Yesterday, eToro, which presents itself as a social investment network first and foremost within which trading facilities are integrated, released its in-house social trading application for the iPhone which is aimed at providing mobile copy trading facilities to eToro’s OpenBook network.
By adding social trading facilities to a trading platform, many retail brokers have experienced a significant increase in volume by attracting what they see as novice traders, all of whom can copy the trades of other traders on the same network, or set the platform to automatically copy trades executed by traders of choice.
A majority of firms which provide social trading to their clients enlist a social trading platform provider such as Tradency, Zulutrade or myfxbook to provide access to a network of traders established within, and then connect it to MetaTrader 4 and provide the social trading network operator with a revenue share-based remuneration, often covered by an increment in the spread.
The phenomena of social trading naturally made its way onto mobile devices across a broad spectrum of firms and has become a vital tool for increasing trading activity among retail traders.
In order to get further details on the commercial need for developing an in-house application, Forex Magnates spoke to Tal Ben-Simon, eToro’s VP Product.
Mr. Ben-Simon explained what factors went into the development stages: “In order to better understand the factors which were considered during the development stages of the mobile application, it is important to know that eToro does not consider mobile as a niche or just another platform to support.”
“Instead, eToro views itself as a social community of investors, who are looking for a platform that will enable them to engage anywhere and at any time. This is the key focus of our business and our ethos. We concentrate on being a benchmark social network, in the same vein as Facebook, Twitter or other established social media. This is why it is important to design the entire OpenBook system as an integral trading platform and social network.”
Simplified Ergonomics Improves Customer Loyalty
According to Mr. Ben-Simon, the mobile application has been designed with simplicity and user-friendliness in mind. Contrary to adding more and more new features, Mr. Ben-Simon believes that in order to engender customer loyalty, which is what social trading is intended for, users should not be bombarded by over complex functions that, as novices, could generate fear within clients.
Mr. Ben-Simon explained “Our entire trading platform and social network is provided in one package, as a holistic approach. We want to become a massive player in the mass retail market.”
“All the stock traders using bank accounts for their trading are potential customers, not just MetaTrader 4 day traders who are already experienced in using such electronic trading platforms” he continued.
eToro stated that it applies a multi-screen, multi-device methodology when developing software, in this way desktop and mobile users can access the same system without having to learn to operate many different applications. “This is important especially because of the social network. I think concentrating on simplicity is better than adding ever complex new features” explained Mr. Ben-Simon.
By using external, independent social trading platforms, a user can access many signals and copy trades from within established networks, however, a common issue is that not only is the cost of remunerating the social trading network added to the spread in the case of a market maker, or commission in the case of an STP account, but, it is often not possible to guarantee that the execution will be carried out exactly on time as the social network is operated by a separate company, and therefore, does not have control over the trade execution process of the actual broker. This can result in orders being filled at different prices, a lack of trading advantage due to higher spreads, or slippage.
In the case of eToro’s model, the spread is standard. In CopyTrader the company divides the spread according to the number of units in a trade. For example, if the EUR/USD spread is 3 pips, for a trade of $100 with 1:100 leverage, the spread for the copied trader will be $3. If the trade is then copied with 10% of the amount, which would be a $10 trade with 1:100 leverage, the spread will be $0.3.
The company confirmed that it states clearly that it does not charge any type of fees or commissions. In addition, no additional commission for copy trading is charged, meaning that the trader who is copying and the trader who is being copied are paying the same spread in proportion to the trade size for each.
Mr. Ben-Simon explained that as eToro’s entire system is one piece, with the social trading aspect being the main facet, and that the trades are executed in-house by the same system, there is no circumstance where a scenario such as this could occur. “The integrated, one piece nature of eToro’s system means that we are able to guarantee the same execution price of the trader whom a user is copying. This is unique as we carry the entire solution and can therefore guarantee that the social network and the trade execution are aligned.”
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“In terms of functionality, the trade gets set to copy a specific trader, and then is automatically executed at the same execution price, with no slippage. When the copy trade follows the lead trader, the execution price is identical and the time of trade is identical.”
“We believe that it is better to engender longer life time value of traders by spending the extra resources on developing our own system” continued Mr. Ben-Simon.
“We believe that if we provided our customers with a standard platform such as MetaTrader 4, it would carry entry barriers as the mass market audience doesn’t know how to use platforms such as those which are designed for experienced traders.”
“Therefore, a holistic experience as a one click solution is preferable for our client base and target audience rather than a sophisticated dashboard which contains lots of complex trading tools” he said.
Mobile Makes Up Significant Percentage
Mr. Ben-Simon explained that of all of eToro’s users, 30% are already using mobile via the web based application. The company is experiencing a higher number of log-ins and engagement from those using mobile devices.
At present, 50% of all log-ins are made by mobile clients and the firm has noted that the average mobile user is highly engaged, makes more log-ins and more trades than others in the social network using desktop connectivity.
“This number is increasing therefore, the development costs are well worth it for sustainability. We want to be up to Facebook levels, where 80% of its user base are using mobile applications” stated Mr. Ben-Simon.
“Once hooked up to mobile, traders become much more engaged in trading. They see their portfolio all the time, and this also means that this simplicity increases volume because it is easy to see trades, copy a new trader in the network or edit settings whilst on the move.”
No Plans For White Label
Whilst a common dynamic among innovators in the FX industry is to provide white label offerings incorporating their proprietary technology, eToro has eschewed this completely and is adamantly opposed to going down this route, preferring instead to retain individuality in order to be viewed as a benchmark in social trading.
Longevity is a priority too, as the entire system is not using any external providers for the social trading facility or the execution. Therefore, there is no possibility of either party withdrawing or altering its corporate stance, as highlighted earlier this year when MetaQuotes issued warnings to brokers against using four of the most established copy trading providers.
Mr. Ben-Simon concluded by explaining that the company is due to launch an Android application later this year, and that currently, Android users are able to use the mobile web-based application.
The development team are working on including push notifications which will notify users if a trader being followed loses or gains, and an iPad application is imminent.
It must also be taken into consideration that the regulatory authorities may begin to assess social trading, especially copy trading and signal provision on the grounds that traders providing users of social trading systems, with a means of following their lead, could be construed as a form of financial advice. To pre-empt this, TradeSlide applied FCA regulation just last week, and although eToro is FCA regulated as a financial services firm, the social trading network is a community made up of individuals.
Mr. Ben-Simon concluded on this point by stating that the company firmly presents itself as a social investment network, and should the regulators require all traders who offer their services to be registered as financial advisers, then eToro will work with the regulators to comply as this is an essential part of the company’s business.