Software and Trading. A Long Term Relationship.

When engaging into a customer-supplier relationship, you are usually faced with two types of associations. The most usual is what is called transactional relationship. In a transactional relationship,  the client can use your product and service once and might never have the need to return to you and use it again. This the most common type of relationship. Buying a bottle of beer, a car, staying at a hotel, watching a movie are all considered transactional relationships. In these types of relationships mistakes are forgiven. You try a restaurant, you don’t like it, you don’t go again. But there is also another type of relationship which is different and it is called sticky relationship. In a sticky relationship there is usually a cost for changing your decision, therefore the initial choice is of paramount importance. Such a decision could be buying a house or investing in a software solution for your company.

Software in Trading

In the modern trading world, almost all trading is done through the use of software, since sellers and buyers rarely see each other. Again most of the times this happens through middle men which are the brokers. Brokers facilitate all this interaction with the use of trading platforms. These platforms are often provided by third party software houses. Essentially brokers get software or services from software companies and software purchasing is a sticky relationship. This is mainly a result of the investment required to adopt a software solution into a business process. In contrast with, let’s say cars which most of them are driven the same way, software solutions require process adaptation, a significant learning curve and most of the times an unavoidable data migration. Therefore, businesses are far more reluctant in switching their software solutions than changing their car fleet.

This brings us to the point where we need to examine what are the key points that have to be considered before engaging into a sticky relationship between a broker and a software solution provider. In essence, we need to understand that when we select a software solution, we do not select just a product but a partner in our business. Hence, all the questions you would ask before allowing a partner joining your company should be asked when choosing a software partner. In essence, you will need to see where your partner will be after many years and not only where he is now. In my opinion, the key points that need to be addressed are the following a) the technology used b) the development practices c) the business model and d) the general company well being.

Technology

The technology behind any product is of crucial importance. If you were to choose where to build a factory and had to select between a country that produces electricity from coal and a country that produces electricity from renewables, what your choice would be? I believe that you would prefer the country with the renewables even if the electricity bill would be higher in the short term. This is because you care about where your business will be not only next year but also in 20 years. The same applies for trading software. A broker must favor companies that use latest technologies to build their products rather than outdated tools, since it is more probable that the products of these companies will stay relevant in the years to come.

Development Practices

In software, development practices are of paramount importance. At any given time product A might outperform product B in features but it doesn’t mean that this will always be the case. If product B develops 3 times faster than product A, you would definitely not want to lock yourself in product A. Also, you would prefer a product that gives you 10 features that work flawlessly than a product that gives you 20 buggy features. Support is another big issue. You want someone that will pick up the phone and reply to your emails AFTER you have made the bank transfer.

Therefore when you look for a trading platform provider check for the following a) they adopt agile programming methods. Agile programming methods have a proven record of faster delivery and higher quality of software solutions. b) check how often they deliver updates. Infrequent updates should be a showstopper. c) check on their support. See their support system, if they have a community, a knowledge base etc. You don’t want to get stuck into situations where no one is willing to help you.

Business Model

Another important factor that your technology partner should be validated against is the business model it follows. You don’t want to build your entire business on a stack of technologies and find out one day that the provider of these technologies has gone bankrupt, do you? For example, if you get an offer for a trading platform that is insanely cheap, that is not necessary good news. It could be the case that the company has figured out an exotic plan of unmatched productivity and zero cost operation or more probably than they are trying to get anything to survive for another year or even that they have a really bad business plan and poorly calculated projections. The most expensive solutions are not necessarily the best but the rule of thumb is that you pay peanuts you get monkeys. And good professionals are getting paid well. So when you look for a trading platform provider, don’t stick to the absolute price tag, but consider the justification of the price and the future prospects of your partner.

General Company Well Being

At last, something which is most of the times neglected is the quality of the company and the key people behind it. Check who is working for your partner, for how long, what their qualifications are etc. Everything mentioned before is initiated by your partners employees. Happy and skillful managers will make good business plans and manage nice projects, happy developers will write better code and satisfied technicians will be happy to support. So do some research on this, learn some rumours etc. This is so easy nowadays.

In trading, unlike in other sectors, software is a core part of the business. Brokers set up their entire business model on their trading platform and it is not easy to move away. It is much easier to detach from your mail client or your word processor than your trading platform. Thus brokers should be increasingly aware of the factors that might affect their business and base their decisions on them. As mentioned above, they should not consider the selection of a trading platform as a purchase but mostly as a wedding for which the divorce might prove very painful. Hence, they should consider carefully all the factors that could lead to a divorce or a happy marriage ever after.