Before we explore the benefits of white labeling, let me define what it is.
White labeling is simply the practice of one firm buying another firm’s product and then marketing it as its own. For example, a meat packer sells his goods to Supermarket A where his meat products will be rebranded under the Supermarket A’s label.
In the forex market, white labeling is used for trading software, platforms, and other additional services that brokers may offer.
One good reason why white labeling is gaining popularity in the FX market is that it benefits both the buyer and seller of the product. For product-makers, selling their software and platforms provides them additional income. Also, they won’t have to worry about marketing their product to traders who are more likely to stick to their tried and tested platforms.
For banks and brokers, white labeling saves them the cost of developing a new product that will attract new customers. In fact, they can even ask the product-makers to customize the products to make it look like they’re the ones who made it! In addition, buying (instead of developing) new software makes it easier for the firm to encourage existing users to stay with the broker.
So who exactly practices white labeling? Well, it’s a lot more common than you think.
For example, both Gain Capital and FXDD – two renowned retail forex brokers – advertise their white label programs on their websites. Gain Capital allows partners full use of both their ForexTrader PRO and MetaTrader 4 platforms. Meanwhile, FXDD has focused on partnerships with new brokers, hedge funds, and money managers.
The big banks are joining the party as well. CitiFx Pro (the retail forex trading division of Citibank) uses Saxo Bank’s platform, while HSBC just announced that it was going to white label Oanda’s fxTrade platform and offer retail trading to its Hong Kong-based clients.
This is as interesting development, as it highlights the ongoing trend of consolidation in the retail forex trading industry. The question is, what could this mean for the average forex retail trader?
On one hand, it could lead to better execution, as trading platforms will become more integrated with one another. Take note that aside from HSBC, Oanda is also currently providing its services to RBS and the ABN Amro group. The more that big banks tie up with the same brokers, the more liquidity and better execution we see in the markets.
Also, product-makers provide dedicated technical and customer service teams to their clients. This should hopefully lead to better client-broker relationships.
On the other hand, because brokers are now relying on third-party software, we could encounter the disadvantage of additional fees.
What? Did you think brokers would just allow you access to additional software and information at no cost? Think again buddy! The additional costs would most likely be supplemented with additional administration fees or perhaps even wider spreads.
In the end though, with stricter regulations and the high costs of business, I wouldn’t be surprised to see some companies to merely focus on white labeling their products as opposed to trying to establish themselves as full-force brokers.
What do you guys think of this trend in the retail forex trading industry? Hit me up with your thoughts and comments below!