ETX Capital does the right thing by its clients, abolishes dormancy fees

Charging retail traders for inactivity is contrary to what brokers should be doing, as they are the custodian of assets under management. Other sectors would reward clients for holding their capital with a firm. Prominent British brokerage ETX Capital gets this right.

Imagine a world in which retail investors approach investment providers for long term custody of their hard-earned capital, only to be told that if they simply left the funds in an investment account without making any changes for a period of time, they would be charged by the investment company for inactivity.

There would be outrage, and at the very least, it would be the subject of derision by mainstream tabloid newspapers.

This, however, is a practice that is relatively commonplace within the retail electronic trading industry, the same industry which relies on having a substantial amount of assets under management in order for brokerages to have intrinsic value, and the same industry which regularly considers short client lifetime value to be an obstacle to sustainability that must be overcome.

By charging clients for leaving their funds in a client custodian account, companies that charge fees for inactivity are not simply alienating clients that take note of such a practice, they are also restricting their own progress by creating an environment where clients would withdraw assets under management, and thus add to the short term client lifetime that many industry professionals consider to be a constant conundrum.

One company that has taken the right direction with regard to this matter is the long-established and prominent British electronic trading company ETX Capital.

The company has its own trading infrastructure and is one of the largest and most respected firms in the United Kingdom, with a loyal domestic market client base, a testimony to its transparency and client-focused commercial ideology.

Today, the company has abolished any form of charge for client inactivity, meaning that customers can wait until the right trading opportunities arise rather than feel pressured into making trades at inopportune moments in case they are charged for inactivity.

These fees – known as dormancy fees – are very much in place within other companies, even in the British market where most of the client base relies on British companies due to the need to trade CFDs in the United Kingdom due to the tax treatment of spread bets and CFD profits compared to that of spot FX.

For example, IG Group charges its clients $12 per month after two years of inactivity. IG Group states that clients need to be strategic about their trading activity to avoid getting charged after a long period of time in which no trading takes place. IG Group even states that the inactivity fee makes it less ideal for buy and hold investors.

Interactive Brokers, a company that offers loans to its clients and at one point interest on deposits, charges a hefty inactivity fee of $20 per month for clients with an account balance of less than $2,000 or for clients that don’t generate a minimum of $20 in commissions, and the firm charges $10 per month for accounts having at least $2,000 account balance, a structure that puts more pressure on clients to trade perhaps when they do not wish to.

With ETX Capital’s important move in removing any dormancy fees, the firm strengthens its position in that clients will be more comfortable having their funds in custodian accounts with the broker for long periods of time, and also they will not feel pressured to make rash trading decisions to avoid fees.

ETX Capital, therefore, is one of the only brokers in the world which does not penalize traders who are waiting for trading opportunities, therefore we must consider this an important breakthrough for the entire industry.

This morning, ETX Capital stated “Life gets busy, and you should only ever trade when the opportunity presents itself. With that in mind, we’re taking a big leap in the right direction and waving goodbye to dormancy fees.”

Absolutely.

It is the responsibility of companies in this industry to innovate and forge the right path ahead, and for this, ETX Capital should well deserve the longer lifetime client value, stable assets under management and quality image from its clients, most of whom are analytical and high-quality traders within the British market.

Let’s hope this paves the way ahead.

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