Bringing Digital Assets into the Retail Broker Space

FNG Exclusive Interview… Gold-i, one of the pioneers of crypto trading technology, is seeing a rise in interest from retail brokers looking to add cryptos to their offering. Gold-i’s CEO, Tom Higgins, talks to FNG about the shift in attitudes and why it is easier and more cost-effective than ever before for brokers to offer cryptocurrencies to clients.

FNG: Hi Tom. Brokers have been aware of the opportunity to add cryptos to their offering for a long time. Why are you seeing a rise in interest now?

Tom: I think brokers liked the idea of offering cryptos before but it wasn’t so easy to do – the options weren’t that enticing. They could either open with an Exchange, which any regulated broker would probably not be allowed to do; they could B-Book cryptos and get a price feed, which they didn’t want to do because of the volatility; or they could select a third-party Liquidity Provider who could provide cryptos.

Many brokers selected this third option but the spreads were pretty wide, there wasn’t much market depth, and there was only a small selection of coins. This option didn’t have much appeal to brokers who wanted to offer a wide range of coins, with tight pricing and deep liquidity. They waited until the market matured and a more suitable option became available.

The collapse of FTX and the scandals at Binance triggered this change, resulting in a greater focus on risk management, in particular having segregated custody and spreading risk.

Now brokers typically have an aggregated feed made up of different venues and market makers, or different exchanges and ECNs. This provides them with the best depth, best spread and best set of coins. And that’s exactly where we’ve been focusing our technology build – on our MatrixNET which facilitates this, enabling clients to access deep liquidity from multiple exchanges and market makers, spreading their risk amongst multiple counterparties. We have seen larger brokers getting their own aggregated feed or going through a Prime Broker, and the smaller ones tend to use the services of a Prime of Prime.

We are one of the only technology providers to cater to the needs of all ends of the market so we have a really compelling offering for FX brokers, funds, prop firms, Prime Brokers and Prime of Primes. A number of Prime Brokers and Prime of Primes have fully integrated our technology, which means that clients’ money does not need to be stored on exchange.

FNG: Low FX volatility is resulting in brokers looking for additional revenue streams. Why crypto and not any of the other asset classes?

Tom: Low volatility means low trading so, in order to make more money, brokers need to consider other asset classes. Many have already expanded to indexes and commodities so they are looking for an additional asset with volatility, that behaves like a commodity or a currency. Cryptocurrencies tick these boxes. The top cryptos like Bitcoin or Ethereum are volatile but are a little commoditised for some brokers, so they’re starting to look down the list of altcoins as well.

FNG: What level of investment does a broker need to start offering cryptos?

Tom: That’s the big change – it’s effectively nothing. Some Prime-of-Primes have no minimum amount for a deposit or to start trading. Obviously, the more your clients want to trade, the more you’ll have to deposit with your Prime of Prime to have margin – but you can start with almost nothing. You simply get a FIX connection, hook it up into your liquidity management platform – and if you don’t have one, we’ll happily provide you with one – and off you go!

We typically see brokers deciding to A-Book – they know who their counterparties are, these counterparties are generally regulated, and they know where they are so they can perform KYB checks. The level of risk now for a broker to enter the crypto space is very low.  This is largely because a number of entrepreneurial Prime of Primes have taken on the risk and have created the right environment to enable brokers, funds and professional traders to access cryptos.

FNG: Gold-i has been ready for this moment for a long time. Have you evolved your MatrixNET or is it there now more market demand for a product that you launched a number of years ago?

Tom: It’s a continual cycle of evolution with this sort of technology. As a result of market changes, we’re on the fourth phase of our technology. Our latest release allows for a reliable feed to come out of somewhat unreliable sources. In the FX or equities world, the market makers and LPs are generally pretty stable. The crypto world is very different. Some LPs say they make a price at a certain depth but you can’t execute on this price, so we have developed intelligent technology to be able to cope with this, delivering the right price feed by taking out providers that are not playing fairly.

Also, you get a lot more rejections in the crypto world so you need very powerful analytics, which is another area we have focused on. Our technology identifies why and where orders are being rejected and enables brokers to set their own parameters for how to deal with these rejections, such as not using venues which don’t meet their criteria.

FNG: What should brokers be mindful of if they are looking to offer cryptos as an additional asset class?

Tom: My advice to brokers is to remember the following:

• It’s a 24/7 market so they will need some form of coverage on their trading desks at the weekend – this is something they’ve not needed in FX.
• They’ll need an execution management system for cryptos which can be integrated with their existing liquidity management platform – they don’t need to replace their whole technology stack. And if they select a provider that’s already integrated with the key market makers, exchanges and ECNs then offering cryptos is a very simple stepping stone from FX.
• Ensure that FIAT banking is in place to be able to receive payment in cryptos.
• Be aware of the current and planned regulatory regimes for cryptos.
• Cryptos behave differently to other asset classes. Select a technology provider that is very experienced in managing cryptos and market makers. The technology provider will be able to deal with the complexities on a broker’s behalf. This means that the main focus for the broker will be on marketing the offering, providing client support, and making more money.