Brokers are increasingly challenged by clients leveraging their goodwill through various high-risk trading strategies aimed at earning profits at the broker’s expense.
Without proper oversight, these questionable behaviours can silently bleed profits and rack up unseen exposures over time.
Strategies such as scalping, arbitrage opportunities, and newstrading around announcements – all aimed at profits for the client but potentially destabilizing operations for brokers facilitating the trades.
Keeping up with hundreds of thousands or millions of daily trades across assets and multiple, heterogeneous platforms, it’s impossible for brokers to manually detect when an otherwise normal client begins pushing the boundaries into more concerning strategies.
Yet without visibility, brokers remain in the dark as risks escalate. They have no way to segment aggressive traders, restrict volatile trading periods, or balance their books against these unseen exposures.
The results can be disastrous once previously manageable positions rapidly amplify beyond hedged balances during inevitable market volatility.
Read on to understand how Tapaas is empowering brokers with much-needed visibility and control capabilities against toxic and abusing trading behaviours.
We will demonstrate why sophisticated brokers globally now rely on Tapaas as a necessary supplement to traditional trading, risk, and monitoring setups across FX, CFDs, and multi-asset trading.
Trading Challenges Brokers Face
To understand why robust capabilities for detecting high-risk behaviours are so critical, it helps to recognize the core challenges brokers face in today’s ultra-fast electronic markets:
- Huge volumes of data: Top brokers may handle tens of millions of price updates, tens of thousands of daily active trading accounts, and hundreds of thousands of trades per day across multiple platforms and liquidity providers. Making sense of this data is extremely difficult without automation.
- ‘Toxic’ traders: Certain trader behaviours like scalping, arbitrage, newstrading and frontrunning can be hugely profitable for clients but eat into the broker’s margins. Unchecked, these traders can become massively “toxic” for the brokerage over time.
- Market volatility: While volatile markets bring opportunities for smart traders, they also multiply risks. It’s critical for brokers to understand who is trading when volatility strikes and how their exposures are affected on a real-time basis.
What is more, traders often try to mask their behaviours by splitting their trading across multiple accounts or act in concert with other traders or bots to fly under the radar.
Without the right tools, brokers are operating in the dark in today’s data-intensive trading environment.
Tapaas is designed to eliminate blindspots using real-time analytics.
Case Study — ‘Toxic Traders’
Beyond obvious bad actors, a more subtle threat lies in “toxic traders” – clients who silently chip away at brokers’ profitability over time through various trading strategies.
In this case study, we dive into real examples of toxic trading strategies and how Tapaas data analytics shine a light on previously invisible risks before they spin out of control.
Scalpers and Scalping Detection
Scalping is a trading strategy that earns small but frequent profits on minor price changes. Scalpers open and close positions quickly, sometimes within seconds or less.
While scalping can provide consistent income for some clients, it can also cut heavily into brokers’ profit margins.
However, with hundreds of thousands of daily trades at major brokers, spotting scalping behaviours can be like finding the proverbial needle in a haystack.
Tapaas solves this problem using intelligent analytics algorithms designed specifically for detecting scalping activity even with massive trading volumes. The algorithms examine factors like:
- Speed: How quickly positions open and close.
- Frequency: Number of short-hold positions within timeframes.
- Profitability: Total profits earned from short-hold strategies.
By evaluating these metrics across all accounts and applying appropriate thresholds, Tapaas can reliably detect scalpers and alert brokers in real time.
This allows for immediate actions and informed decisions based on the insight Tapaas provides.
‘Toxic’ Trader Identification
Beyond scalpers, other ‘toxic’ traders can silently bleed profits from well-meaning brokers over time. This includes strategies like:
- Arbitrage: Exploiting multi-market pricing differences.
- Swap abuse: Misusing swap-free account provisions.
- Martingale: Doubling trade sizes with each loss.
- Credit abuse: Manipulating credit provisions across accounts.
- Front running: Systematically profiting from order anticipations.
- Latency arbitrage: Exploiting speed advantages to profit from market movements before others.
- Newstraders: Trading around major announcements and news events.
- Market movement: Consistently profiting from short-term market volatility.
- Range traders: Identifying support and resistance levels, with excessive risk if a breakout occurs.
Tapaas deploys targeted analytics to detect each of these high-risk behaviours based on intelligent combinations of trade execution signals. The system builds a profile of each trader over time and assigns a reputation score indicating ‘toxicity’-levels.
With alerts tied to ‘toxicity’-scores, brokers get notified when an otherwise normal client starts exhibiting unusual behaviours. Or Tapaas may detect outright aggressive strategies from day one.
Either way, you gain the visibility to segment risk appropriately or directly manage ‘toxic’ traders with confidence instead of getting blindsided months later with losses and reputation hits.
Decay Analysis provides valuable visibility into the profit trajectory of trades over precise time intervals. By comparing actual trade prices to hypothetical executions at defined points pre and post-execution (e.g. -10 sec, -5 sec, +1 sec), Tapaas quantifies probability-based yield and decay rates tied to holding periods. Traders taking quick profits can be revealed versus investments with longer time horizons across accounts.
Crucially, the multi-interval Decay Analysis spans trade directions, market conditions, symbols, and asset classes to uncover insights. For example, certain trade types may consistently decay within 5 seconds indicating their nature as short duration scalps. Alternatively, particular symbols could exhibit rapid instability driving decays while others hold value over 30+ seconds after market orders. This granularity empowers brokers to align trade rules and restrictions with the profiles of assets and trader behaviors on their books for balanced risk management.
Powerful Real-Time Risk Monitoring
Tapaas ingests huge volumes of trade tick data and performs analytics to surface insights brokers can act on in real time:
- View current client exposures and positions with pinpoint accuracy to ensure books stay balanced.
- Get alerts when traders exhibit potentially toxic behaviours so brokers take informed decisions.
- Understand precise trading activities during periods of market volatility or not.
- Detect clients attempting to game the system through arbitrage, abuse of credit provisions, or manipulation.
- Gain visibility into behaviours like scalping, martingale strategies, newstrading, front running, and more.
- See both summary and account-level details for sophisticated trader profiling and risk scoring.
The key is converting raw data into actionable intelligence through features like:
- Real-time tick analytics against key risk metrics.
- Configurable alerts and notifications tied to risk thresholds.
- Interactive dashboards with filters to instantly surface what matters.
- Ongoing R&D into new risk factors from client behaviours.
These capabilities let brokers see precise client risk trajectories rather than extrapolating from stale aggregated positions.
Tapaas serves as an early warning system for high-risk behaviours as well as an investigation tool when issues emerge. The result is vastly improved visibility and control for active trading management.
Get In Touch with Tapaas to Safeguard Your Brokerage
Managing risk in trading is immensely challenging, yet the stakes could not be higher for brokers facilitating countless daily transactions.
As customers trade more types of investments, aggressive trading behaviours can quietly increase risks while gradually reducing profits before large losses abruptly rattle customer trust.
Yet oversight need not rely on extrapolation from outdated positions or manual monitoring attempts.
Sophisticated brokers worldwide now safeguard their interests through Tapaas – converting raw data into targeted alerts and risk trajectories visible in real time.
By detecting high-risk behaviours as they emerge, you balance prudence and profit through automated insights simply unavailable otherwise.
With custom modules for FX, CFD and multi-asset trading, Tapaas targets the behaviours disproportionately impacting your operations.
Contact our team today to learn first-hand how purpose-built additions like Tapaas are empowering brokers to shift client risks dynamically, restrict damaging activities, and protect the bottom line through volatility and growth alike.