https://brokerchooser.com 4m 596 Danny Jones
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The views of this article are the perspective of the author and may not be reflective of Confessions of the Professions.
Interactive Brokers recently launched IBKR GlobalTrading, the brokers new global stock trading app. What does this mean for investors and the future of the global broker industry?
Adam Nasli, head analyst at international broker comparison site BrokerChooser
shared his thoughts on Interactive Brokers’ launch of the IBKR GlobalTrading app:
“Interactive Brokers, a US-based broker with 1.7 million users
globally launched IBKR GlobalTrading, an easy-to-use app focusing on global stock trading. Interactive Broker’s move highlights relevant trends of retail investor’s behavior:
1. Established players target millennials and mobile-first trading is becoming popular.
Established brokers, like Charles Schwab or Interactive Brokers, have significantly older, more professional, and wealthier customers on average compared to the customers at newcomer brokers, like Robinhood.
Established brokers have started focusing more on younger generations. The launch of this new app by Interactive Brokers clearly indicates it.
Newcomer brokers usually have a significantly bigger customer base
than some established brokers. Robinhood has around 23 million users, while Webull has more than 7 million users. Interactive Brokers and most European brokers have less than 2 million users.
2. Retail investors focus on stock and crypto trading.
Based on BrokerChooser’s 2021 data,
59% of US retail investors selected stock as the most important product, while 9% of the investors identified crypto as the main priority.
Crypto’s popularity jumped significantly recently as, in 2020, only 4% of US investors said that crypto is the most important asset.
The competition of stock and crypto trading is also getting more intense not just between brokers, but between brokers and crypto exchanges. Brokers started widening their crypto offering, e.g. Robinhood launched its beta version of crypto wallet, while crypto exchanges also plan to offer real stock trading. Interactive Brokers’ launch of IBKR GlobalTrading App also highlights this trend as US customers can trade spot crypto on this new app.
3. Investors use mainly mobile platforms, as gamification is increasing.
We also experienced that mobile trading is really important for users: based on a survey on BrokerChooser,
64% of users use mainly mobile apps for trading,
28% of users use mainly desktop trading platforms
9% of users choose web trading platforms
An emerging trend with the spread of mobile trading is the problems around incentives and gamifications. Brokers, especially newcomer brokers, use UX elements to incentivize users to trade more, which statistically result in worse returns than long-term investments. In addition, complex products and processes can be usually oversimplified, making people believe investing is easy.
4. Commission-free stock trading, but lower quality execution due to payment for order flow.
Like most other US brokers, Interactive Brokers’ new app provides commission-free trading for US customers, but it earns revenue from payment for order flow (PFOF). PFOF is a practice when brokers are compensated by market makers, like Citadel or Virtu, for selling customer order flow.
Customers should be aware that commission-free trading does not equal zero costs. US brokers that rely on payment for order flow provide less price improvement for the customers, the price between the executed price and national best bid-offer (NBBO). Here, at BrokerChooser, we consider this missed price improvement as an implicit cost because customers would usually be better off if they chose a broker that doesn’t rely on PFOF over a broker that relies on it.
Payment for order flow and other market structure-related topics are on the agenda of the SEC for possible regulation. Gary Gensler, SEC chair, said that the ban of PFOF is on the table. A ban on PFOF would force most commission-free brokers in the US to change their business model.