, Hantec Markets, and Axi. As we reported last week, ThinkMarkets is also in the process of setting one up.
The basic logic is this is an in demand product and it’s less burdensome from a regulatory perspective. The result is that you can – potentially – make good money from it and add another product to your offering.
Less has been said about the fact that props may actually move in the opposite direction and become brokers themselves, or at least get the license necessary to offer such services in some shape or form.
When we spoke to FTMO CEO Otaker Suffner earlier this year, he argued the company could bring something new to the brokerage space. The company also has over 1m registered users and a good brand reputation.
And the company is clearly trying to expand its offering to become a broker. FTMO recently hired Michael Kamerman, who was previously Skilling CEO and also spent over 15 years at FXCM, to act as CEO of its brokerage division. The company has also set up two entities in Cyprus.
One reason why props may be doing this is for the same reason that brokers may add a prop offering – you have a new product and new revenue streams. FTMO also appears to have had at least one year where they made in excess of $100m in net income. They have even bought up loads of real estate in Prague.
The goal here is not to brown nose FTMO but to point out that with this kind of cash you can self-fund growth in tier-1 markets. A lot of people I speak to argue that the European market simply isn’t worth it but that isn’t entirely true.
The problem is more that it is very, very expensive today to start a broker in the EU and/or UK. If you look at Capital.com, they only launched in 2016 and yet have managed to make the UK a big market for themselves. They also seem to be doing well in a few other regions, like Italy and Germany.
ATFX is on a hiring spree – read about it here.
The reality is that some funded trader companies now have the cash to do something similar. Plus they already have huge brand recognition in European markets, so they are not entirely starting from scratch.
Whether or not this will work is another question. The prop business is different to the broker business for one. Moreover, there are a few brokers – Exness being the best example – that make a lot of money but do no retail business in Europe and who appear to have no interest in doing so. In other words, they could take all the cash they make from emerging markets and dump it into a European offering, but they don’t do it.
FTMO is also not the only funded trader company that seems to be looking to get a license. Last month the CEO of Funding Pips posted the image below on his X (where else?) account. Who wouldn’t want to trade with a “fully licence brokerage”?
However, it’s worth noting that other factors may be at play here and simply running a broker may not be the only thing funded trader companies are looking to do.
One is regulation. Providers are currently operating in a weird gray area. Are they financial services or something else? The reality is there is no real regulatory framework for this industry to operate in and having a brokerage license is probably the closest thing to it.
Having this license also gives you access to a bunch of other stuff that may be hard to access today or become progressively more difficult to access as time goes by. One is banking, which I understand is becoming an increasing problem for props, who mostly claim they are ‘education providers’ – lol.
Then there is the obvious one – most props were running on MetaTrader grey labels being offered to them by brokers. MetaQuotes shut this down and it’s no longer a viable option.
So to get a MetaQuotes license, these companies are going to have to set up a brokerage. But even then you have a problem because it can be difficult to get a MetaTrader license unless you are also regulated.
Some props have got around this by acquiring a license. Alpha Capital Group, a funded trader company based in the UK but which has a separate brokerage entity regulated in the Seychelles, is able to offer MetaTrader 5.
Another interesting case is E8 Markets. This company was called E8 Funding but then rebranded a few months ago. If you look at their homepage they offer accounts using the Match-Trader platform or something they call Virtual Markets 5. Hmm…
Virtual Markets is a broker based in St Lucia and offers trading via MT5. St Lucia corporate filings show the company was set up in September of last year, around the time E8 was having problems with its grey label broker provider. The Wayback Machine and some of the code on the broker’s homepage suggest its website went live in January of this year – a month before E8 rebranded.
It seems plausible that E8 actually owns the St Lucia broker and then uses that to offer MetaQuotes. But as there is very little detail on both companies which is publicly available, it’s hard to say definitively if that’s true.
Finally, there is one other reason that providers may look to get a license, which is to onboard with an LP. My sense is that a lot of providers in this sector actually don’t know how to hedge their exposure as there is no real textbook way to do so. Regardless, they do need pricing and some of them are really hedging. Getting a license makes it easier to facilitate this process.
Will this happen more? The main problem will likely be the fact that these guys are coming from a market that is effectively unregulated to one that is very highly regulated. For the same reason that many brokers increasingly can’t be bothered with maintaining an EU license, they may think it’s not worth the hassle getting a broker license.
However, it’s also plausible that providers get a license but then never actually use it to be a broker. Instead it can provide some regulatory cover to the services they offer and also let them access things like banking, payments, and tech providers.