The retail trading industry has evolved significantly in the last few years. The number of retail traders has increased, trading volume has jumped, and products based on new technologies have been introduced. Finance Magnates recently sat down with FXStreet's Senior Analyst, Ian Coleman to discuss the trends in the trading industry, AI, and more.
"For the benefit of the market and participants, we're always seeing new trends. I think the trend, especially over the last couple of years, has been toward AI and robots," Coleman said.
"We've moved a long way from having a retail trading platform focused on tight spreads and very little else to be given to individual retail traders. I think now, brokers are looking for longevity, so they're looking to get clients in and keep those clients for a long period of time. And for that, they've got to attract them with new systems, new add-on services – education, trade ideas."
A Forex Veteran
Coleman spent the last 36 years in the trading industry before joining FXStreet. He partly owned and developed Signal Centre, an FCA-regulated trading signals platform, which Acuity Trading acquired in March 2021.
He has been a part of the industry since the days of voice broking and witnessed the engulfment of the trading pits by electronic trading systems.
"Back in the day, we were voice broking. Everything was over the phone and scribbling prices down on a pad. Obviously, in this day and age, everything's online,"
"Going back to institutional foreign exchange, I think we started to move away from voice broking probably 20 years ago when somebody at UBS developed an electronic banking system. Then, everybody thought that era would collapse, but there are still institutional brokers. It’s just in another format."
He believes that innovation in the trading industry went quiet following the copy-trading craze started by Saxo Bank and eToro. "Now we're looking at AI," he said.
"Companies are using AI to simplify automated trading – this technology does add value to retail traders and retail brokers. Another trend at the moment is funded accounts. That's been something building up over the last few years."
"So, I think we're ready for a new trend. I don't know what that new trend is going to be. But, I think it is very much AI and automated trading based. I'm not sure about the figures, but I believe something like 80% of all foreign exchange transactions are executed by robots. So, that trend doesn't look like it's going to stop anytime soon."
Automation Has Limits
"I personally believe that everything has its place. I think the trouble with automated trading is that, for the majority of the time, you are back-testing. You're looking at past data to try and predict future moves or trades. And that, obviously, is one of the biggest fall downs in automated trading. If you can use automated trading as an overlay to your own analysis, then I think it definitely has benefits," said Coleman.
"You get a lot of automated trading systems, but there are automated signal providers that do not have a concentration on risk-reward. Automation has got a place, but it needs to be monitored by the individual trader."
However, according to Coleman, retail traders cannot completely rely on AI. The technology is great for getting signals, but it "needs a human touch."
Checklist for Brokers to Choose A Signal Provider
Nowadays, brokers integrate many add-on services into their trading platform, and the signal provider is an important one. Traders can receive a trade signal from an expert trader or a robot and immediately take a position.
However, there are dozens of third-party service providers. So how do these brokers choose a partner?
"When we were first concentrating on retail brokers, the first questions that we would always get asked is 'are you regulated?' And then the next question was, what are the language capabilities? How many products do you cover? I mean, originally, we probably covered 20 products. I think that's now up to 36 base products, as well as single stock analysis, etc," Coleman explained.
"The next questions were – what time frames will we be looking at? Are they intraday? Are these trade ideas ready for the start of the trading day?"
The Concept behind eToro and Twitter Deal
Another important deal that created a buzz in the retail trading industry is the deal between eToro and Twitter. Under the deal, real-time asset prices are integrated into Twitter's $Cashtags feature, and users will get direct access to trading from the social platform.
"That [deal] definitely does stand them above the crowd," Coleman said. "I think there are other platforms out there that are trying to do something similar, but not on a scale like this. There are platforms that work on Telegram. They have got individuals like myself, who post trade ideas, and then you click on the trade idea on Telegram, and it will automatically take you to a trading platform, your selected broker. So, you know it is probably a trend that will grow, I think."
