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CMC Markets: the journey to institutional price‑maker

CMC Markets: the journey to institutional price‑maker

CMC Markets Connect has leveraged its unique position in the institutional and retail spaces to ensure continuous innovation. Company head Richard Elston describes how it has established itself as a disruptor in the FX space

Richard Elston, CMC Markets Connect
Richard Elston, CMC Markets Connect

At the beginning of 2021, CMC Markets launched its Connect brand, catering exclusively to the institutional market the firm has been cultivating since the mid-1990s – just a few years following its inception. Historically, the two divisions have operated under a single umbrella, but this divergence represents the importance to the firm of the institutional-only product set CMC has now begun to deploy. With some industry participants still struggling to understand how a retail shop can play a meaningful role in the institutional market, Richard Elston discusses how the company has leveraged its unique position, thrives on innovation and continues to act as a disruptor in the FX space.


Many people associate CMC Markets with retail. Can you explain the legacy here?

Richard Elston: Since its inception back in 1989 as Currency Management Corporation, the company has always looked to be an innovator. Around this time, we were seeing the early stages of home adoption of the internet and the growth of the contracts for difference (CFD) market, so this combination made fertile ground for CMC – among others – to grow a market of day traders.

They looked different to the audience of today, as many came from a professional trading background. But the appeal of being able to use institutional-style products, allowing them to go long or short on a leveraged basis against a range of assets and all from a single account was appealing. From the outset, CMC Markets positioned itself as a true innovator, putting technology at the heart of everything it did. This facilitated groundbreaking products, such as rolling cash, which meant clients weren’t left to close and reopen positions held overnight. But, perhaps more critically, the business was one of the first to realise CFDs could be repackaged as a spreadbet – a tax-efficient way of trading for those based in the UK.

The two instrument types – along with a range of spot FX pairs – were delivered side by side, and our first institutional client was onboarded in 1996. This entailed us providing multi-asset delta hedging for another broker, where it then became apparent there was more growth to be seen in the business-to-business sector.


Over a period of 30 years, you have built a formidable retail brand. Why pivot now?

Richard Elston: This market is in a perpetual state of evolution and, as a company, we take pride in being at the front of that wave. But critically it has been change at the top end of the FX pyramid that has been the single most important driving force. Prime brokers and tier one liquidity providers have – over the past 15 years or so – fundamentally changed the way they operate. We’ve seen the dual-pronged effect of greater internalisation of flow as they look to take advantage of technology to protect margin, along with this same cohort becoming more discerning as to who they will do direct business with.

That presented CMC Markets with two valuable opportunities. First, as a tech-focused company, we have always looked to automate processes that others run on a manual basis, while our hefty balance sheet positioned us as an ideal intermediary for parties that had been disenfranchised by the legacy liquidity providers. Second, we became increasingly aware of the value our retail flow could provide when it came to augmenting the underlying market.

There’s an assumption by some that retail flow adds no value to the institutional market – but this is wrong. Using this to augment our liquidity provision and price construction gives us an immediate edge.


Can you explain a bit more?

Richard Elston: Instead of us only being able to quote the market depth you see from any well-capitalised party connected directly to tier one liquidity, we immediately have another layer on top of this, in the shape of what our retail clients are trading and how their exposure sits. That helps us offer better depth at more consistent spreads, while the price construction methodology we use has also allowed us to become a true price-maker. We’re absolutely not in the league of the so-called ‘prime-of-prime’ market, where liquidity is just recycled down the chain. This advantage was laid bare in the early stages of the Covid‑19 pandemic where we were able to help mitigate the risk of market dislocations. This was by virtue of our retail flow, our price construction and our confidence in making a price when others didn’t feel able to do so.

What does this tell us about the future?

Richard Elston: Hopefully, what we have outlined so far explains why we felt the need to start operating the institutional division under its own brand. After all, retail clients – who remain very important to the company – have no need to be distracted by a whole set of messages when it comes to things such as internal flow, ultra-low latency or our use of LD4. We’re simply continuing to offer them a great over-the-counter service with up to 11,000 different tradable instruments across multiple asset types.

However, we need to make clear that we have pricing and the corresponding depth of market available for our institutional counterparties, which sees us having adopted the role of a non-bank liquidity provider. That, combined with the flexibility of our approach and indeed the technology, means that any institution looking for a liquidity partner should give us a call. If you’re already sorted, can we do better? If you’ve been pushed away by a legacy liquidity provider, can we step up to help?


And technology is the key?

Richard Elston: Yes, I think that’s a fair summation – along with knowledge of market infrastructure and a weighty balance sheet. This isn’t an easy market to crack, as counterparties rightly have some very demanding expectations, but it’s a classic case of technology – or, more accurately, fintech – finding a solution to the problem. Whether that’s our progress in using automation to deliver high-quality service to smaller clients that legacy players didn’t want to cater for and all at competitive prices, our ability to create price ladders that improve on underlying market conditions or indeed the fact we have created prices when mainstream providers have walked away, each of these attributes revolves around the technology.

We need to bake into the conscience of the market that, in 2021, CMC Markets is so much more than just a retail play – and that’s what we’re doing with CMC Markets Connect. To put it another way, we may not look like your grandfather’s liquidity provider, but this market is changing apace. We’re delighted to be at the forefront.

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