How can Brokers Retain New Clients After COVID-19?
- Volatility has brought life back in the markets. How can brokers keep client interest once volatility is gone?
Despite its challenges, COVID-19 has caused an uptick in volatility in the trading markets, breathing life back into markets, such as foreign exchange (Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term), which had a sustained period of low volatility until recent months.
This volatility, which has been widely reported on in the media, has brought a new interest in trading - with brokers seeing a wave of either new clients or the return of dormant traders, who had not been active in recent years.
Whilst this trend is great for the industry and the brokers that operate within this space, as volatility decreases, is it likely that these new traders will stick around?
New traders flock to FX and CFD markets amid COVID-19
As Finance Magnates reported, the Australian Securities and Investments Commission (ASIC) recently released a report on trading activity within the contracts for difference (CFD) market.
Specifically, the report, which was based on retail clients from 12 Australian CFD providers which account for around 84 percent market share, showed that between February 24, 2020, until April 3, 2020, there was a sharp uptick in the daily number of unique client identifiers, which are indicative of new client accounts, associated with retail brokers.
During the focus period, an average of 4,675 new identifiers appeared per day, which made up a total of 140,241 identifiers ASIC had previously not observed. During the six months prior to the focus period, the authority observed 1,369 new identifiers per day and an average of 34,502 new identifiers appearing in a period of the same length. The regulator also witnessed a large number of dormant traders becoming active during the focus period.
This uptick in new clients has been witnessed by Vantage FX, a forex broker headquartered in Australia. "We have seen quite a significant uptick in clients who are both new to the markets and those with prior experience," Austen Plummer, Marketing & Communications Manager at Vantage FX, told Finance Magnates.
"This is largely due to the people having to work from home, or who are looking for alternative income as a result of COVID-19. Also, the past couple of months have seen quite a lot of market volatility, which is attracting a number of new clients. These two particular conditions, when combined, have resulted in an increased volume of clients wanting to trade with Vantage FX."
Brokers see stellar performances in Q1 2020
In Australia, GO Markets, ACY Securities, and Vantage FX are among some of the brokers who have seen a solid uptick in client accounts and trading activity. However, this trend was not limited to Australia.
In the United States, for the first quarter of 2020, GAIN Capital and IG US both reported a solid increase in trading accounts, with the latter posting a 61 percent growth in retail forex accounts from the previous quarter.
Outside of the US, in the first three months of 2020, Israel based broker Plus500 reported that active customers climbed to 194,024. This is a rise of 98 percent versus Q1 2019.
Over in the United Kingdom, IG Group said that in the first 36 trading days of the final quarter, which spans from the beginning of March to the end of May this year, it attracted more than 22,500 new over the counter (OTC) leveraged clients who have traded with the company for the first time. This is in comparison to the 36,000 who joined in the first three quarters of the fiscal year.
Who is coming back to markets?
Andrew Edwards, CEO, Saxo Markets UK
Speaking to Finance Magnates at the Virtual Leaders Roundtable webinar Andrew Edwards, CEO, Saxo Markets UK, said: "I think we're seeing a lot of new entrants to the markets and more so a lot of potential customers who just weren't active traders before. You talk to your friends, at the moment everyone is particularly interested in markets, suddenly that interest has come back.
"I think we are seeing investors looking for opportunities to trade leveraged products or short the market, where they perhaps haven't looked to do that before. I think we've seen a lot of people who probably haven't looked at their investment portfolio for the last two or three years because the markets have just been so flat… and they're having a complete reorganization of their investment portfolio. I think we're seeing a lot of that as well.
"...I think there is definitely a transfer of customers from being single asset traders before, perhaps FX, now looking at other markets... So there's a lot of movement there, but I think it's less cannibalizing each other but more new entrants or dormant entrants coming back to market."
Are new entrants here to stay?
During March, the markets saw a significant uptick in volatility. Since then, volatility has since lessened; however, overall, volatility is still higher than normal. As the threat of the COVID-19 global pandemic continues to reduce overtime, volatility will continue to revert back to calmer levels. Therefore, will this renewed interest in the markets disappear?
Dan Moczulski, CEO of Star Financial Systems
When asked whether the new market entrants are here to stay Dan Moczulski, CEO, Star Financial Systems explained to Finance Magnates: "I think you have to look at the motivation of the new traders - are they bored sports or casino punters? Are they Crypto enthusiasts moving into newly volatile markets? Financial markets have attributes that should be interesting to sports and casino clients. Genuine 24 hours a day of opportunity. So rather than only being able to bet on a round of football matches that happen at best twice a week, people can be involved at all times of the day.
"Indeed I remember talking to a person at pokerstrategy.com, who said, on launching a financial education portal that trading is the natural evolution for a poker player, combining risk, but also intelligence and research. Casino/games clients may be attracted to the transparency and clarity offered by markets that are arbitrated by an exchange, rather than just "the house".
"The Crypto world - personally, I think they have been more drawn to equity markets, but I'm sure some will have taken the plunge into fiat currencies. I certainly feel and hope that the rationality that applies to FX movements will keep them rather than the slightly more ethereal price movements of crypto."
How can brokers retain new traders after COVID-19?
If there is a risk that the new market participants, or dormant traders, might leave the trading markets once the excitement of COVID-19 passes, what can brokers do to keep their new clients, and moreover, ensure they stay active?
According to Moczulski, brokers have a number of strategies they can employ to keep traders interested. Namely, brokers need to be able to adjust to meet demand and cater to changing interests.
"As mentioned equities seems a massive draw for these new traders. Robinhood has recently announced 3 million sign-ups in the last quarter, and I'm sure a lot of that will be new to trading clients. This pandemic situation is understandable by everyone. They can draw their own conclusions on how Netflix, Disney, and Easyjet will fair. This is not the case with say, an increase in the federal reserve buying of bonds."
Moczulski also pointed out that brokers should be offering more market instruments, as it increases the likelihood that they will be able to offer the "next" product, which experiences enhanced volatility.
"I also feel the new clients are moving towards an emotional connection to their investments, they want to buy Tesla because they agree with its values, not necessarily its fundamentals or technicals," he continued.
"Brokers should start including company logos on dealing tickets, and on statements, perhaps allowing customers to share their portfolio to demonstrate their ethical values. The belief-driven "HODL" approach shown by Crypto traders will apply to these new traders, holding positions regardless of how the market moves, so with this in mind, perhaps new collateral services could be offered, holding your less volatile ( and zero income ) Bitcoin against your volatile Oil trade."
Communication is key
Plummer from Vantage FX also pointed out that communication is key, especially as many novice traders are entering the market, and volatility caused by COVID-19 is causing unprecedented price movements.
"These aren't normal market conditions that we've seen over the past couple of months, and as a regulated broker we are actively informing clients when we are expecting low-Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term/high-volatility conditions and actively reminding clients to monitor their margin levels with the intention that they'll adjust risk accordingly, given the state of the market," Plummer added.
"We're continually trying to provide value to all our clients, and by offering a number of educational resources and trading tools, we can help them to learn and evolve as traders, so they can continue their trading journey long after normality returns to the markets."
Despite its challenges, COVID-19 has caused an uptick in volatility in the trading markets, breathing life back into markets, such as foreign exchange (Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term), which had a sustained period of low volatility until recent months.
This volatility, which has been widely reported on in the media, has brought a new interest in trading - with brokers seeing a wave of either new clients or the return of dormant traders, who had not been active in recent years.
Whilst this trend is great for the industry and the brokers that operate within this space, as volatility decreases, is it likely that these new traders will stick around?
New traders flock to FX and CFD markets amid COVID-19
As Finance Magnates reported, the Australian Securities and Investments Commission (ASIC) recently released a report on trading activity within the contracts for difference (CFD) market.
Specifically, the report, which was based on retail clients from 12 Australian CFD providers which account for around 84 percent market share, showed that between February 24, 2020, until April 3, 2020, there was a sharp uptick in the daily number of unique client identifiers, which are indicative of new client accounts, associated with retail brokers.
During the focus period, an average of 4,675 new identifiers appeared per day, which made up a total of 140,241 identifiers ASIC had previously not observed. During the six months prior to the focus period, the authority observed 1,369 new identifiers per day and an average of 34,502 new identifiers appearing in a period of the same length. The regulator also witnessed a large number of dormant traders becoming active during the focus period.
This uptick in new clients has been witnessed by Vantage FX, a forex broker headquartered in Australia. "We have seen quite a significant uptick in clients who are both new to the markets and those with prior experience," Austen Plummer, Marketing & Communications Manager at Vantage FX, told Finance Magnates.
"This is largely due to the people having to work from home, or who are looking for alternative income as a result of COVID-19. Also, the past couple of months have seen quite a lot of market volatility, which is attracting a number of new clients. These two particular conditions, when combined, have resulted in an increased volume of clients wanting to trade with Vantage FX."
Brokers see stellar performances in Q1 2020
In Australia, GO Markets, ACY Securities, and Vantage FX are among some of the brokers who have seen a solid uptick in client accounts and trading activity. However, this trend was not limited to Australia.
In the United States, for the first quarter of 2020, GAIN Capital and IG US both reported a solid increase in trading accounts, with the latter posting a 61 percent growth in retail forex accounts from the previous quarter.
Outside of the US, in the first three months of 2020, Israel based broker Plus500 reported that active customers climbed to 194,024. This is a rise of 98 percent versus Q1 2019.
Over in the United Kingdom, IG Group said that in the first 36 trading days of the final quarter, which spans from the beginning of March to the end of May this year, it attracted more than 22,500 new over the counter (OTC) leveraged clients who have traded with the company for the first time. This is in comparison to the 36,000 who joined in the first three quarters of the fiscal year.
Who is coming back to markets?
Andrew Edwards, CEO, Saxo Markets UK
Speaking to Finance Magnates at the Virtual Leaders Roundtable webinar Andrew Edwards, CEO, Saxo Markets UK, said: "I think we're seeing a lot of new entrants to the markets and more so a lot of potential customers who just weren't active traders before. You talk to your friends, at the moment everyone is particularly interested in markets, suddenly that interest has come back.
"I think we are seeing investors looking for opportunities to trade leveraged products or short the market, where they perhaps haven't looked to do that before. I think we've seen a lot of people who probably haven't looked at their investment portfolio for the last two or three years because the markets have just been so flat… and they're having a complete reorganization of their investment portfolio. I think we're seeing a lot of that as well.
"...I think there is definitely a transfer of customers from being single asset traders before, perhaps FX, now looking at other markets... So there's a lot of movement there, but I think it's less cannibalizing each other but more new entrants or dormant entrants coming back to market."
Are new entrants here to stay?
During March, the markets saw a significant uptick in volatility. Since then, volatility has since lessened; however, overall, volatility is still higher than normal. As the threat of the COVID-19 global pandemic continues to reduce overtime, volatility will continue to revert back to calmer levels. Therefore, will this renewed interest in the markets disappear?
Dan Moczulski, CEO of Star Financial Systems
When asked whether the new market entrants are here to stay Dan Moczulski, CEO, Star Financial Systems explained to Finance Magnates: "I think you have to look at the motivation of the new traders - are they bored sports or casino punters? Are they Crypto enthusiasts moving into newly volatile markets? Financial markets have attributes that should be interesting to sports and casino clients. Genuine 24 hours a day of opportunity. So rather than only being able to bet on a round of football matches that happen at best twice a week, people can be involved at all times of the day.
"Indeed I remember talking to a person at pokerstrategy.com, who said, on launching a financial education portal that trading is the natural evolution for a poker player, combining risk, but also intelligence and research. Casino/games clients may be attracted to the transparency and clarity offered by markets that are arbitrated by an exchange, rather than just "the house".
"The Crypto world - personally, I think they have been more drawn to equity markets, but I'm sure some will have taken the plunge into fiat currencies. I certainly feel and hope that the rationality that applies to FX movements will keep them rather than the slightly more ethereal price movements of crypto."
How can brokers retain new traders after COVID-19?
If there is a risk that the new market participants, or dormant traders, might leave the trading markets once the excitement of COVID-19 passes, what can brokers do to keep their new clients, and moreover, ensure they stay active?
According to Moczulski, brokers have a number of strategies they can employ to keep traders interested. Namely, brokers need to be able to adjust to meet demand and cater to changing interests.
"As mentioned equities seems a massive draw for these new traders. Robinhood has recently announced 3 million sign-ups in the last quarter, and I'm sure a lot of that will be new to trading clients. This pandemic situation is understandable by everyone. They can draw their own conclusions on how Netflix, Disney, and Easyjet will fair. This is not the case with say, an increase in the federal reserve buying of bonds."
Moczulski also pointed out that brokers should be offering more market instruments, as it increases the likelihood that they will be able to offer the "next" product, which experiences enhanced volatility.
"I also feel the new clients are moving towards an emotional connection to their investments, they want to buy Tesla because they agree with its values, not necessarily its fundamentals or technicals," he continued.
"Brokers should start including company logos on dealing tickets, and on statements, perhaps allowing customers to share their portfolio to demonstrate their ethical values. The belief-driven "HODL" approach shown by Crypto traders will apply to these new traders, holding positions regardless of how the market moves, so with this in mind, perhaps new collateral services could be offered, holding your less volatile ( and zero income ) Bitcoin against your volatile Oil trade."
Communication is key
Plummer from Vantage FX also pointed out that communication is key, especially as many novice traders are entering the market, and volatility caused by COVID-19 is causing unprecedented price movements.
"These aren't normal market conditions that we've seen over the past couple of months, and as a regulated broker we are actively informing clients when we are expecting low-Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term/high-volatility conditions and actively reminding clients to monitor their margin levels with the intention that they'll adjust risk accordingly, given the state of the market," Plummer added.
"We're continually trying to provide value to all our clients, and by offering a number of educational resources and trading tools, we can help them to learn and evolve as traders, so they can continue their trading journey long after normality returns to the markets."