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Crypto exchanges and retail brokers vie for customers as trading ardour cools

Brokers offering stock trading and crypto exchanges that sell digital tokens are making progress on each other’s clients as the passion that propelled retail trading volumes to cool down.

Both groups, which act as a gateway for regular investors to buy and sell popular assets, are watching the most attractive areas of their rivals’ markets to deal with the chills caused by this year’s declines in the capital and crypto markets.

A surge in stock and cryptocurrency trading among active investors last year provided a strong but transient boom for brokers, with high trading volumes and record-breaking new clients.

Inflation and rising interest rates have reduced investor enthusiasm. The number of trades made in traditional US brokers fell by 32% in the first quarter of 2022 compared to the previous year, according to an analysis by BrokerChooser.

Backed by two-year gains from epidemic trading, some crypto companies are investing in diversification into new markets.

The crypto exchange FTX will start trading in the stock this year and has completed its strategy with acquisitions of the Embed Financial stock clearing house and an unknown stake in IEX, the regulated exchange. Bitpanda, one of the largest exchanges in Europe, already allows clients to buy stocks and ETFs.

Sam Bankman-Fried, the 30-year-old founder of FTX, has seriously considered a more ambitious goal: acquiring the Robinhood memestock broker to boost his company’s push for stock trading, according to people familiar with the subject. He paid $ 648 million for a 7.6% stake in Robinhood, founded by 35-year-old Vlad Teneb in May. FTX says no merger calls and official acquisitions have been made.

“A lot of people who want to invest in crypto also want to invest in stocks… [adding stocks] Makes the experience much cleaner, “Benman-Fried said in an interview with the Financial Times, adding that he is” actively examining “acquisitions.

He said the FTX is looking at buying companies that have “strong brands and user bases” or “a lot … expertise with certain pieces of licensing that we have so little background on.”

Retail brokers on the other hand are trying to stay competitive and attract new users in a market where commissions on zero stock trading.

Robinhood began offering crypto trading in 2018, while Interactive Brokers, which handles about 9 percent of the U.S. options volume, announced plans to enter the crypto space. Public.com allows users to trade both stocks and crypto.

In May, Fidelity Fund Manager announced it would allow investors to add cryptocurrencies to their portfolios as part of 401 (k) retirement plans. Fidelity and Charles Schwab are also building a cryptocurrency trading platform alongside market makers Virtu Financial and Citadel Securities. “We’re spitting new stuff in a very fast-paced clip right now,” said Steve Quirk, the new chief mediator at Robinhood.

Retail broker executives see an opportunity to enter the crypto market before U.S. lawmakers set rules for trading digital assets.

“When the regulators come out with some rules, it’s too late to be in [crypto] Markets the right way, “said Thomas Petrifi, chairman of Interactive Brokers. “It’s better to be in the markets already and adapt to the regulations…. Other brokers will soon enter crypto as well, provided that crypto is still a thing as well.”

But both sides face obstacles to making a breakthrough in this market.

Threaded technology designed to trade crypto on existing stock platforms may not be straightforward. “When companies now want to offer crypto, they have one huge problem. If they build it themselves, they will have a product that is like in 2017,” said Eric Figure, co-founder and CEO of Bitpanda.

The U.S. retail stock trading market is also changing as the underlying economy models change.

The business model of retail brokers is under examination From the regulators, especially on the practice of paying flow for an order. Brokers like Schwab and Robinhood sell their client orders to brokers like Citadel Securities and Virtu – and they made more than $ 3.8 billion last year in payments for their orders.

A bar chart of% of total revenue showing larger brokers that are supposed to benefit from interest rate hikes

FTX has already said it will not sell its flow of orders to market makers when it starts trading stocks and said profitability is not its main concern.

Bankman-Fried claims that the brokerage industry is ripe for consolidation. “You have thousands of mobile brokers, most of whom do nothing but provide a mobile app that connects to pay for the flow of orders,” he said.

At the same time, interest rates have risen to the highest levels in more than a decade, allowing brokers to charge interest and generate income from large account balances. This helped offset declines in trading revenue.

This may favor larger role holders who have large and established customer bases.

“There is a significant profit for the big brokers where clients have a lot of cash, i.e. Schwab and interactive brokers,” said Rich Rafto, an analyst at Piper Sandler.

More than 45% of Schwab’s revenue comes from interest on customers’ assets, a number that has grown since then with a slowdown in trading revenue. In contrast, 73% of Robinhood’s revenue was related to trading, and only 18% was generated from interest earned on customer account balances, according to first-quarter data.

To illustrate Robinhood’s efforts to increase account balances, the group told clients in June that it would give them up to $ 800 to transfer their assets to the platform, and return them up to $ 75 in exit fees from other brokers.

Although Robinhood’s revenue per account has dropped to $ 53 per account – analysts point out that it may be attractive not because of its profitability, but as a technology company given its sophisticated user experience and ability to connect with customers. A great offer may turn out to be irresistible.

“If there’s a big cash – rich player jumping into the market.

Crypto exchanges and retail brokers vie for customers as trading ardour cools Source link Crypto exchanges and retail brokers vie for customers as trading ardour cools

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