The year to date has been good for brokers after several factors helped to bring back volatility and with it, healthy trading volumes. While the first quarter was good overall, March was outstanding thanks to contracts for difference (CFD’s), foreign exchange (forex), trading platforms, exchanges and multi-asset brokers all reporting excellent volumes in trading, many of which reported their best ever results
Fintech provider, Cappitech, a company that is focused on regulation and compliance technology for brokers, asset managers and brokers has complied investment firm data that is used for its compliance reporting technology to provide reports and other global transactional reporting reports.
The importance of offering strong equity
The data Cappitech has collected is a true indicator of how well the first quarter was for brokers as well as shows the dramatic improvement for the month of March relating to the coronavirus pandemic and its contribution to that increase. What was most interesting about that data is the fact it was compiled on only fifty CFD brokers from the European Union that operate in the retail and institutional space and proved the importance of offering a multi-asset platform.
Cappitech, while speaking on the results of the data collected explained; “Not surprisingly, brokers that had a strong March of equity volumes, outperformed their peers during the quarter (equity volumes include CFD trades of single stocks and equity indexes). Reviewing statistics for top five brokers by quarterly increase of equity volumes showed a greater than 50% outperformance of Q1 vs Q4 growth compared to their peers (330% vs 195%). Interestingly, among the brokers with the strongest Q1 equity growth, increases in transaction volumes began to be seen in January and February. While for laggards, their equity volume increase primarily took place during the volatile March period.”
Trading Volumes for CFD Brokers
According to Cappitech, the results could be related to several factors such as a limited range of equity trading products. This is resultant on data showing that those offering equity products, in comparison to others who focus their energies towards metals and FX, were in stronger positons to reap the rewards during the uncertainty hitting the market during the first quarter. Speaking on this, Cappitech said, “Overall, the figures support the argument that CFD brokers benefit in volatile markets with a wide ranging cross-asset offering.”
Brokers Focused on FX Under Performed
After studying the first quarter results data in detail, it was discovered by Cappitech that the top five brokers reporting the largest equity transaction percentages showed a Q1 vs Q4 weighted average growth of 105%, compared to CFD brokers who reported growth of 95%.
However, what was more interesting in terms of figures was that while looking at brokers with a greater range of diversity, that FX resulted in over 90% of all transactions during their first quarter. It also showed that when comparing Q1 to Q4 results, they underperformed overall.
Cappitech’s Ron Finberg, a Product Specialist with the company stated; “When reviewing the data more closely with Finance Magnates, the data point that really striked out to me was the underperformance of brokers with a very heavy weighting in FX trades. I believe firms with a greater variety products benefitted from both more trading from the active clients as well as being able to re-engage dormant accounts that returned when they saw such large moves in stocks and oil.”