Retail Trader Retention Is a Challenge, CMOs Focus on Customer Experience

2020 turned out to be an excellent year for trading service providers. The Covid-spurred market Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term resulted in an influx of retail traders who tried to gain short-term profits, many for the first time. Almost all trading platforms, big or small, have onboarded a massive number of new traders on the platform.

While this sudden influx resulted in a spike in trading volume, the volatility wore off soon, and the activity started to be normalized. However, brokers are determined to retain the newly on-boarded clients.

While client acquisition is a key for any brokerage, almost all know the importance of client retention, especially when it comes to a rookie breed of traders. After all, the market conditions have encouraged traders to signup for profit booking, but now it is up to the brokers to make them trade continuously.

The Client Influx

The influx of new traders started in March 2020 when the global markets were witnessing havoc from the economic lockdown. The continued volatility in the markets lured new traders throughout the next consecutive quarters as well.

According to the data shared by publically listed platforms, they have seen a boom in March and April client onboarding numbers. The total leveraged accounts with IG Group, a major London-listed brokerage, touched a record 119,000 in the financial quarter of its Q4, which is from March till May. Though the numbers were significantly higher than the previous quarters, they started to drop in the consecutive months as between June and August only 109,900 leveraged accounts were registered.

Plus500, another brokerage listed on the London Stock Exchange Stock Exchange A stock exchange, also known as a securities exchange or bourse represents is a facility where stockbrokers and traders can buy and sell securities.This includes shares of stock, bonds, exchange-traded funds (ETFs), or other financial instruments. By extension, stock exchanges can also provide facilities for the issue and redemption of such securities and instruments and capital events including the payment of income and dividendsStock exchanges have developed into a permanent fixture in the fin A stock exchange, also known as a securities exchange or bourse represents is a facility where stockbrokers and traders can buy and sell securities.This includes shares of stock, bonds, exchange-traded funds (ETFs), or other financial instruments. By extension, stock exchanges can also provide facilities for the issue and redemption of such securities and instruments and capital events including the payment of income and dividendsStock exchanges have developed into a permanent fixture in the fin Read this Term, gained 115,225 new traders between April and June. This number is up from 19,489 in Q4 of FY2019 and 82,951 in Q1 of FY2020. However, in the consecutive Q3, the number dropped to 46,238.

A similar trend was seen across the trading industry as, according to Finance Magnates Intelligence, the global new client metrics (excluding Japan) toughed out a record 2,464,000 in the second quarter of 2020.

Though March has recorded the highest volatility, the total figure for the first quarter ended up at 2,223,000, which was much higher than the previous quarter. However, the numbers have been falling since.

A Challenge for CMOs

Retention of these clients has become a challenge for brokerage chief marketing officers, but it is obviously much cheaper than acquiring new traders.

The key is to make them hooked to the trading platforms. And that is not easy.

Most of these retail traders are vulnerable to take trading decisions without properly understanding the market conditions, and none of the brokers want to take a one-time loss and leave.

As Helen Astaniou, TIOmarkets’ CMO, explained: “The challenges are as ever, keeping clients onboarded in a) an incredibly saturated space and b) supporting them with sensible trading decisions that will help to improve their length of service with the company.”

“Falling victim to emotional trading - as is so common for newbie traders - is a challenge to avoid,” Astaniou added. “We face these challenges by providing them as much useful, practical and well-thought-out educational material as possible (instead of regurgitated financial data).”

Other brokerages are following the same strategy of educating their rookie client base. eToro’s Marketing Vice President, Nir Shmulevitz, said that the Israeli brokerage has “increased the educational resources” distribution among the users.

eToro gained 4 million new clients in 2020 alone, taking its total client numbers to 17 million. But, it is not clear how many of these clients are actively trading.

“We have always focused on retention as much as acquisition,” Shmulevitz said. “We work hard to provide our users with the best possible customer experience.”

However, educating the clients is not the only tactic the brokerage marketers are using to retain novice traders. Additionally, they are focused on improving and expanding product lines.

As the CMOs explained, brokerages need to improve their product line to align them with the interest of this new retail client base.

Overall, all these retention techniques can be summed up to client experience. As trading is not the full-time occupation of most of the new traders, they are likely to leave if they face any issues with deposits and withdrawals. “We work hard to provide our users with the best possible customer experience,” eToro CMO said.

But, brokers need to be careful with spending too much on client retention. As Astaniou pointed out, “there are of course drawbacks to onboarding large volume clients, particularly if they do not have high intent.”

Impact on Marketing Budget

The elaborated tactics of retaining retail clients are definitely not an easy task and also have a significant impact on the brokers’ marketing budget. Though the initial cost might be higher, there is little to nothing long-term cost, and the return is impressive.

“In 2020 we doubled our spend on marketing,” eToro’s Shmulevitz revealed. The brokers had to launch several marketing campaigns to effectively hook the retail traders on the trading platforms.

The Israeli broker “saw tremendous organic growth and successfully launched marketing activities in new markets.”

According to Astaniou, “TIOmarkets follows an integrated marketing strategy across multiple channels that are both paid and unpaid.” She pointed out that the marketing budget is an incorrect parameter to evaluate the broker’s efforts to retain clients.

Moreover, branding has played a key role to keep the clients on the platforms. Though the traders jumped hastily on any brokerage during the volatility period, it is the brand value that keeps them trading.

“Operating in such a saturated FX space on search and branding platforms, companies (not only ours) are forced to find other ways to increase their branding presence,” TIOmarkets CMO said. “With this in mind, we have had a solid and steady strategy towards integrated marketing that has both paid off in 2020, and that we believe will continue to bear fruit in coming months and years.”

When it comes to branding, eToro tops the list with its array of sports sponsorships. Shmulevitz thinks that these multi-million dollar sponsorship deals are unhelpful in retaining clients, but they are excellent for brand awareness.

“Sponsorship is a great channel for brand awareness, however, when it comes to retention we focus more on the customer experience,” he said. “We continue to invest in providing the best possible customer experience.”