The recent couple of months have been proof that the retail trading industry is going to changes materially after the introduction of the new ESMA regulatory framework. As brokerages are struggling for direction,the launch of the new European regulatory framework proves that authorities are strongly committed to protecting retail clients.
The mandatory disclosure of losses when marketing to retail clients made by brokers signalled that it is time for a shift in the whole industry. When it comes to the performance of their clients, the average stats according to Finance Magnates point out that a mere 76.4 percent of clients are not making money.
If there is any trend to these numbers it is that after the first month of the introduction of the new regulatory framework, there has been a marked shift in these stats. According to some brokerages, the percentage of profitable clients has increased by close to 10 percent.
The Solution
The losses of the customers of market making companies are the broker’s gains. As long as clients are aware, this is not a problem for the reputation of the company. Nor it should be, assuming that execution is fair and square. As long as the brokerage operates in a fair and transparent manner, there is no harm.
This problem is about to get solved with the introduction of a brand new product to the market. Experienced industry executives have founded Non-Zero, a truly revolutionary platform that can ensure that the interest of brokers and their clients are fully aligned, regardless of the operational business model chosen by the brokerage.
By redistributing a portion of their market making gains back to clients, the companies can greatly increase the lifespan of the average retail trader. This in turn leads to a better user experience and the opportunity to reassess trading strategies and behaviour and approach the market in a more methodical way.
The Non-Zero token may solve three problems for the market:
- unsatisfied clients who are losing money on making the wrong market call can get more satisfied if a portion of their losses is sent back to them;
- brokers maintain profitability by becoming more focused on income from commissions and spreads and can provide to their customers the security and speed of b-book execution;
- regulators should welcome the increased profitability of retail clients which can result from the redistribution of losses back to them;
As both sides of the market realise gains in one form or another, the profitability of retail customers can improve somewhat. And this is great for brokers in the long run - the more satisfied their clients are, the more income they can book on commissions and spreads.
Non-Zero is born out of an idea to make the retail brokerage industry last longer. The time for transforming the space is now. Non-Zero is pleased to discuss with brokerages today how to adopt the platform and participate in a new negation of client-centric products.
Regulation Cap
The only material way in which brokers can influence the behaviour of regulators is by educating clients and reducing harm. Let’s assume that the latter has been started with the implementation of the 30:1 Leverage cap for retail trading in Europe.
From now on it is up to the brokers to educate their retail clients on how to increase their profitability so that each side of the market is better pleased with the results. Looking at the US market, we see rates of profitability at some large brokerage firms reaching 44%. This is far from the case in Europe, and the regulators are aiming to change that.
Capping leverage is the first step which the ESMA has made in order to make traders make better decisions. We are yet to see how effective it will be, but in the meantime its primarily the brokers who have the responsibility to change the industry.
Disclaimer: The content of this article is sponsored and does not represent the opinions of Finance Magnates.
