For years, democratization of trading has been a buzzword. Is FINECO right or wrong?

PR flannel or valuable transparency for retail traders? We look at some bold claims, and what democratization would entail

Over recent years, the very occasional attempt to ‘democratize’ trading has been made, although it very much has not made any mainstream traction.

Innovation in some respects has been stifled by the mainstream also-rans which represent the opposite of the democratic trading environment, largely due to the affiliate marketing-led white labels of identical third party platforms with very little flexibility that distribute client losses back to the platform provider and do not allow brokers to keep their own intellectual property.

Companies that have had a very welcome approach, such as Darwinex, Tradimo and Scalable Capital have attempted to penetrate the market with democratization at the top of their list of priorities, a very laudable approach which is very much needed.

Recently, FINECO Bank, an Italian online trading company which has been in business for 21 years, its initial period being under the ownership of Banca Popolare di Brescia and then Bipop Carire, Capitalia and UniCredit banking groups, spoke out about this subject.

“Were one to survey the nation on ‘what a trader looks like,’ the responses would likely be myriad: a hybrid of Gordon Gekko and Mark Zuckerberg; a pinstriped but tech-savvy caricature drawn from a life out-of-reach” said the bank’s PR team.

“The reality is far closer to home. The marriage of globalisation and rapid technological uptake over the last two decades has lessened the constraints of geographical location to such an extent that one needn’t pack their bags to start trading. Wall Street, the City of London, and tradable markets anywhere else in the world exist in each of our pockets” the mantra continued.

FINECO’s perspective during its public diatribe is that anyone can trade and that the stereotype of a trader is all wrong, marred by blame for financial crises past and based on a parody of an eighties cliché. The company considers that two assumptions often made are discernibly untrue in 2020, for example that all traders are male is an outdated perception.

“This isn’t the NYSE trading floor – there are no bellowing, red-faced professionals to shout over when you want to execute a trade. Online, where all are equal in the eyes of the market, we’ve seen a gradual positive curve towards more women in trading. The tools are there for anyone to have a go, and plenty of women have enriched themselves via our platform” said the bank.

At FinanceFeeds we are not so sure. There are of course some ladies who trade, but ultimately the majority of the catastrophic losses, addictive personality traits and tugs of war between broker and trader on profit and loss bases are the preserve of hot-headed males.

Yes, there are successful traders who are ladies, however most of them do not broadcast their ‘success’, and often trade on listed derivatives venues such as CME or ICE in Chicago, via professional platforms which are designed for connecting to futures exchanges, or they work directly with bank systems. Very few are tempted to punt on B-book brokerages which conduct high pressure sales calls and push for deposits and then use a boiler room style of sales tactic to create trading activity whilst turning the handle against the trader at an in house dealing desk. This is all the preserve of addictive males.

Whilst it is highly possible that FINECO has a number of successful traders that are ladies because FINECO is a bank and has been established for some years, it is not indicative of the rest of the industry, so in this case, FINECO may well have a point.

The company considers that a long held misconception among novice retail traders is that a person would have to be wealthy in the first place to accumulate more wealth. FINECO says that whilst this helps, it is not essential as clients can open a share-dealing account with the company from as little as £x. Quite what value the x refers to is anyone’s guess! If that is not democratic, then who knows what it is!

“The road to a healthier financial future does not begin with affluence but education” says FINECO. Yes, that is true but then who do you go to for education?

It is absolutely clear that the majority of the so called ‘educators‘ which aim their services at novice retail traders are toxic, as per our reports, one of which is detailed but pretty much applies to the majority of them, so the only way to empower traders is for a brokerage to employ properly qualified market analysts and have them coach clients directly, and remunerate them on a salary basis with no bonus.

Rather than this type of flannel, it would be better to see the genuine innovators gain more market share, those who have genuinely democratized trading.

As mentioned earlier, Scalable Capital is one firm that has made pragmatic steps toward democratization.

The company’s “Free Broker” option offers a free account with a charge of 0.99 Euros per trade; one ETF savings plan is also free of charge. The “Prime Broker” option offers an unlimited number of trades and unlimited savings plans for 2.99 Euros per month as a flat rate. For the first time in Germany, it is possible to invest free of charge in all ETFs of all ETF providers. The total amount is charged to the customer on an annual basis.

The “Prime Broker flex” option provides the same services as with the “Prime Broker” but the payment amount is charged on a monthly basis. The service costs 4.99 Euros per month.

This is a good step in the right direction as it shows clients exactly what fees they will pay to use the platform, and absolutely no other charges or fiddling with the account on the dealing desk apply.

When electronic trading platforms become treated as a software business rather than an affiliate marketing system, and charged accordingly, there may be a greater step toward democracy for retail traders.

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