Automated Risk Management with YOONIT

When we think how most brokers manage risk it conjures up the image of a dealing room monitoring the trading book, manually covering net exposures and deciding which clients to STP based on their deposit threshold, trading behaviour or jurisdiction. At a very high level and for the most part, this is how risk is handled. The process sounds very manual, or at least like it could be. We are going to explore how using a combination of modern broker technology a lot of these manual processes can be automated thereby reducing the risk a broker is exposed to, and improving efficiencies so dealing desks can focus on the processes that will not be automated.

At the outset its important to understand that automating risk management cannot be done using one tool, rather a combination of tools that require particular capabilities must be available. Lets go over each element step by step, for a Metatrader broker.

Rule based Metatrader registration group selection

When clients open an account at a Metatrader broker (which is typically automated) they must be placed in a particular Metatrader group upon registration. Most brokerage client portals or CRM solutions will handle the new Metatrader account creation process and automatically allocate it to a specific Metatrader group. As the group dictates symbols, spreads and commissions the client will receive the client account will be allocated to a particular group based on the account type they have chosen. Further to that, Metatrader groups can also be configured to send orders to a particular liquidity provider, liquidity pool or to leave the client b-booked. Therefore, having the ability to set rules on which group to put a client in upon registration can allow a broker to automate whether or not they are covered, and if so, to which liquidity venue or pool their flow is routed.

Anyone monitoring an active trading book will know its often easy to spot patterns of toxic or high risk clients as they often sign up one after the other from the same jurisdiction, or via the same IB. In fact, some brokers might see 100% of clients coming from particular jurisdictions falling into the category of being either toxic or very high risk. In such cases it is essentially the same people or team trading under different peoples names. If successful they make enough money under one client ID and then they move on to the next in an effort to go under the radar of risk managers.

Therefore, having the ability to automatically allocate clients that come in from particular regions or IBs to specific Metatrader groups allow brokers to automatically route such clients to particular liquidity providers or pools based on rules. They can even give them accounts with increased commissions or spreads to capitalise on toxic STP clients without bearing any risk.

The inability for a broker to automate the allocation of clients can have dire results, especially when automated payment methods are offered with high deposit limits. It is not unheard of to see a toxic client sign up, deposit say 100k USD via crypto and double their balance overnight before dealers have had the chance to react.

Full rules based Metatrader registration group allocation is therefore key to helping brokers automate the element of deciding who to STP allowing dealers to focus on other critical tasks. YOONIT’s CRM and IB module work hand in hand offering a fine grained rules based registration group allocation system automating which groups client accounts go in based on account type, country, IB and more.

Allocating clients to the right liquidity pool based on their IB

We are now going to explore how brokers offering PnL deals to IBs can benefit from a rules based Metatrader group allocation system.

To provide some background it is common in the industry for profit sharing deals to be offered to brokers by liquidity providers. There are many different structures for such deals but in essence the broker STP’s a pool of clients that looks like they will lose to a liquidity provider who b-books the flow. The cumulative net losses on the b-book liquidity account will be calculated on a schedule, typically quarterly, then a percentage will be paid back to the broker. It allows small brokers to maximise their income while staying full STP and without risking their own capital.

With that in mind, as the business has become more competitive the practice of profit sharing has been extended to IBs. So, a broker will pass all the clients that come through a specific IB to their B-book liquidity account and a percentage of the profit sharing then gets shared with the IB. However, for this to work they need to ensure all clients from a particular IB get routed to the right liquidity account and not mixed with their other flow. In such cases a broker having the ability to create a rule to automatically allocate clients to a particular registration group based on the IB they came through means they can automatically route all trades that came from clients of a specific IB to a particular liquidity venue. This is critical for this business model to work and such rules enable this business model.

Introducing Dynamic Margin to the mix

As many risk managers will be aware, dynamic margin refers to adjusting the margin a client receives based on the trade volume. For example a client might be offered 500:1 leverage (0.2% margin) on FX for any trade up to 5 lots, but for trades above 5 lots the portion above 5 lots might be offered with a leverage of say 100:1 (1% margin). YOONIT’s Dynamic Margin module can do the above while offering a lot of extended functionality such as helping brokers enforce NOP limits, scheduling margin restrictions around high risk events such as elections, configure complex tier systems using symbol/securities masks, including/excluding dynamic margin to specific logins and/or groups.

They key thing to note here is that the YOONIT Dynamic Margin module does not apply server-wide (unless a broker configures it like that). Instead, multiple Dynamic Margin profiles can be created within the UI and be applied to selected Metatrader groups using specific group names or masks. Therefore, when this functionality is combined with a rules based registration group allocation method the results can be quite powerful as we can automate which clients receive dynamic margin and which do not based on their country, IB, account type and more.

Leaving risk managers to focus on core activities

The above are just a few examples of how the YOONIT suite can help brokers automate a lot of their processes surrounding risk management, that are not directly related to dealing. By implementing such automations it can help risk managers focus better on processes that cannot easily be automated such as managing uncovered exposures.

If you would like to find out more of how PLUGIT technology can help your firm with its risk management please get in touch. We would gladly go over them with you.