The online brokerage industry has an innovation problem, particularly when it comes to active traders.
There’s certainly been no shortage of “new” offerings by online brokers – TD Ameritrade, E-Trade, Schwab and others are constantly introducing new versions of charting or execution tools. And there seem to be countless software companies with one new offering after another, promising higher profitability and increased edge.
But for all the bells and whistles, is this true innovation? I would argue that it’s not, and say that the active online futures trading space, in particular, is stuck in a rut. It is a copycat industry that lacks vision and shuns risk-taking, with a trading experience that is little changed over the last 15 years.
But even if you disagree that the tools haven’t been innovative, then why should trading tools be the only place where online brokers do innovate?
Certainly there are some interesting things happening in the broader online investing space – namely the rise of robo-advisors (e.g., Motif, Wealthfront and Betterment). But while robo-advisors may be great at replacing investment advisors, they have no impact on active traders (enter their PR people to tell me I’m wrong…).
If there’s one thing I know it’s active traders.
Their needs are simple –
(1) a trading edge,
(2) intuitive trading software
(3) lower trading costs.
That’s it.
True innovation happens when these three things are tackled together, and to date, online brokers have failed to deliver.
What If Steve Jobs Had Run an Online Broker?
Steve Jobs famously said: “I’m as proud of what we don’t do as I am of what we do.”
He was a savage “No” man. If a product or service didn’t enhance the experience, he didn’t do it. If it didn’t make life better, he didn’t do it.
Imagine how many online brokers would look different if Steve Jobs were their CEO.
Sadly, in my prior life, we had an opportunity to make a bigger impact but did not. I was the founder and CEO of online futures broker Open E Cry, and we introduced one great tool after the other. The truth was that for all the innovative tools we released, few were used consistently.
But where we did see an impact – where our ideas really sparked change – was when we focused on the client experience, with new processes and new ways of doing things. And that’s where the online trading world needs to go today.
Clearly, innovation isn’t easy. And simply shifting one’s mindset and hiring some amazing user experience gurus won’t get the job done.
Innovation takes imagination. It takes risk. And it takes money.
And for most online futures brokers, money is hard to come by. Since 2008, interest rates have been near zero, which has compressed earnings. In addition, regulatory costs and market data fees have significantly increased, further squeezing margins. And with margins down, consolidation is up, hurting innovation even more.
A perfect example: even now in 2014, the futures industry is slow to accept cloud-based trading software. Traders are stuck using 1990s technology. In an environment where everything is moving to the cloud, the futures industry is stuck in the past.
Tradovate is about exploding the status quo.
Tradovate wants to start a revolution – a revolution that hundreds of thousands of active traders are waiting for today. A revolution that could bring many more traders into the fold.
A revolution that the futures industry desperately needs.
I hope you’ll sign on for the ride.
Rick
