A few years back, we decided to focus on FX in part because it seemed to be the most ready to embrace electronic trading most quickly. I am glad to say we were right. Also true – then and now – is the fact that global FX markets are made up of individual hubs that perform better if they are connected. A grid-like infrastructure would be able to do just that. Designing it as an Internet-based (now cloud computing) platform promised to yield the most success.
Without going into too much detail, there are four different paths to becoming an active market participant in FX: You can a) build your own system from scratch, b) try to assemble an IT infrastructure from ready-made point solutions available, c) hitch your wagon to one of the aforementioned handful of large financial institutions or d) use the power of the cloud to level the playing field.
Leveling the playing field
Cloud computing holds the promise that markets that in the past required a large upfront capital and IT investments for new players to enter, will be democratized.
Just as the Internet has already changed many industries by bringing transparency to how people buy and sell most everything, from airline tickets to computers and even real estate, cloud computing will continue to accelerate the transformation of opaque markets. While this makeover initially is always perceived as a threat to incumbents, increased competition and transparency usually lead to market growth as everyone with a good business model can benefit from this surge in popularity.
The growth of Integral’s platform is testament to the success of that strategy. Unlike in the past, when prohibitively high upfront investments kept many would-be players out of FX markets, banks and brokers from around the world have built successful FX businesses on top of our cloud computing platform, realizing their business vision rather quickly. While all these businesses reside on the same platform, they are all different; not unlike the wide variety of web sites built with identical Internet technology. This is mass customization at its best. We deploy cloud computing technology to offer one of the avenues into a previously opaque market.
Cloud computing is challenging the status quo
As it is the case with many popular terms, cloud computing means different things to different people. Many view cloud computing as a kind of insurance to make sure they will be able to meet demand spikes and to guarantee ease of connectivity. But there is far more to it!
Cloud computing 2.0 happens when companies literally build their business on top of a cloud infrastructure. With many of the FX brokers that use our system, their entire trading IT and support organization resides in our cloud. That frees them up to focus on marketing and customer acquisition. (People started calling such arrangements Platform-as-a-service — just in case you needed to hear yet another popular term.)
Dramatically reduced cost is a stalwart of any cloud computing installation. Instead of investing in large IT resources that are really only going to be maxed out in extreme situations, you rent what you need, when you need it and pay as you go. You no longer have to worry about licensing new software and training staff or consultants to make it all work. As importantly, when market conditions change, you can scale down as easily as you scaled up. Such elasticity, matching business needs with IT capacity, is a thing of beauty.
Another advantage that stems from the OTC nature of global FX markets is the fact that search costs and integration headaches are a thing of the past. As Integral continues to sign up active market participants (i.e., banks, brokers, service providers, FX venues and liquidity sources) and drives to expand the platform, chances increase for unique FX business models to reach critical mass. It’s a good example of a positive network effect where one party’s economic interest benefits others. Furthermore, while there have been efforts to increase standardization, OTC markets almost by default are bespoke in nature. However, participants on a cloud-based platform need only to connect once with the operator of such cloud to be instantly set up to interact with any other party in the network.
The future of business computing
A little more than 100 years ago, in the beginning of the age of the automobile, people built their own roads. Granted, you needed to be an heir to the Vanderbilt riches to pull it off.
Indeed, William Kissam Vanderbilt II is widely credited with creating the first road specifically designed for only automobiles. His Long Island Motor Parkway opened in 1908. It closed 30 years later with very little fanfare as public roads had taken over. I am reminded of this piece of history whenever people tell me they want to build their own FX trading system.
As always, changing the way things are being done goes hand-in-hand with an educational process. Incumbents have been pushing to keep the status quo in place by painting a picture of how cloud computing is not yet ready for prime time. They have been highlighting every real and not so real shortcoming such as latency, security, loss of control for the bank or broker doing it, etc… While all these issues are debatable, there is clear evidence how cloud computing technology has evolved over the last few years and successfully addressed criticism.
As a technology vendor in foreign exchange who has been an evangelist of cloud computing, we find it helps us that our customers now hear the same argument from technology vendors that serve them in different areas, including such well-known companies like Oracle, SAP and Microsoft, all of whom have recently developed cloud-based solutions.
Cloud computing offers powerful advantages including superior economies of scale, integration capabilities, and elasticity to scale up and down.
What that means for market participants is a dramatic decrease in time-to-market. While banks or brokers routinely engage in 18- to 24-month deployments with license-and-install software providers, a cloud-based solution can get them live and trading in four to eight weeks. In fact, because of the compelling cost advantages, customers have run our system in parallel to other installments until they’re convinced and switch. Kind of like an in-house insurance system.
Why bother building your private infrastructure when a shared alternative is readily available? That’s the real power of the cloud as demonstrated in global foreign exchange markets, one of the most vibrant and demanding of all capital markets.