Connecting retail platforms to Chicago’s exchanges continues to gather pace – Now is the time to go multi asset

During the past few months, FinanceFeeds has been a staunch advocate of the benefits of retail FX brokerages elevating their product ranges and connecting to multi asset venues, as well as opening themselves to the opportunities of doing business in North America.

Last week in Chicago, the world’s electronic multi asset derivatives exchange capital, FinanceFeeds hosted a series of senior executives from within some of the world’s most established listed derivatives companies at a private venue in Chicago, during which this subject was a key point of discussion.

The retail FX sector arrived at the point at which defining a clear and sustainable value proposition over very similar competition which for the most part offers similar trading terms on an almost identical platform quite some time ago, and the resultant grasping at straws by making sharp U-turns, in some cases eschewing all previous strategy and grasping at unproven and unbacked cult-led trends such as cryptocurrency.

Such last-ditch attempts at riding what are very likely to be short-lived waves and catch attention have been displayed recently by some smaller brokers, especially those based in Cyprus and in offshore or unregulated jurisdictions, however it has been our opinion that this is the opposite direction to what should be considered.

For those with a long term view and the wherewithal both financially and operationally to do so, re-entering the North American retail market would be a very wise step indeed.

FinanceFeeds has explored this in detail recently, pointing out that it is not only home to the most analytical and sophsticated base of investors and traders in the world, many of which have portfolios consisting of futures, equities and commodities, the average deposit being $6600 and customer lifetime value being over two years as opposed to $3600 in other parts of the world, with a customer lifetime value of just three months, but also there is very little competition.

 

Today, further testimony to the validity of our notion was demonstrated as Dutch online brokerage DEGIRO has partnered CME Group to provide education to retail investors about futures products.

This is another display of interest from the listed derivatives sector in onboarding retail traders, another notable example being CBOE LIVEVOL’s introduction two years ago of an Amazon-style market place within which retail traders can purchase trading related information and analytics.

At the time, FinanceFeeds reviewed a prototype of the new system during a meeting with CBOE LIVEVOL senior executive Catherine Clay in Chicago, the consensus being that CBOE was very much interested in actively approaching the retail market.

Last week, during meetings with various technology partners and exchange operators in Chicago, the subject of IG Group’s return to the US was discussed, with a unanimous welcome from the listed derivatives sector being omnipresent.

“We welcome IG Group back to America with open arms” said one particular senior executive. Indeed, IG Group’s standing as the largest and most highly respected retail electronic trading firm in the world aligns it very well with the ability to provide the high standard of service expected by American customers, along with the transparency associated with its publicly listed corporate status and 30 year tradition.

DEGIRO is an online stockbroking company by definition, however its customer base is largely centered not only in its home market of Holland, but also represented by a large presence in Britain, its UK division being an extremely important market.

Thus, this is an example of an online brokerage taking British clients to the US futures market, which is very much a good direction in terms of elevating the trading environment available to retail traders, but also is in line with the exchange fraternity’s will to onboard retail clients.

Chicago is the world center for electronically traded listed derivatives, and is home to IntercontinentalExchange (ICE), CME Group and a host of trading platforms that have been serving the professional trader for decades.

All of these firms are very interested in attracting a retail audience, and the marriage of MetaTrader 4 and MetaTrader 5 based brokerages in London, Sydney, Cyprus and beyond is a very good means of generating sustainability via a genuine multi-asset solution.

Chicago-based specialists such as CQG and DriveWealth have already developed solutions that connect the MetaTrader platform to derivatives exchanges in order to offer OTC products as well as listed derivatives on one platform, widely renowned market integration specialist oneZero having been instrumental in such a development.

Thus, the ability to gain this business exists, and the derivatives exchanges want retail business.

“This move fits perfectly with our long term strategy. Our clients will benefit from the extensive resources available at CME Group where clients of DEGIRO can expand their knowledge of derivative markets. As one of the largest brokers in Europe, we feel it is our duty to do more in terms of education. We expect to announce further steps toward this goal in the future” said Gijs Nagel, DEGIRO Co-founder & COO today.

Adding to this, Mark Omens, Head of retail sales of CME Group reinforced the interest in bringing on board retail client bases from Europe, a traditionally OTC orientated world. “We are pleased to have the opportunity to work with DEGIRO, one of the fastest growing retail brokerage firms in Europe, and to actively engage with current and new traders of all types. We are focused on providing investors the tools and resources needed to enhance their skills and understanding of futures trading” he said.

Products covered include equity index markets, energy markets, metals markets, interest rate markets, FX markets and agriculture.

The advent of the interest by exchanges in bringing retail business on board was initially demonstrated by a series of mergers and acquisitions, led by exchange companies which purchased OTC derivatives companies to quickly gain access to that sector, rather than develop their own inroads.

It is worth of note that at the time during which Deutsche Boerse bought 360T and Hotspot was acquired by BATS Global Markets, ICE in Chicago was preparing its offer to buy FastMatch for between $150 million and $250 million, as further testimony to the will of the giant exchanges to mop up the minnows of the OTC world.

FinanceFeeds spoke recently to Euronext’s CEO and CFO with regard to the finer points involved in its acquisition of FastMatch, which also highlighted a synergy in this direction.

The marriage of OTC retail brokerages and listed derivatives giants is most certainly a good method of making progress, not just for the derivatives exchanges wanting to access a retail market, but also for retail brokerages to sustain a good quality business plan for the future.