The following guest post is courtesy of Natallia Hunik, Global Head of Sales at Fortex.
—
Today many global FX brokers have their sights set on China. It is certainly a land of opportunity, where brokers, regardless of their size, can unlock their growth potential and capture above-average profit margins. It seems the perfect market, doesn’t it? Investors who are hungry for volatility, fast returns and a hassle-free trading environment but the harsh reality is that only a few brokers are able to make it in China.
Foreign companies face a major challenge when attempting to break into the China market. They face all kinds of legal issues, very real cultural differences and infrastructure roadblocks and end up deploying teams of expensive consultants to try to figure everything out for them. On the other hand, Asian licensed brokerages, run by local managers, are actively gaining Chinese market share and are locking in home field advantage.
So why are these Chinese-run brokerages able to set up their FX businesses in record time and why are the foreign brokers lagging behind?
Apart from the obvious advantage of already being ‘on the ground’, Chinese brokers know that you need to strike while the iron is hot when dealing with Chinese traders and investors. The client will be ready to trade as soon as the trading account is open so the brokerage cannot afford any unnecessary delays or connectivity issues. This is the reason why one of the first priorities, when setting up their business, is to understand and master the local connectivity.
So let’s ask the question,
Why does your top-of-the-line technology infrastructure and expensive hardware not work in China?
As many of us know, the internet in China is censored by the government and the “Great Firewall of China” filters all traffic exchanged online with the outside world. As a global business, you will deal with this censorship on many levels, starting with your email server, gaining access to company resources for your Chinese office and, most importantly, allowing your traders to actually access the market.
In this article, I would like to review the most common ways that FX brokerages are currently navigating around the issues with online connectivity in China.
Option 1
The first reaction of many FX brokers, when facing issues with platform connectivity in China, is “to get closer” and locate their MT4 servers in Hong Kong, Singapore, or Tokyo. This is the right path to take in most cases, but many companies often neglect the fact that their IT teams may have little or no experience in managing these types of remote datacenters. The potential is there for these endeavors, and the additional location in Asia, to turn into a huge money leak that drains the budget and adds to the problem instead of solving it. I have actually witnessed this happen at an established brokerage in New York where the IT department thought they could manage a remote facility in Hong Kong without help from experienced domain/datacenter experts on the ground in China. As a result, they exacerbated an already bad connectivity problem by overlooking important details such as bandwidth allocation, firewall configuration, network topology, software limitations and much more.
One important fact to remember here is that even though Hong Kong is a part of China and is in close geographical proximity, it remains outside of the “Great Firewall” coverage. Therefore, while placing a server in Asia may alleviate many latency / trade execution issues (by providing a shorter route to local MT4 trade servers) and may provide a solution for a large percentage of your traders, it still may not fully address all of the connectivity issues. The deployment of additional local resources and solutions may also be necessary.
When contemplating this route, please take into consideration the following points:
- Surprisingly, in most cases, server hosting in Hong Kong, Singapore and Tokyo is more expensive than in New York or London.
- You will most likely incur additional expenses with regard to your global network infrastructure as you will now need to connect to a secure route from your MT4 server in Asia to liquidity sources in New York (NY4 datacenter).
- Managing a complex global infrastructure will most likely require additional staffing resources.
Option 2
Many brokers have taken a different approach altogether and are installing MT4 access point applications in mainland China on virtual machines provided by local Amazon cloud-like vendors such as Alibaba. This certainly is one solution that can help route traffic to an MT4 trade server while at the same time, locating trading access points closer to the client. But what are the potential drawbacks to watch out for with this type of solution?
- Quality of hosting – Mainland hosting, especially when using virtual environment, is often times not on par with international standards. Frequent downtime and service unavailability are common occurrences.
- If not planned and load balanced properly then, during major market news events, the majority of MT4 users may be routed to a single, closest access point that can easily reach its ceiling in terms of maximum simultaneous connections . The end result will be that your users will start getting logged out of the system en masse.
- All your access points in China may be hosted by a single ISP which, in turn, exposes your company once again to connection issues should that particular ISP experience its own issues.
- These solutions sometimes utilize internet routes that may not make sense. You could have a situation where a connection from a user in China to a trade server in Hong Kong is routed through Europe and ends up taking longer than simply going straight from China to New York.
Option 3
The third commonly used solution with regard to connectivity in China is known as CDN (Content Delivery Network solution).
(Left) Single server distribution, (Right) CDN scheme of distribution
Image from https://en.wikipedia.org/wiki/Content_delivery_network
CDN is a large distributed system of proxy servers deployed in multiple data centers across the Internet. CDN allows companies to accelerate access to data and offload and distribute traffic from the main servers.
While used mostly to accelerate content delivery or streaming media to end users by hosting some of the content on the proxy servers, CDN serves the content to end users with high availability and high performance. But most of the content is static (streaming video is also static content). Even though some CDN providers, including Amazon, started providing support for dynamic content, those so-called dynamic contents are just personalized static content based on the user interaction.
For an FX Brokerage, one of the most important requirements is the delivery of low latency, streaming financial trading data (pricing and order stream). CDNs static format unfortunately completely defeats the purpose with regard to real time, low latency delivery. CDN therefore isn’t a viable, all-encompassing solution for FX Brokerage connectivity.
Nevertheless, CDN is not completely without its benefits where an FX Brokerage is concerned. It may be useful for Web trading platforms or for a Chinese-language website. It will not, however, address the issues with the connectivity between the end users and the trade/quote servers. The main point that I’m trying to get across here is that FX brokerages should not be misled by omnipresent providers, pushing to sell “CDN” solutions, without fully understanding how or indeed if, CDN can actually help their business.
Solution
So, having considered all of these solutions, how might you successfully deliver highly accessible platform connectivity and low-latency order execution to your Chinese clients?
In reality, you can achieve this goal by using a combination of the above-mentioned methods along with some serious fine tuning. We should perhaps remember that companies who are not proactive in dealing with this issue tend to pay more later in the form of lost transaction revenue so it’s always beneficial to think ahead.
Place yourself in the competent hands of Fortex’s team of experts in this field who will provide you with an elegant, cost efficient and effective solution that meets all of your needs.
- MT4 server will be deployed at a premium Asian datacenter with colocations, interconnection and full support using only, top of the line hardware.
- MT4 Access points (datacenters) will be placed at critical junctures on the Internet facilitating dedicated routing of traffic from point to point with guaranteed speed. Deployment will utilize multiple backbones and multiple points of presence (access points to the Internet). In the case of China specifically, the solution will be architected in such a way that it can access backbones of two major ISPs: China Unicom and China Telecom.
Unfortunately, many brokers don’t view platform connectivity as their main priority thus putting themselves at an instant competitive disadvantage. Connections in China can be blocked and/or are frequently intermittent and unreliable, resulting in serious frustration and concern for active traders. By using the right solutions, from a trusted partner with vast infrastructure and domain experience in China, you can not only achieve better trading platform performance, but you will ultimately be able to maximize your revenue from the region. If you are currently looking to expand your global footprint into China or you are already there but seeking better solution then why not start with professional advice about options that might be available to you?
You can reach me at [email protected] should you have any questions.
Fortex has dedicated datacenter facilities in NY4 (New York) and HK3 (Hong Kong) and has been working in the Chinese market for more than 10 years, helping brokerages of all sizes thrive and achieve their operating goals in the region. Our experienced engineering and IT teams are strategically located in Silicon Valley, California, mainland China and Hong Kong.