How NOT to Choose Software for Your Exchange: Five Sure Signs to Make You Alert
Choosing a software vendor for a digital trading business is an incredibly challenging task, for the simple reason that this relationship is very likely to last as long as your business will run. Any mistake, even the slightest one, can lead to major financial losses, or even bankruptcy.
However, we have an assumption that anyone who is concerned about finding a reliable software vendor doesn't want to make any mistakes at all. Moreover, the general criteria are probably common knowledge: reliability, advanced tech platforms, short time to the first value, etc. We see no point in listing the features which any sales manager will quote to you, and which we have listed ourselves more than once in some publications.
What we believe makes sense is to help you identify potentially unreliable vendors. Our expertise and the previous experience of our customers allow us to compile a short and practical checklist for you. Please keep in mind that we are not urging you to immediately stop collaborating with your current or potential technology partners if any of the points in this piece strike you as familiar. This information is intended for you to re-analyze the data you are provided and possibly to ask additional questions to your sales manager and/or consultant.
Anti-features to look out for
Here we list the features of digital trading software that we believe should represent default “red flags” for any customer. If you would like to discuss similar experiences or dispute any of these statements, we would welcome any feedback from you.
1. The matching engine performance is too good to be true
A matching engine is a core component of any electronic exchange. As the name implies, this feature uses algorithms that match opposite bid and ask orders, thereby directly enabling the existence of the exchange process.
Understandably, any trading platform owner would want this component to be as powerful and efficient as possible. Unfortunately, at the moment, there are objective limitations of purchased crypto-exchange software that are not yet possible to overcome. However, matching engine performance may well be cosmeticized, which is what some unprincipled vendors are doing.
For example, in a conversation with a sales manager, you might hear or see the following performance value: one million transactions with a fifty-millisecond latency. Presentations and websites with these kinds of statements can also be found online. Yes, this is impressive. And this is simply not possible.
The matching engine performance stated above may be inherent in institutions tiered with NYSE (New York Stock Exchange) or NASDAQ, with a capitalization of trillions of dollars. This level of execution is underpinned by an incredibly expensive hardware infrastructure, which typically requires decades of development, backed by tens (if not hundreds) of millions of dollars invested in R&D. In short, such technology is not shared in the commercial software market, at least not right now. The reported numbers you see above may indicate that your consultant is not being completely honest with you or does not fully understand what they are talking about.
For the commercial software segment, the realistic-looking performance of a matching engine sits around tens of thousands of transactions per sec. And even for that output, you need to invest in well-established software infrastructure.
Your belt and braces. The best method of checking the claimed performance level of a matching engine is to test it under extreme stress load in a demonstration environment.
2. Client UI and UX are over-emphasized (while the technical features are left behind)
We do not deny that the success of a trading platform also depends on the user experience. Your goal is to attract users to your exchange, and the user interface, in this case, serves as a calling card. And it better be clean-cut at the very least.
Ultimately, however, what matters to you and the user is the proper execution of trading procedures, avoiding slippages, tracking and eliminating cheating loopholes, etc. If commercial negotiations told you more about the niceties of the user interface than about the features that make the exchange work, you should be wary. The vendor may have devoted as much time to the latter in development as they did in the presentation.
Always remember this: what's hidden under the bonnet of your exchange is designed to generate profits for your clients and for you. The lack of a comprehensive demonstration environment for the solution you are being pitched is a clear indication that you should question the quality of the offered products.
Your belt and braces. If you have any doubts about what exactly you are being presented with as an exchange software solution, and ask a few questions about the matching engine performance, slippage protection, etc.
3. Additional fees are charged for extra trading symbols (and other hidden costs)
The situation when a vendor includes a certain number of trading symbols in the default package and charges for the inclusion of additional symbols is quite common. And we unequivocally disapprove of such practices.
There may be several reasons for this kind of operating model. For instance, it may be driven by the insufficient performance of the components that make up the solution. Regardless, this can be a motivation for a customer to discuss this category in more detail within the price breakdown.
You can also be told a solution does not include a fee for trading volumes. This is standard practice for the industry, and eliminating it looks like a definite advantage. However, it is quite possible that this is a way to hide the additional charges for all balance sheet transactions that a client makes on your platform. This means that your business will pay the software provider for every instance of depositing and withdrawing money in customer accounts. If this is the case, you may want to take a pause and consider which option would be more profitable for your business.
Your belt and braces. Be wary when you are specifically reminded that there is no charge for a particular service. This may hide additional costs that are not exactly suited to your business model.
4. Security information is hard to access
Security is one of the most important components of any exchange, and one of the main concerns of a software provider. It goes without saying that the client should be provided with information about the security protocols applied in the solution at the introduction stage.
If you do not get clear answers to your security questions in commercial negotiations, or cannot establish the availability of important components to ensure the safety of funds and personal data, you as a potential customer should immediately raise a “red flag” and investigate the situation.
The best indication that vendor's products have high-security standards is an independent auditor's report and approval. The audit procedure involves an independent agency conducting a full security test of the software.
Your belt and braces. This aspect of exchanges cannot be left unchecked, so you have every right to investigate the safety of the solution being offered to you in any way necessary. If a potential provider's products have not been audited, you can initiate the procedure, and if you are granted permission to do so, that is definitely a good sign. You can also offer to simulate the whole project planned to run on your platform in a demo environment. The main condition in this procedure should be your full autonomy to test the software for any vulnerabilities.
All software offered as part of WL Global solutions has been fully audited by a Big Four company, Deloitte. If you would like to learn more about how exactly we secure our clients and their businesses, request a full presentation.
5. The rates are astonishingly low
The desire of customers to optimize operating costs and get to first value as soon as possible is understandable, and many respected software vendors support this desire and take it into account when calculating the cost of delivery packages. At the same time, it is important to understand that the cost of a professional development team and investments in development are bound to be reflected in the final price, which cannot fall below a certain threshold value.
Somewhere in this area, the buyer needs to determine for themselves the fine line between a rational approach and the desire to be cost-conscious. That's what commercial negotiations are all about, to get both customer and supplier to agree on an outcome that satisfies both parties.
Considering all of the above, if you are offered a final price that is several times lower than the market average, it is a reason to once again check the company with which you are negotiating. Chances are high that you'll get unstable products with low technical standards, or lack of security, or poor customer support, or all of these combined.
Your belt and braces. No matter what budget you have, always ask your provider for a full pricing breakdown.
Due diligence verification tips
This section is a short checklist that you can use to conduct an initial audit of a potential technology partner. Remember that you need teams of technical and legal experts to do in-depth verification. The information below is not intended to be guidelines for action.
1. Company track record
This category includes any information you can gather about a potential vendor from publicly available sources.
Team size. Typically, medium- and large-sized teams have an established workflow and extensive resources to provide quality service to multiple clients at once.
Offices geolocation. If a company has several offices around the world, it may indicate that its products are used globally.
Development dept qualification. The qualifications of the developers are often evidenced by technological legacy and unique products, such as proprietary trading platforms.
2. Client pool
You have every right to request a list of clients who have used or are currently using your potential vendor's products and solutions. An alarming sign would be if a company refuses to reveal at least a few names, citing NDAs and other legal obstacles.
If the situation described above occurs, you can offer to sign an NDA on your part, which will set out your obligation not to disclose the names of clients. However, we must remember that software vendors are usually proud of their completed projects and successful clients.
3. Customer support quality
It is not very easy to check this type of service in the first stages of introduction to a vendor. But remember that you can ask any questions that interest you, from quite silly ones (which, as a rule, are not silly at all), to in-depth technical issues.
How your potential vendor's team responds to your requests determines the quality of customer support in the future, if you settle on a partnership. In this case, the saying that the first impressions are most lasting is quite applicable to the way things are.
4. Technology stack
The technology stack refers to the set of tools used in products, including programming languages, frameworks, database management systems, compilers, etc.
The technology stack chosen by the developer determines the performance, the requirements for hardware resources, and the software reliability. The technology stack is extremely important in the case of complex processes and highly loaded systems, which of course include digital trading platforms.
In the end, it is the set of technologies used that determines how affordable it will be to deploy and operate the system, and how well it will meet the requirements of the customer. As you can see from the above, you need the services of an experienced technical consultant to fully analyze this aspect.
5. Technical documentation and onboarding
The products that make trading platforms work are not the easiest to install and learn how to use. And if the vendor company has well-established onboarding and staff training procedures, this would be a definite advantage for you as a client, because the time to first value will be much shorter.
Also check with the potential provider to see if they have the ability to outsource related services, such as trading desk and financial operations supervision. Even if you don't need it at the moment, it will be an indication in favor of the vendor as an established and reliable partner.
Our White Label Crypto Exchange solution includes the possibility to completely outsource onboarding and compliance procedures, trading desk operations, as well as personal account manager assistance.
White Label Crypto Exchange
Of course, it is impossible to cover such an important and in-depth procedure as verification of a potential software vendor in a single publication. But we hope that the information we provide will help you be more considerate in commercial negotiations and when examining documentation. We wish you to find your dream provider, and if you still have questions, please contact us. We will be happy to elaborate more on any subject raised here.