Options is the new big thing: Don’t get left behind

The trend is not spectacular yet, but its gradual and persistent development has become increasingly evident. Just to mention a few such as Interactive Brokers, DriveWealth, CQG, CME Group, CBOE Global Markets, and eToro have taken steps to expand their options offerings.

What is even more interesting is that a number of disruptive fintech and crypto platforms have included options as part of their product range via new-age platforms from the outset.

The Changing Trading Landscape

Looking back almost 20 years, things were very different. Many newly formed companies entered the electronic brokerage sector by establishing their business using off-the-shelf brokerage solutions which had recently been launched. The influx of new entities offering very similar customer experiences to one another was sudden and exponential.

In total contrast to the established electronic trading businesses that existed at the time, many of which were large corporations with their own in-house trading infrastructure, the aggressive breed of new digital CFD brokers with the off-the-shelf platform which offered a standard range of tradable asset classes being used as a vehicle for lead conversion. While old companies struggled to adapt and follow the technological and lifestyle changes in the post dot-com industry, new entrants aimed right at disrupting the retail trading ecosystem with their new, fully digital approach.

Some of the pioneers of the electronic trading industry entered the market with their own solutions and have since then committed in some cases three decades to continual development. Companies such as IG Group and CMC Markets being cases in point, but many of those which did not initially invest in their own solution are now large, well-known companies in the electronic trading industry.

Future-proofing your brokerage

What began as a sub-sector has matured to such a degree that these companies now form the majority of the global electronic trading industry’s market participants, and are highly knowledgeable, with healthy balance sheets. Such companies may now wish to consider moving toward their own solution without the labour and cost intensiveness associated with the in-house method taken by the aforementioned giants.

One of the main challenges that now faces such businesses is no longer any concern over abilities to gain market presence and attract clients, but more to retain those clients and be able to quickly and effectively take charge of their product range in order to keep pace with client requirements or current appetite for new asset classes.

But right beneath the top, there is a whole group of big, reputable, and mature brokers who simply haven’t developed their own technological independence fully. For them, it is still possible to compete with top giants who use proprietary trading systems, yet because of required time or resources they don’t want to develop their own trading platforms. For those brokers, it is not always possible to simply add a new asset class or offer a new range of products outside of those provided by third-party spot FX platforms, and the current demand for options and equities is a very important case in point.

Companies that viewed the perceived ease of entry into a potentially lucrative business sector by using third-party solutions as a conversion vehicle now find that as their businesses have grown to highly established levels, the system that was intended to make life easy for them has become a restrictive bugbear. One of viable solutions for them could be a technology partner that’s flexible and would give them the freedom and ownership they need.

Saturation point, or time to take control and diversify?

Whether saturation point has been reached in terms of similar firms offering identical products due to them being operated and hosted by the same third-party provider is a matter for debate, and perhaps some may agree that we have surpassed that point, however, it is very clear that dependency on a third party for absolutely every aspect of the trading environment means that companies in this situation cannot always add new asset classes or adapt their business according to their own client demand as they do not have control over the infrastructure and have to be almost subservient to their provider, whilst also having an added disadvantage of their intellectual property – clients – being on someone else’s servers.

Options Trading: The Next Big Trend?

Fractional shares and commission-free stock trading may have captured significant attention of the retail trading industry in previous years, but their novelty does not signify an end to the need for adaptation in the brokerage industry. Traders’ preferences and market dynamics are continuously evolving, and brokers must ensure staying flexible and prepared for emerging trends to meet the changing demands of their clients.

While it remains uncertain whether options trading will become the next significant trend, it is undeniable that new opportunities will emerge. Those brokers who stay proactive in identifying and embracing trends could avoid being left behind in an increasingly competitive landscape. Operating an adaptive and flexible brokerage software and technology makes it easier to stay attuned to market developments, allows brokers to position themselves strategically and capitalize on emerging opportunities.

The Need for Adaptation

In an industry that is witnessing consolidation and intensified competition, brokers can find advantage in remaining agile. Those who fail to adapt risk losing market share and relevance up to the point of no return. Besides some exceptional cases, thriving in this evolving landscape requires proper multi-asset capabilities within brokers’ platforms. The ability to offer a diverse range of assets through a unified and elastic system is essential for attracting and retaining a broader customer base.

Achieving this is now no longer the impossibility that it used to be, where brokers were faced with either hiring an entire team of developers and support engineers as well as the total outlay of building their own trading system. To build an in-house system cost CMC Markets over $100 million, and costs $200,000 per month to support.

On the other hand, going to an external developer also bears a cost, albeit nowhere near as high as in-house development, but choosing a software company which can provide a full suite of software without the initial cost, for a reasonable monthly licensing fee gives brokers the freedom to maintain their own infrastructure and trading environment as well as offer important access to multi-asset trading.

The Front-End User Experience

While the back-end capabilities are vital, the front-end user experience should not be overlooked. Reflecting options trading capabilities in front-end platforms, including mobile trading applications, seems an important advancement for a vast majority of brokers.

By providing intuitive and user-friendly interfaces for options trading, brokers can effectively attract and retain traders seeking opportunities in this market.
Leading the charge in adopting new trends, some brokers have already ventured into options trading by integrating it into their offerings.

For instance, eToro recently launched a separate application dedicated to options trading, acknowledging the potential of this asset class. It doesn’t have to be like this though, as proven by TraderEvolution Global, one of the leading multi-market platform vendors.

Modern trading apps could include options trading functionality in the same multi-asset application with stocks, futures, CFDs, FX and other types of products to be traded from a single account.

Interactive Brokers, a renowned brokerage firm, has embraced this trend by adding options trading to its mobile apps. By doing so, they acknowledge the growing demand for options-based strategies and position themselves as a competitive force in the market.

Options Trading Extending Beyond Traditional Assets

The reach of options trading extends beyond traditional stocks and commodities. Cryptocurrency exchanges, such as OKX and Bybit, have also introduced options on cryptocurrencies. This expansion showcases the increasing importance of options trading across various asset classes and highlights that the newborn trend gains traction already.

The Crucial Role of Back-End Capabilities

To effectively support options trading and other emerging trends, it is crucial for brokers to ensure that the back-end of their trading platforms caters to the entire lifecycle of each asset class. This means having adjustable software systems capable of seamless integration with options providers and market data vendors. Customization of trading software might be necessary to meet the specific requirements of options dealers, while market data vendors are going to expect proper data usage controls and reporting.

Conclusion

As the trading industry continues to evolve, brokers must adapt to emerging trends to maintain a competitive edge. Options trading, although uncertain as the next big trend, represents a significant opportunity for brokers to expand their offerings and attract a broader clientele. However, adding options trading or front-ends for example to a broker’s portfolio requires an integration of specialized back-end components, counterparties, and their systems to attain the necessary capabilities, pushing the technological race among brokers to a new level and most importantly, enabling brokers to take full control of their business and adapt to what clients need at any specific time without being subjugated to limitations imposed by their provider, to whom they are paying good money!

The subject matter and the content of this article are solely the views of the author. FinanceFeeds does not bear any legal responsibility for the content of this article and they do not reflect the viewpoint of FinanceFeeds or its editorial staff.