Retail FX space has been historically a crowded and diversified marketplace, yet it remains interesting to find out how players in this industry are able to differentiate themselves or meet client demand. And, more importantly, the relevant regulations dramatically changed and thus have been set on a new path for retail trading sectors, with more protection for clients and more stringent rules for brokers.
We caught up with Mr Michael Walker, Managing Director at BlackBull Markets, to discuss industry hot trends, recent market vulnerabilities, Reddit-spurred trading frenzy and what brokers should keep in mind as they prepare for the next normal.
BlackBull Markets is an ECN broker based in New Zealand, offering hundreds of tradeable instruments on the MT4 and MT5 platforms. Founded in 2014, BlackBull is licensed by the New Zealand Financial Markets Authority and the Financial Services Authority (FSA) of Seychelles.
Could you please detail your professional background, and what did you initially seek to achieve upon establishing BlackBull Markets?
Hello and first of all, thank you for the opportunity to talk to you today about some of my experience and the story behind BlackBull Markets. Leading up to 2014, I had an opportunity to see the retail side of the industry and identified demand that was not being met by the existing providers in the market. I believe I’ve always had a keen interest in the financial services sector and a passion for delivering an institutional experience to retail traders. It was this opportunity and focus that led to the formation of BlackBull Markets and the successful growth of the business over the past seven years.
The GameStop saga. No one has anticipated the latest trading frenzy around microcap stocks which brought Wall Street whales to their knees. Did this phenomenon pay attention to Reddit crowds on FX-focused platforms, largely composed of first-time investors, as a whole new segment of potential clients?
The recent market events were definitely unprecedented, there’s no doubt about that. Even more so, global events this past year have had many unforeseen impacts. As an industry that’s still growing, there are more and more retail foreign exchange traders every single day. If anything, the GameStop saga has introduced the world of investment opportunities to a whole new generation of traders.
Financial literacy is extremely important in this day and age so having the right tools, resources and knowledge about what’s going on in the market are more important than ever. With new segments of the market becoming aware of their finances and starting to make their own investment decisions, especially that of first-time investors, consumer expectations and demands continue to change and evolve. It is then up to us as a business to also change and evolve the products and services that we have available and to adapt the way we engage with consumers if we want to remain competitive.
BlackBull Markets begun its operation back in 2014. What innovations and offerings have you launched since then, and are there any fresh initiatives in the pipeline?
Over the past seven years, we’ve built out all areas of our business to meet the global standards of an industry leader with our core services offering and our pricing model at a point that is highly competitive for our clients. To set ourselves apart and as a point of difference, we’ve put a focus on our New Zealand based service and support. Customer service has been an important point for our brand and not only do we offer dedicated account managers for all clients no matter their portfolio size, but we ensure there is an institutional approach with custom solutions available to traders with different needs. As such, we’ve seen a lot of success with traders moving away from some of the legacy giants who treat them as just a small piece of their bigger business. Going forward, we have a lot planned on our roadmap. Our future vision encompasses expansion into other areas of financial services, as a true multi-asset brokerage with a full-service offering. We are dedicated to a positive client experience, and whatever we do will be done with that in mind.
Australia’s regulator, ASIC, has made up its mind regarding restrictions for selling CFDs. That will definitely hit the appeal of Aussie brokers, so do you think Australian traders will turn to brokers in other jurisdictions to keep favorable trading conditions, like higher leverage ratios?
New Zealand is the last Tier 1 regulated environment where you can still offer high leverage and hold client funds in a Tier 1 AA rated Bank. That is a fact. This makes an FMA licence one of the most valuable in the world and one of the most appealing to traders.
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Anyone who has previously been trading with an ASIC regulated broker and wants access to higher leverage, is now considering their options. Yes, Australian traders will have the option of multiple offshore island licences, but with much less comparable standards to that of an FMA regulated broker in New Zealand.
There is a very good reason why there are so few FMA regulated companies in the world, and most of those are highly regarded investment banks like Deutsche Bank or Credit Swiss, not retail brokers. This is a massive competitive advantage for BlackBull Markets.
Having taken hold of daily life worldwide, the Coronavirus effects have been felt in almost every sector, how are you responding and what has changed?
We are very lucky to have been operating in a country that has seen a minimal impact to business operations. Saying that, we’ve always been transparent with our customers about any operational changes we’ve needed to make due to Coronavirus. Internally, we’ve made a number of changes similar to many other businesses, with the flexibility for staff to work from home when required. And, to ensure that we are able to still offer the same great customer service and support to our clients, we’ve taken this opportunity to further develop our team and the resources we have available to them. From a commercial perspective, being regulated by the FMA with the capital requirements that come along with that, we have transparency regarding solvency assurance for our clients regardless of what happens in the market. The safety and security of our business is extremely important to us and something we want our clients to be able to rely on.
How do you look at the industrywide trend to give investors zero-commission trades?
There are a lot of different traders in the market, each with their own trading styles, risk appetites and level of experience. One single pricing model for all client accounts could never meet the needs of all traders. The recent trend for zero-commission trading accounts is a great way for new traders to get started without feeling the pressure of having to pay directly to participate in the market. For our own clients, at BlackBull Markets, our standard account offering is a zero-commission account where clients are instead paying for our services with a slightly higher spread on their trades. We generally encourage newer traders who are just starting out to begin with a standard account while the more seasoned traders, who are simply choosing BlackBull Markets for our exceptional customer service and trading infrastructure, usually opt for our Prime account, where we can offer them some of the lowest spreads on the market, and they instead pay a commission per round turn. Both of these options are relatively standard among our traditional competitors while we see some of the newer crypto-only or stock-only trading platforms attracting a lot of newer first-time investors with a zero-commission offering as their one and only pricing model. I feel long term, both of these pricing models have their place, and for traders, there will continue to be the natural progression from spread to commission-based trading accounts as they become more comfortable with trading in general.
Recently, many trading platforms went offline. Could we expect these crashes to seem familiar amid unprecedented market volatility?
This is not something that clients should ever expect, so I would say no. The stability and reliability of our own trading infrastructure here at BlackBull Markets is core to our business. We have a strong relationship with our industry partners including MetaQuotes. who facilitate the trading servers for our clients on either MT4 or MT5, and we have our own dedicated team of system engineers who maintain our internal infrastructure around the clock. Of course, there are a lot of unknowns in the market. To ensure the safety and security of client accounts, in line with most leading brokers, there are standard leverage limit changes provided to clients with plenty of notice in the case of potentially risky market events, for example, last year’s US election. We do our best to keep our clients well informed with market movements, and our team is always available to assist where support is needed.
Bitcoin’s wild rally, and the fear of missing out, has FX traders flocking to crypto CFDs. How do you expect the phenomenon to evolve in the future?
The markets are always evolving and new investment and trading opportunities are always presenting themselves. As a business, we need to be able to adapt and change along with the trends that present themselves. The fear of missing out is real for a lot of investors, and this is not something limited to the recent volatility with several cryptocurrencies including that of Bitcoin. We have certainly been watching as events have unfolded and it’s been interesting to see the wider, more common adaptation of cryptocurrencies as an alternative investment opportunity, and according to some speculators, as a potential safe haven given the uncertainty of the World, we currently live in. It is anyone’s bet what will happen next, but one thing is for certain, crypto CFDs have certainly rocked the boat for the traditional retail foreign exchange brokerage model. As an FMA regulated broker, we have made the tough decision to not offer this as a tradeable asset at this point in time. I believe we may have passed the point of cryptocurrencies simply being a fad, and it seems it will remain for the long term now, but the branding and risk implications for different jurisdictions are still being assessed.
You are clearly passionate about your work. How have you seen both BlackBull Markets and the space evolve over that time?
When we entered the space back in 2014, the competitive landscape was a lot simpler. Things have changed very quickly with brokers diversifying their product offerings, services, pricing models, seeking additional licencing opportunities and the rapid expansion of several names we now know as industry leaders. We’ve seen a lot of changes on the regulatory front, with leverage caps imposed in different regions, the tightening up of advertising and client acquisition alternatives, and more stringent controls around the collection and use of client data, which has all had an impact on the way we run our business. Finally, we’ve seen a shift in perception related to our industry with the rise of cryptocurrency trading and the fall of binary trading. As a business, we have had to adapt to the way we promote and position our brand in the market. The safety and security of trading, with an award-winning FMA regulated broker based in New Zealand, has become important for our business and important for our clients now more than ever.