By Michael Blomfield CEO of Investment Trends
By Michael Blomfield CEO of Investment Trends

Know Your Customer

The Hollywood archetype of a ‘trader’ is a simple one – the lone, mid-thirties male, engulfed by a panel of computer screens, each of them lit up by an array of charts, streams of real-time data flowing, global news feeds scrolling and orders being executed with the dexterity of an X-Box gamer and the emotionless accuracy of the military sniper. But in truth, the leverage trading population is enormously diverse, comprising traders of all ages, wealth levels, trading experience, risk appetite and investment horizons. And what is clear, is that even starting from this level of diversity, the demographic profile of the trading population is shifting quickly.

First Published: e-Forex Magazine 85 / Retail FX trading / March 2019

Specialist researcher Investment Trends observes two major shifts across the globe – more females and more young individuals are participating in leverage trading.  These fundamental changes have expanded the pool of eligible ‘traders’, contributing to the growth of the leverage trading population in many countries. Our latest data shows CFD/FX retail trader numbers rising consistently in major markets such as the UK, Germany, Spain and Australia (see Figure 1).

Figure 1
Figure 1

Increasing youthful

Why is the leverage trading population increasingly youthful and less concentrated among male traders, you may ask? A major contributor is technology. More precisely, the effective implementation of technology by leverage trading product providers.

Just as online brokerages brought self-directed investing to the masses in the late 1990s and early 2000s, CFD/FX providers have utilised technology to improve the leverage trading experience, by continually refining their UIs, their data feeds and their onboarding process, all while vastly expanding their product suite. Price competition has also intensified over time, to the benefit of the end-client.

The end-clients themselves set a high bar when selecting a leverage product provider. Consistent across various countries, we observe that traders most often prioritise low spreads or commissions (perhaps unsurprisingly given the material impact of fees on traders’ P&Ls). But aside from price-related factors, traders also place a large emphasis on two issues that at times are in conflict – the sophistication of the tools offered on the trading platform and the ease with which these tools can be used.

The key challenge for leverage product providers is providing all the bells and whistles that users demand (such as advanced charting tools, technical analysis, trading indicators, algos and live feeds) while maintaining a clean and simple layout. Getting this balance right is vital, because the higher the functionality and the lower the friction of use, the more likely a truly frequent trader will be to select a broker
At present, there is no clear winner in the ‘best user interface’ category but there are many solutions vying for top spot. A large proportion of traders favour the tried-and-tested MetaTrader platform (see Figure 2) but the rest prefer the proprietary trading platform offered by their main leverage trading provider.

Figure 2
Figure 2

Smartphones and apps

More importantly, the widespread and growing use of smartphones and apps in everyday life has important implications for the leverage trading market. Smartphone apps in areas such as mobile banking, online retail and the shared economy are raising the bar for all app developers, and this is no different in the leverage trading market. Many traders already use their smartphone to place trades and many more are intending to do so, which means that mobile trading functionality will be a key battleground for the industry globally – already, the smartphone app is the single most important factor in broker selection in the HK leverage trading market.

Technology aside, the product set is also expanding at pace through a vast array of underlying assets. The dramatic rise (and fall) in the price of Bitcoin and various digital currencies delivered the leverage trading industry a surge of new traders across the globe in 2017 and 2018. Crypto trading was a key catalyst for bringing many first-time traders into the market in early 2018, especially the younger cohort. While the enormous volatility in crypto prices may not be everyone’s cup of tea, the initial interest in digital assets highlights the appetite of many traders for new markets and fresh opportunities.

The demographic profile of retail traders is rapidly evolving
The demographic profile of retail traders is rapidly evolving

Many demand and supply-side factors will continue to shape the global retail trading market. On one hand, established FX/CFD brokers will increasingly be challenged by new competitors such as social trading platforms, mobile-first start up CFD brokers and direct cryptocurrency exchanges, to name a few.

But equally as important, the demographic profile of retail traders is rapidly evolving. The Hollywood archetype is now the rarity – just one persona in a vibrant sea of retail participants. When it comes to servicing this diverse range of clients, there is no one size fits all solution. The providers that are most attuned to the needs and wants of their diverse client base, and that can rapidly deploy sophisticated but easy to use technology, will be the winners in the race to market dominance.