Retail traders’ expectations shape brokers’ requirements

Key Takeaway

• The influx of new retail investors is driving both growth and challenges for broker firms.
• Retail investors demand investment options; brokers must offer intuitive trading platforms and comprehensive data access to attract these investors.
• Brokers should invest in technology and automation to meet the demands of retail traders while managing increased trading volumes and volatility.

The rise of retail trading is one of the key trends in global equities markets today. Large numbers of new investors are entering the market, aiming to achieve their own financial goals and contribute to the wider growth of the world economy. This growth also brings challenges across the financial system, not least for the broker firms seeking to win their share of the global retail business. Established firms must respond to various new requirements in an increasingly competitive environment and amid challenges from growing numbers of ‘neo-broker’ firms.

Retail investors have access to more information and resources than ever before. They are aware of the huge breadth possible of investment options, both in terms of global markets, and alternative instruments like crypto assets. Furthermore, retail investors tend to take a consumer attitude to brokers. They are willing to shop around and compare available options. Brokers can aim to attract retail business, not only on price but also by making trading easier, with intuitive mobile applications, and access to data and analytics. Beyond this, investors are seeking access to the widest range of choices available, and these can include:

• A greater depth of stocks within core markets. This includes small and mid-cap stocks outside of the main exchanges. Such equities offer the potential for explosive growth, although this comes with elevated risk.
• Within core markets, access to fractional shares, to allow small-scale investors to access high-value stocks.
• Access to stocks and other assets in emerging markets. These allow investors to diversify their portfolio, and also offer high growth potential.
• Passive investment products such as ETFs, which allow investors to track global markets, without needing active intervention.
• More asset classes beyond stocks and shares, including bonds, options, and crypto assets. In addition to growth, these can offer investors a way to manage risk.

For brokers, meeting these expectations is crucial to winning retail business. But fulfilling them is a demanding challenge. Access to global markets can be costly, both directly in the form of fees, and indirectly in terms of the administrative overheads of managing contracts and relationships with exchanges around the world. Likewise, offering customers access to a wide range of assets comes with burdens. Each type of asset has its own specific trading requirements, and brokers may need to maintain a range of different systems to manage these workflows. Furthermore, the increased volatility of both exotic instruments and emerging markets puts demands on both systems and processes. All the offerings needed to attract retail traders come with their own costs, and brokers need to find ways to minimize these burdens.

How best to fulfill broker requirements?

Technology can help brokers meet these challenges. By deploying automation wherever possible, firms can streamline their workflows and efficiently handle large volumes of retail orders. Solutions that support multi-asset trading can cut costs by standardizing the technology base across desks. This also improves operational efficiencies by making it easier for traders to work on multiple asset classes without ‘chair switching’.

To meet retail traders’ demands for global markets, brokers must have global access, whether through exchange membership, or via another counterparty. This may add significant administrative overheads and costs. Working with technology partners that have a global outlook, and can offer integrated market access, helps mitigate these issues.

The rise of retail trading also means an increase in trading volumes and potential volatility. To meet these twin challenges, brokers need to be confident that their infrastructure is stable and scalable. Cloud-based solutions allow firms to control management and maintenance costs. They also allow for increased agility by making it easier to add extra IT capacity. Again, trusted global partners are important because they can offer data centers worldwide (crucial for providing effective access to international markets).

For brokers, the rise of retail trading is both a challenge and an opportunity. Investing in technology and automation will ensure that they are ideally placed to reap the benefits of this growth.