Research shows that Price is a significant, perhaps the most significant, driver in broker selection. There are a lot of reasons why it makes short term sense to offer lower spreads and obviously it’s nice to give your traders a good deal. However, spreads usually only go one way (which is further down) and there are tons of brokers hungry for volume willing to give up revenue. So considering that, how low should you go?
A Positive For Traders?
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Consider also the Japanese and UK markets where spreads have gone down considerably. This is good for the trader, one would think, but on the other hand that makes it very hard to run a profitable business and provide these traders with a solid service and technological infrastructure unless run at the largest scale. This in turn can mean that the only businesses that survive are the largest ones, which can hurt innovation and traders alike.
I think the best strategy for those looking for a change in direction is to be excellent & unique in some other way (i.e. differentiation). To build brand, add value and focus your offering on a sub group. Not to be part of an ever-growing chorus of brokers shouting about low spreads, unless you have the scale to compete with all other brokers on price. Of course you should advertise market-conform spreads – that makes sense, just don’t cheapen your brand and try to compete on price alone. You probably won’t win.