In this article, he shares his thoughts on the Retail Trading Industry and what are the upcoming trends for the brokers that we should be prepared for.
It’s no secret to anyone that the single greatest expense of most FX/CFD brokers is marketing. This isn’t exclusive to our industry, but we’ve probably all had the experience of dealing with or working for a company that’s decided to invest in marketing its new product or service first, before getting down to the nitty-gritty of actually making it.
If our industry is particularly guilty of the above sins, it’s probably because we had it so easy for so long. In the heyday of online FX we were almost the only game in town. We had figured out the business model, the way to sell the product, and all that was left was to stand by and watch as the leads flooded in.
Comfort Makes You Lazy
High churn rates? No matter. While one client lost all their money and was destined to cease trading, three more awaited their chance to test their mettle on the world’s “largest and most liquid market.” And it was no secret to anyone.
Back in the day, I remember reading some comments by FXCM’s CEO at the time, Drew Niv. He was unequivocal about being surprised if 15% of day traders were profitable. Fast forward over a decade later, and we’re obliged to display similar percentages on our risk warnings, while not much else about the underlying attitude has changed in the slightest.
The big bucks go on making a splash in the public eye, meanwhile investment in the underlying technology is often something of an afterthought. As I say, this is only possible when you have a monopoly, or when there’s such an overwhelming demand for what you’re selling that there’s no point worrying about anything other than selling it some more.
From Brokerage to Tech Provider
One of the reasons I currently work for Panda Trading Systems, is that in my former life on the brokerage side of the business, I was constantly coming face to face with the limitations of the systems we had in place and the technologies we were using. If you’ve ever managed a sales team and spent most of your working day doling out leads rather than actually managing; or if you’ve worked sales and retention, manually calling tedious lists, hoping for a voice on the other end that wouldn’t be annoyed with your call, then you probably know where I’m coming from.
And it’s not only those departments that stand out. If you’re in marketing, you’ll almost certainly have worked for a broker that spent, spent, spent, but had almost zero means of tracking how successful their efforts were. So, rather than marketing being the precise science that it should be, it’s more fortune telling, or performance art. It’s the same logic as I described above. Why bother taking things to the next level when your market is basically as easy as shooting fish in a barrel?
You can make the same argument about trading platforms, and how the ease of just signing up for the safe bet that everyone already knows and loves has stifled the evolution of platform tech in the industry for years. It’s the old adage of “if it ain’t broke, don’t fix it.” The same goes for back office and compliance teams, manually trawling the deluge of verification documents that cause those departments to grind to a halt during periods when risk appetites are up and everyone wants to trade.
In fact, you can look at almost all brokerage departments and point out glaring internal inefficiencies that not only affect how those individual teams operate, but also how the business as a whole communicates on an interdepartmental level. Again, if it ain’t broke, don’t fix it.
Until? Well, that’s sort of the point of this article. Either until it finally breaks once and for all, or until the game itself changes and leaves you behind. The latter is where I feel we may be heading now as trading enters the mainstream. But more on this a bit later.
Back to Panda for a moment. The move to my current role was such a no-brainer for me, because I witnessed first hand how a company with deep knowledge of all the areas of the online trading landscape was able to create products that actually made things better for brokers and traders alike.
These were people who had paid their dues in the earliest incarnations of industry. They understood how everything fits together and why. They also knew what brokers truly needed and were quick to develop solutions. These could be as focused as a risk plugins, or much more comprehensive, like an entire CRM suite designed specifically for a modern brokerage’s needs. And where each implementation came with its own unique issues, they had no reservations about customising their off-the-shelf products, or creating completely bespoke solutions from scratch when the need arose.
To cut the long story short, I’d seen all the problems and pain points from the brokerage side of the business for years. I was actually required to work around them and find my own productivity solutions when need be. So, when Panda came along, I had all the necessary experience to recognise that they knew what they were doing and meant business.
In the years I’ve been with the company, I’ve seen Panda grow from an agile and forward thinking fintech innovator, to the industry’s premier technology provider. It has become the go-to provider for the industry’s elite regulated and licensed brokers. To my mind, this has been achieved by continuing to build on our reputation of being transparent, solid and reliable as well as delivering bespoke solutions that cater to the global regulators, all in addition to the out-of-the-box systems that the industry has grown to know and love over the years. Not just intent on servicing the current requirements of brokers, Panda actively contributes to moving the industry forward as a whole and providing it with the tools to compete on a global scale.
Back to the main concern of this article. Online FX/CFD trading is clearly no longer the only game in town. You can argue that the emergence of crypto as an asset class over the past decade, which was a primarily retail phenomenon to begin with, has probably done more to spread financial literacy and trading knowledge among lay people than anything since our own industry burst onto the scene in previous decades.
The growth of the biggest players in that specific vertical has been nothing short of astounding, which is to say nothing of how much global success the zero-commission stock brokerage and wealth management app segment has enjoyed, particularly since the pandemic and the height of the lockdowns.
I remember articles from our industry years ago discussing how powerful retail traders were becoming, the expectation being that they’d again have the power to move underlying markets like Mrs Watanabe was said to have done in Japan with her carry trades in the late 1990s. The recent GameStop and AMC debacles were proof that a new generation of retail traders has found its own way to move markets. Say what you will about their approach, the WallStreetBets crowd managed to give Wall Street a bloody nose that no one had expected and in a much more sophisticated manner than anyone could have predicted.
Boiling Frog Syndrome
They used to think that you can boil a live frog to death by sitting it in a saucepan and very gradually raising the heat. Its inability to discern the incremental change in temperature supposedly causes it to stay put well after it should act to save its own skin. Although this is actually something of a myth, the metaphor it has left us with is hugely valuable.
You have to think that our industry is in some stage of suffering from the same thing. It’s generally conservative and reluctant to change or try things that are a little out of the box. It knows what has worked historically and is intent on carrying on in the same vein for as long as this approach remains profitable. However, just like the boiling frog, when it finally gets the message that the game has changed, perhaps it will be too late.
Online Trading Goes Mainstream
The pandemic seems to have brought forward a trend that was already well underway before whatever on earth took place over in Wuhan causing us to give up 2+ years of our lives. That trend is toward market access and speculation across different asset classes becoming a mainstream activity that everyone takes part in. We always thought it was going to happen in the online FX/CFD space. After all, it was our industry that was pushing mobile trading before it was even technologically feasible, let alone mass appeal. We just didn’t expect to have as much competition from the stock brokers, and we certainly didn’t expect crypto to become such a world beater so soon.
In the broader retail trading landscape we’re starting to see a great consolidation taking place. Challenger banks like Revolut are gradually turning into brokers (Revolut offers FX transactions as well as the ability to speculate on crypto and stocks), meanwhile, brokers and exchanges are now offering banking services (Coinbase, Crypto.com, as well as a host of FX/CFD brokers). The moral of the story here is that bigger, better-funded, and more entrenched entities are recognising the value of the trading-as-lifestyle play and are working hard on becoming the new retail trading monopolies of the future. What does this mean for you? Well, it means that perhaps doing what we’ve always done will no-longer yield the same results in the future.
What You Need to Survive
Today’s FX brokers not only have to contend with increased competition from within as the barriers to entry have dropped, they also have to deal with the wider market trends I’ve outlined above. In order for them to be able to do so going forward, there are a number of things that are starting to become non-negotiable.
Firstly, if you’re a broker in 2022 under the illusion that you can compete with the best and brightest out there while also doing all your own fintech development in-house, then forget it. This isn’t 2004. Even if you do possess the development chops to bring a project to conclusion in a timely and cost-effective manner (which you probably can’t), then what about maintenance of those solutions? Iterative upgrades? Further research and development in order to stay ahead of the curve? The larger our industry grows, the more the technological overheads of individual brokerage systems also grow. At some point you will have to outsource to a competent professional. It’s just the way things are, capitalism favours specialisation for good reason.
Secondly, with competition at the level it currently is, there’s not much you can do in terms of the products you offer to gain a competitive advantage. The industry has long-moved from “FX” to “Markets,” so there’s probably no hidden CFD gems to add to your offering that will make that much of a difference to your bottom line. The same goes for narrowing your spreads, making your V.I.P accounts even more very important, or anything else. If it’s easy for you to add and generate some marketing copy about, then it’s easy for your rivals to do the same.
Which brings me on to the final point and probably the crux of this entire article; at this level of the game, the most effective way to compete with other CFD brokers, as well as keeping rivals from other retail venues at bay, is to gain efficiencies by using technology to amplify the effectiveness of your teams, rather than using your staff to workaround the shortcomings of your tech.
This is how the big tech companies have taken over the world. You need systems in place that multiply the efficiency of every human member of staff and facilitate interdepartmental communication. You need big data techniques and software that supports the collection of said data, making it easy to utilise. You need AI systems that take over the tedious and time consuming data entry and retrieval tasks that you’re currently bogging your human teams down with. In short, you have to get smarter on all levels or risk turning into that boiling frog as retail trading finally takes over the world.
For our part here at Panda, we’ll be here doing all of the above and more. Give us a call or pay us a visit, I think you’ll be amazed by just how much has changed since the last time you considered stepping up your fintech game.
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