Broker-less Trading Platforms Could Be the Future of Retail Trading
The rise of cryptocurrencies and blockchain technologies is destined to disrupt, change and hopefully improve the way retail traders navigate and trade the financial markets. As fintech moves aggressively forward towards the use of artificial intelligence could more decentralized approach be on the horizon? Could we soon see the rise of brokerless trading platforms coming into the equation?
Today’s financial markets put so much on the plate of brokers that it feels like it is impossible to have any kind of financial trading activity without them. Presently, brokers perform the following functions in the financial markets:
- They provide the trading platforms and control the fees.
- They control the payment systems on their network.
- They hold the trading capital in segregated accounts (even though many of the unregulated ones flout this rule).
- They provide the news feeds and the pricing to the end user.
This is all in theory, but beyond this veil a dark side of the entire structure of the market emerges. Retail financial trading is mired in all sorts of issues that stem from broker conflict of interest.
Retail binary options brokers are allowed to “make the market”. This essentially sets up brokers as counterparties to their clients’ trades. Many of these brokers actively manipulate their clients with delayed withdrawals, inaccurate or delayed price feeds, bonus traps, etc.
How can a fair system emerge when brokers function as umpires in an arena where they are also players?
Conventional retail trading platforms have a back-end solution which is essentially plugged to the dealing desk. The dealing desk is made up of an entire department which actively monitors all traders using the platform.
The issue of regulation is a sore point in financial trading. Regulators all over the world are having a hard time keeping all brokers in line. As some scam brokers are removed by regulators, many more are cropping up every day and retail traders are the ones at the receiving end of these unfair practices.
A better solution is desperately needed. Retail traders have a lot to contend with, and bad brokers are part of the equation. Therefore, eliminating the excess baggage that some brokers bring would be a welcome disruption.
What brokerless technology will be able to do
Brokerless trading platforms will be built using decentralized blockchain technology.
This will help to eliminate a central controlling party, namely the broker, and help with transparency of the network as transactions can be written onto a public ledger.
In addition, there other interesting benefits of such decentralized structure:
- The liquidity pool will not be owned by the banks but by the core investors who purchase tokens to the network. Profits of the network will be distributed among token holders and anyone will be able to become a token holder. It won’t be reserved to only a few chosen individuals in the know.
- Most brokerages do not permit after-hours trading, and they do not open for trade on weekends. Eliminating brokers from the equation means that trading can be conducted 24 hours of the day, every day.
- Unlike conventional brokerages which act as counterparties to trades with huge conflicts of interest, a brokerless platform can provide a tokenized balance sheet model which does not act as a conflict of interest.
- Brokerless trading platforms will be able to use a decentralized system of monitoring transactions. Control and monitoring will not done by a single central authority, but by many users all over the world.
The numerous news of scams involving brokers clearly shows that the era of having just one centralized organization monitoring thousands of brokerages is gradually coming to an end. That system may have worked several years ago, but it is clearly getting obsolete and needs to be reworked or replaced entirely.
What are the key issues with brokerless platforms?
These are issues that have to do with trader acceptability, rapid and widespread adoption of the technology as well as competition from the conventional brokerage houses. Yet another issue has to do with the attitude of government regulators.
Many regulators have not been supportive of cryptocurrency and blockchain technology replacing the existing systems that generate so much profit. No disruptive technology has ever been welcomed wholeheartedly by the industry as such new technology can shake things up beyond recognition.
It will take some time to adjust but new solutions and brokerless platforms are already becoming a new online reality. Spectre, for example is the first brokerless platform that is entering the market and we will soon see a wave of similar fintech projects based on blockchain technologies, which by their nature of design, will eliminate the middle party. It’s only a matter of time and user approval.
In the end it will be up to the retail traders to decide for themselves whether to remain with a centralized structure and system, or to take a chance with new, decentralized technology and gradually force the change that is so desperately needed, especially in binary options.
Let us know what you think and leave your comment below.
Published in Education