Non-Zero’s Brokerage Business Model for the 21st Century
After the unveiling of the product earlier this summer, Non-Zero delves into details
Non-Zero has been all over the news in recent weeks after it announced the launch of its brand new product. The company’s goal to revolutionise the brokerage industry has started in April this year. A tailor-made solution for foreign exchange and CFDs brokers that enables the firms to redistribute their gains from internalising trades back to clients is a revolution waiting to happen.
The founders of Non-Zero include financial industry professionals with combined experience of over 40 years. Ziad Aboujeb and and Karim Farra co-founded 180 Capital. The Group is behind a list of well reputable companies in the retail financial trading industry like 180 Digital Assets, Centroid Solutions, Amana Capital, 514 Capital Partners and Trade Captain.
With Non-Zero however their goal is to change the brokerage business model for good at a time when the industry is increasingly getting scrutinized. Long-term sustainability of any business model is key to the persistent success. As such, the focus of the founders of Non-Zero has been on enabling a broker’s clients to receive a portion of the income of the brokerage.
In a world ripe for disruption, the ERC-20 based Ethereum token used by Non-Zero brings unparalleled level of transparency to the broker-client business relationship.
STP vs Market Making
The majority of brokers in the industry are heavily committed to the market-making or warehousing revenues model of operation. The companies are booking their clients’ losses as income and are therefore creating a conflict of interest. Non-Zero’s commitment to change this status quo doesn’t come out of the blue, instead it is backed up by solid survey data.
According to the Finance Magnates Intelligence Department, close to 45 percent of active traders surveyed by Forexlive prefer straight-through processing (STP) brokers. Just below 16 percent of traders are committed to market makers, while 28 percent don’t know the difference. There is an obvious preference amongst active traders to commit to use a broker which doesn’t have a conflict of interest with its clients.
The data speaks for itself and opens the doors for a radical change to the market making part of the foreign exchange and CFDs brokerage industry. Firms need to bring inline their own self-interest with that of the client. While the majority of brokers claim to be receiving most of their income from spreads and commissions, statistics from publicly listed companies point to a different outcome.
What Should Change in the Current Business Model
The most popular model of operation in the industry has been the hybrid business model. As traders are placing their trades with the brokerage, a risk-management software is identifying which flow should be offloaded to liquidity providers and which should get internalised. The former flow belongs to the co-called A-book, while the flow that is warehoused within the brokerage is the B-book.
The core of this business model is the adequate classification of flow by the risk-management software. In this respect, Non-Zero has partnered with award-winning Centroid Solutions, a firm which has made its name in the industry with a reliable product suite. The company is providing risk-management, regulatory reporting and a bridge software solution.
FX brokers are typically charging their clients a markup over the underlying security bid/ask spread and/or a commission per contract. While a typical FX broker pays rebates from bid/ask spreads on some of the volume back to introducing brokers or clients, the new regulatory landscape in Europe has forbidden any type of incentives to clients.
This is where Non-Zero’s new business model steps in. The firm is providing brokers with a tailor-made software suite to open up a new ecosystem. The companies are encouraged to share their revenues from the B-book with their clients, an act which is opening the doors to a new partnership between broker and client. With the interests of financial intermediaries and their clients fully aligned, Non-Zero’s platform for redistribution of income with their customers opens the doors to establishing the brokerage industry of the 21st century.