Trading Platforms Delivered as a Service

During the last decade the term “cloud” has become a mainstream keyword in most of IT topics. The cloud has changed the way institutions and companies are managing their needs. As a concept, when discussing regarding the cloud is actually talking about moving away from the product purchase orientation towards a service delivery one. Hence, customers do not buy anymore IT products like hardware or software, instead they pay for the delivery of IT services. For example, companies do not buy servers, hard disks, RAM and processors anymore, instead they pay for storage, memory and computation. In a similar way, they do not pay for software licenses but they pay for the use of software. People do not buy Microsoft Office CDs anymore, instead they pay for Office 365 subscriptions. Over the last ten years, the cloud business model has introduced serious advantages for many business sectors. One of them is financial trading and trading platform services on which we will focus on this article.

The Benefits of Cloud Computing and PaaS

The service oriented approach is usually separated into three distinctive models. These 1) Infrastructure as a Service (IaaS) 2) Platform as a Service(PaaS) 3) Software as a Service (SaaS). IaaS providers supply computers, storage, firewalls, load balancers and networks on demand from their datacenters, removing the need of maintaining hardware in house. PaaS providers deliver solution stacks which typically consist of operating systems, databases, servers and development environments, allowing developers to run their solutions on the cloud without worrying about the underlying infrastructure. At last, SaaS providers operate application software on the cloud, from where it is accessible by the users.

The service-oriented business model comes with a series of advantages. The most important ones are the following three 1) agility 2) cost reduction 3) Return of Investment (ROI) boost. By agility, we mean the ability of an organization to respond to new business needs and leverage existing services. By using the cloud business model, organizations can scale up their services fast without the need of a capital investment. For example, a web based service can respond to increased demand by adding more web servers to serve incoming requests, without the need to buy those servers. On the opposite, when the requests are reduced, the service provided can easily scale down avoiding extra costs. Based on this, a business can use at any time only the necessary resources leading to the second advantage of the service oriented business model, the cost reduction. At last the ROI boost comes from lower maintenance costs, enhanced flexibility and lower integration costs. Other advantages that accompany the service oriented approach is the IT personnel efficiency, shorter time to market and decreased demand for highly skilled professionals.

Trading Platforms and PaaS

When it comes to trading platforms, the landscape could not be very different. During the last years, the development of trading platforms has shifted from in house production to third party software providers. Due to the high development and maintenance cost, brokers have stopped developing proprietary trading platforms and relied to third party products to cover their technology needs. As a result, the typical business relationship would be that a broker would pay licensing fees to a trading platform provider and then host the solution on his own premises and infrastructure. With this arrangement, the broker could get rid of the expenses of developing and maintaining a trading platform but he still had to deal with the hassle of managing the infrastructure on which the solution would run.

Lately this model is starting to get disrupted as well. Trading platforms offered on PaaS premises are already available. This fact affects the trading industry in the following ways. First of all, the development of a trading platform or even the purchase of a license, is a capital intensive process. As things stand today, In order to set up a brokerage using the standard business model, a six or seven digit capital investment is required, which usually becomes the biggest expense for a new broker. This is a big barrier to entry for many potential new players in the industry. On the other hand, with the PaaS model the capital expenditure is reduced to the minimum. Thus, brokers pay on the go and based on their success. This type of arrangement increases the potential of success as well, since operational costs are increased only as brokers earn more money and can cover the costs. Moreover, brokers now do not need to maintain an in house IT department for running sufficiently the trading platform, since this task is undertaken by the PaaS providers. At last, using a PaaS solution brokers can get rid of maintenance and management issues diverting their attention and can focus on what they do best, building and expanding their business.

The adoption of PaaS model in the trading platform market is already bringing disruptive changes in the entire trading industry. First and foremost, competition between brokers will be increased. Lower startup costs will make it easier for newcomers to enter the market and succeed. This competition will eventually benefit traders. Secondly, better trading and managing experience will be offered to all participants. The PaaS model ensures that the platforms will be managed by experts leading to better execution times, less downtime and fairer trading conditions. At last, it will ensure transparency and a fairer treatment of traders, since platforms of different brokers will be hosted on similar infrastructure their success will not rely on the technological capability of each individual broker.

Conclusion

The adoption of cloud has changed dramatically the way businesses deal with software and hardware. Organizations and enterprises have stopped perceiving software and hardware as assets and they consider them more as operating expenses. Adopting this mindset, they can lower their cost, increase their flexibility and boost their profits. This is fully applicable to the trading business as well. Brokers and institutions can take advantage of these benefits by switching to a PaaS model to serve their IT needs. This way they will be able to increase their chances of success dramatically.