Did Interactive Brokers really exit the retail market? Company still going big for retail clients in China!

Interactive Brokers, one of North America’s most well capitalized and stable firms moved away from retail clients last year… Or did it? In China, via the firm’s office in Admiralty, Hong Kong, retail FX is very much on the agenda!

In August last year, the retail FX market within the domestic United States of America made yet another change, that being the country’s largest and most well capitalized retail FX firm, Interactive Brokers which is also one of the most stable in the world, notified its customers that as of that month, it would only extend retail trading facilities to persons or organizations with assets of over $10 million or $5 million if the traders hedge their positions.

Alongside the company’s perceived decision to concentrate on Eligible Contract Participant (ECP) business, that being the servicing of groups or individuals allowed to engage in financial transactions not open to retail customers, the company then took the steps in March this year to halt all options market making facilities, which are conducted through the Timber Hill companies.

FinanceFeeds reported at the time that this service is expected to be phased out over the coming months. The broker will continue carrying out certain trading activities in stocks and related instruments. Subsequent to that, FinanceFeeds also reported that the company had incurred a one-off $25 million in restructuring costs as a result.

In a press release, Thomas Peterffy, Chairman and CEO, explained that “Today retail order-flow is purchased by large order internalizers and joining them would represent a conflict we do not wish to have. On the other hand, providing liquidity to sophisticated, professional synthesizers of short-term fundamental, technical and big data is not a profitable activity”.

The corporate decision which took place in the US, which was perceived by many industry participants to be move away from retail order flow was perceived by many in the FX industry globally to be the end of retail FX altogether for the firm, however this is not really the case.

The change in retail FX business approach in the US and the exit from the options offering is not the end for IB’s retail business altogether in the face of industry speculation.

Whilst the North American domestic market division of Interactive Brokers has absolutely turned its back on the smaller ticket retail customers, leaving GAIN Capital and OANDA Corporation to the entire run of the spot FX market in the US, whilst E*TRADE, Scottrade and Charles Schwab continue to offer retail futures contracts across the entire investor base in the Land of the Free, in the Far East, things are somewhat different.

This week, in Hong Kong, Shenzhen and Guangzhou, during my journey on the MTR from Hong Kong’s Tsing Yi station to Lo Wu on the border of the mainland, and whilst in Hong Kong airport, there were a significant number of commercial advertisements by Interactive Brokers’ Hong Kong division, clearly aiming themselves at a retail audience.

These advertisements ranged from banners between the ceiling and windows of the MTR train, to vast billboards in the airport terminal. Once across the border and into mainland China, however, they were non-existent.

Thus, it can be considered that if retail FX is off the agenda, and ECP business is the focus in Interactive Brokers’ home territory, it is fair to say that the company is still interested in retail custom in China, handled via the Hong Kong office.

A call to the company with some questions regarding the target audience in China and Hong Kong revealed that interestingly, the same minimum deposit terms apply in that for retail investors under the age of 25, a $3,000 minimum deposit applies, whereas for retail investors over the age of 25, a minimum of $10,000 applies, however, when asked about the focus on ECPs  rather than retail clients, the firm confirmed that across that region, retail clients are absolutely welcome.

A smart move by Interactive Brokers, because, when considering FinanceFeeds research into client bases in China that seek to place business with good quality firms, most of the assets under management for each portfolio manager, especially in the all important second tier development towns, is in excess of $300 million, making this a very worthwhile retail FX venture, and in most cases, potentially more lucrative than ECP business outside China.

Image: Hong Kong Harbor from the Renaissance Hotel, Wan Chai, Hong Kong. Copyright FinanceFeeds

 

 

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