3 Challenges Forex Brokers Face When Managing Risk

1. Effective Dealing Desk Management is a 24 Hour Job

The financial stability of a broker is greatly dependent upon an effective risk management strategy. Like a house with an unstable foundation, it will be rather difficult to build anything stable unless the foundation is first repaired. From our experience, much emphasis is placed on sales, marketing, and client acquisition while the subject of risk tends to be overlooked or deemed unimportant.

Due to the 24 hour nature of forex market, it’s a essential that risk exposure is managed around the clock. When one considers the generous amounts of leverage available in the forex industry, it becomes quite evident how a relatively small market movement can significantly affect the overall profit levels of a broker, both positive and negative.

2. There is More to Risk Management Than A & B Book Allocation

A common misconception surrounding the risk management of a forex brokerage is that one must simply put all traders into the “B book” bucket and walk away. Such a naive assessment has been the doom of an otherwise successful forex brokerage. Consider the many factors that make risk management a challenge for new brokers: lack of market liquidity, price swings, surprise economic announcements & decisions, and overuse of leverage. Failing to seriously consider any of the examples listed above could have a significant financial impact on the overall profitability of the brokerage.

3. As the Business Grows, the Risk Only Increases

As your brokers expands, eventually you will encounter either an institutional client or high net worth individual. This can be a daunting prospect for those with limited risk management experience. Although the upside potential is massive, some brokers may shy away from the opportunity due to the potential risk involved. On the other side of the coin, other brokers may underestimate the potential risk such clients can pose to the health of the business, which can also be a costly mistake. The bottom line is that a growing broker will require consultation on how to effectively operate their dealing desk in order to mitigate losses and optimize profits.

Atomiq Consulting – Foreign Exchange Risk Management Expertise

Founded in 2014, Atomiq Consulting has been helping brokers large and small effectively manage their dealing desks. With years of experience in the foreign exchange industry, we are more than happy to share our insights and provide one-on-one consultation on all matters related to risk management.

Whether your broker has just launched, or your firm is growing yet the subject of risk represents a pain point, our team of experts at Atomiq Consulting is more than happy to assist you further. To learn more about our forex risk consultation services, don’t hesitate to contact us today!