Later today, Tradier will announce that they have reached a milestone of their 75th brokerage API customer and 1000% year-over-year growth of trading volumes. While an argument can be made that the volume data isn’t that impressive, given that the firm only came out of private beta in February 2014, with easy comps for its year-over-year growth, the real meat of their news is their client base.
Since ending 2014 with 20 clients, Tradier has been rapidly onboarding new clients during 2015 (although they are officially announcing reaching their 75th client milestone, the firm has actually added several more customers). Readers of the Finance Magnates Fintech section will recognize Tradier and their Brokerage API as the firm that has been covered several times before. For forex readers, Tradier may be lesser known as they currently only provide stock and options trading, but their story is important to cover as it relates to trends in the overall retail trading industry.
At the heart of Tradier is their brokerage API product. Tradier itself is a broker dealer, but unlike other firms offers limited technology to their direct clients. Instead, Tradier has made its brokerage services open through an API that can be integrated by third parties. API clients include other broker-dealers or developers, who are able to focus on the technology or marketing aspects of their business, with account onboarding and customer execution handled by Tradier.
The internet lacked a fabric to build and support investors – Dan Raju
Explaining its creation to Finance Magnates, Dan Raju, CEO and Co-Founder of Tradier, stated, “The internet lacked a fabric to build and support investors.” According to Raju, while different sectors of the internet were becoming open, with developers creating products that worked with each other, the financial industry has remained closed. As a result, major retail brokers in the US are all ‘full-stack’ firms, developing their own end-to-end technology to support clients, handling transactions with exchanges, and back office requirements.
The offshoot of this environment is two-fold; it’s expensive, and harder for 3rd party developers to integrate with. In relation to costs, brokers are also dealing with the commoditization of their services, limiting how much commission firms can charge for trading. This problem is also one that has been cited by InteractiveBrokers’ CEO Thomas Peterffy in recent analysts presentations, one he believes will cause brokers to evolve their operations. For Tradier, this trend has generated demand from broker-dealers, who are able to reduce operational expenses related to maintaining relationships with clearing firms and handling all aspects of compliance.
In regards to the second issue, difficulties for 3rd party developers to integrate with brokers, this is a problem that was also discovered by Tradable. For developers, while creating products that can connect to multiple brokers, the hardship occurs when offerings need to be customized per broker, limiting ‘one size fits all’ solutions.
Providing a solution, Tradable tackled the problem by creating an app-based cross-broker platform that was easy for developers to create products for. In Tradable’s model, they took it upon themselves to do the heavy lifting of maintaining the connection with multiple brokers, with developers only being required to create products that work on a single platform. The result is that Tradable has created a vibrant selection of apps that have been created for their platform. However, Tradable now has the mission of customizing the availability of apps and its trading platform to meet the requirements of its broker customers.
Tradier is enabling each third party to offer brokerage services themselves
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Taking an inverse approach, Tradier is enabling each third party to offer brokerage services themselves. As such, rather than technology providers being required to develop for Tradable or a broker’s trading platform, with Tradier, their product remains the same, but they integrate the brokerage API within their own offering.
The downside of this approach is that Tradier becomes the de-facto broker that technology providers customers can open accounts with. But, the growth of their customer base proves that this approach is working. Specifically, feedback from numerous developers to Finance Magnates has featured the simplicity of working with Tradier.
In addition to citing simplicity as a top reason behind their growth, Tradier’s Dan Raju also mentioned the unbundling of financial products and increased demand of trading tools products from end-user retail clients. Raju explained that this trend is taking place as third party developers have been creating trading tools and making them directly accessible to the public. As a result, with retail traders being able to access specific trading tools and analysis products, this has put more pressure on brokers to update the features of their platforms. Within the Tradier eco-system, this financial unbundling benefits them as end-users can open one account and pick and choose which trading tools to use.
One criticism that has been expressed about Tradier is that their model isn’t so innovative, as plenty of other brokers provide open APIs for third party developers to build products for. While this is somewhat true, there are two main differentiators. Firstly, brokers rarely promote third party tools to their client base, which Tradier does. Secondly, as mentioned earlier, feedback from developers has been that Tradier is easier to work with as API integration is their core business. Examples from developers have included both ongoing dedicated support, as well as the use of updated technology protocols.
However, experiences of Tradier’s clients also represent an opportunity for other brokers, especially those in the forex industry where Tradier isn’t present. Two specific areas of potential are better third party support and common incentives. In regards to the latter, third party apps are rarely well marketed by brokers. On the rare occasions, brokers have created marketplaces where third party apps are sold, with the broker taking a cut of any deal. However, public financial information has shown that actual sales are limited.
In contrast, developers will typically opt to become introducing brokers and receive compensation based on volumes traded using their apps. However, as this requires brokers to share revenues, developers are required to market their product themselves and act as a sales funnel for the broker.
In replace, a model could be created where brokers promote third party apps and offer volume-based incentives. In spite of splitting their revenues, brokers benefit by attracting a better selection of apps for their users which would be expected to increase customer long-term values and total volumes traded.
Returning to the overall effects of financial unbundling, when asked whether the market is to become oversaturated with niche trading products, Raju predicted that the end-user market will expand due to greater diversity of offerings. Overall, Raju stated that he believes that instead of seeing a small group of full-stack brokers, there will be many large players servicing end-user retail traders.
In regards to their own future, Raju stated that for the remainder of 2015, Tradier will be focusing on both their domestic US and international markets. Domestically, the firm wants to strengthen its position of being the “de-facto” broker for third parties to partner with. Internationally, Raju mentioned that the firm will soon announce foreign expansion into select markets. In addition, as reported in the past, Raju stated that Tradier has plans to enter the forex and/or futures markets in 2016.