Global E-brokerage Market 2020-2025

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    Published-Sep 2021

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    GLOBAL E-BROKERAGE  MARKET

     

    Key Findings

    1. Sustained volatility in the financial markets due to COVID -19 and zero-based commission trading are the two major drivers that have led to exponential growth in the Global E- Brokerage Industry in 2020. 
    2. Zero-based commission trading has forced the brokers to go for consolidation with their competitors to ensure their survival. The acquisition of TD Ameritrade by Charles Schwab would have a significant impact on the electronic trading industry for a foreseeable future.
    3. Machine Learning and Artificial Intelligence would be the tech tools of paramount importance that would help these broker firms achieve twin objectives of customer satisfaction and infrastructure cost.
    4. In the Trade instruments segment, although the growth rate will be higher in the ‘others’ sub-segment which comprises crypto-trading it generates less revenue to drive the market alone. The trade instruments sector will be driven by Equities & FOREX Trading
    5. 2020 was the busiest year for Chinese IPOs. There is also a new stock exchange hoping to launch soon in the country to help small and medium-sized businesses raise capital.
    6. About 90% of the market revenue is still driven by the public listed E-Brokerage Companies.
    7. In the forex market 7 major currency pairs make up 68% of global foreign exchange transactions 
    8. The global equity markets cap around the world just reached an all-time high of $95 trillion in Nov 2020.
    9. In 2020, Over 58.7 million US households about 45.7 percent, owned mutual funds and about 7,636 mutual funds existed in 2020.
    10. Active investor accounts in India rose by a record 10.4 million in 2020, according to the data from the country’s two main depositories.
    11. Zerodha alone had 2.3M DEMAT accounts registered which is higher than the number put together by 2nd & 3rd placed ICICI & RKSV Securities (Upstox)

     

     

    INTRODUCTION

    Broking is a mediator service which is based on the idea of an efficient transaction of securities. These securities range from stocks, warrants, derivatives, bonds, mutual funds, ETF etc.

     

    This idea adapted a broader sense over the years and has evolved a completely different landscape in today’s digital world. Gone are the days when people used to rely on telephonic exchange of words with their brokers to execute their orders. While this might sound inefficient in current financial markets it has rather become impossible where trades can be as short as seconds.

     

    The Global Brokerage Industry that is currently growing at a CAGR of 4 % serves as a catalyst to ensure the free flow of capital across economics and helps in the creation of a globalized marketplace. E-Brokerage means buying and selling of stocks, mutual funds, commodities, etc. through an online medium and obtain information through a website.

     

    The COVID-19 pandemic has served as a blessing in disguise by giving impetus to the online brokerage as the industry registered unprecedented traffic over their trading platforms as a younger breed of millennial investor, is entering the financial markets.

     

    The major factors that have led to such positive impact are falling interest rates and flattening real yield allowing investors to look for long term investments. Industry giants such as Interactive Brokers’ average revenue trades increased by 111 % as compared to the same quarter last year while TD Ameritrade added a whopping 6, 61,000 new funded retail accounts during the second quarter. India’s leading discount broker, Zerodha registered an impeccable 100 % growth on month to month basis while its UK counterpart IG users rose by 34 % as compared to the previous year.

     

     

    E-BROKERAGE  MARKET DYNAMICS

    In United States – January 2021, about six million citizens downloaded a retail brokerage trading app, joining well over 10 million people who opened a new brokerage account in 2020. With pandemic contributing to higher projection of interests.

     

    The advent of the internet has not only revamped the way people used to invest and trade but also led the introduction of a “self-directed investor culture”. The major stimulus to such a culture is a set of new product offerings and technological innovations provided by the brokerage industry in order to attract millennial investors. Zero-based commission trading is one such incentive aimed at providing access to financial markets to a wider audience.

     

    The trend-led by Robin Hood Inc in 2013 has forced even industry giants such as E*Trade, Charles Schwab to eliminate their major revenue stream in order to retain their customers and remain competitive.

     

    Such a move is a win-win situation for investors as it helps them to maximize their returns yet it is forcing such firms to either consolidate in order to strengthen their position or look for alternate avenues for revenue. Often quoted as “the Race to Zero”, such a move has led to an overall decline in the profit margin of the industry as a whole but has helped in expanding market participation across the globe.

     

    2020 was the busiest year for Chinese IPOs. There is also a new stock exchange hoping to launch soon in the country to help small and medium-sized businesses raise capital.

     

    In FY-2021 India witnessed certain regulatory changes too with the focus on improving convenience to retail investors. SEBI simplified the guidelines for boarding & KYC of the customers which paved the way for opening the accounts without any physical intervention.

     

    E-BROKERAGE MARKET BY TRADE INSTRUMENTS

    Global forex market comprises over 170 different currencies. Seven major currency pairs make up 68% of global foreign exchange transactions.

     

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    The trading volume of cryptocurrency spot and futures markets amounted to $4.4 trillion in the 2nd quarter of 2021.

    • As of 1st week of Sep 2021, the largest and most famous cryptocurrency by far, Bitcoin, has a market capitalization of $868 billion. 

     

    In the commodity segment, the global agriculture market has been least affected when compared to other sectors which got affected severely due to the outbreak of pandemic. The prices of some food items have reduced by around 9% since 2020.

     

    E-BROKERAGE MARKET SEGMENTATION

     

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    As everything is shifting to the internet, so in this industry. Now almost all brokerage houses have their online platform where the users can place their trades which are sent to the exchanges for transactions instantly. With deeper penetration of the internet and lower cost of data has catalyzed this shift from physical to virtual over the past few years. The technological change just shifted the industry to a high pace where conventional broking became obsolete.

     

    Since the inception of E-trading, volumes, and liquidity in financial markets skyrocketed. The number of transactions executed per day has followed an exponential curve over the years and is expected to follow
    the same in the years to come.

     

    The number of different types of securities has also increased over the years. New complex derivative products on different asset classes have emerged over the years.

     

    Market participation in both institutional and retail levels is increasing at a fast pace. This posed some serious challenge as with increasing participation, price manipulations also rose at a similar pace. The regulatory bodies have introduced several fundamental changes to how these trades are to be placed which the brokerages were obliged to adhere to.

     

    Increasing participation also invited the lowering of brokerage charges as the industry flourished new players came running to grab a share in the industry at competitive prices. This led to a contracting operating and profit margins for the industry even though the demand flourished.

     

    The given factors resulted in the erosion of institutional commission rates and brought volatility in the business model. Several conventional firms faced pressure and headwinds forcing them to restructure
    their business models.

     

    RISE IN WOMEN PARTICIPATION IN E-BROKERAGE INDUSTRY

    Lockdown has just been an accelerator allowing women to deepen their capital market knowledge via digital solutions. Out of the overall number of active female customers, 55% are traders, whereas 45% are investors.

     

    The number of women who opened an (Demat) account in January 2021 was 77 % more than the number of accounts opened in January 2020.

     

    In US, more than 10 million new brokerage accounts were opened in 2020. At Fidelity, the number of female clients grew 9% last year, a greater increase than the 7% rise in male clients. 

    • Women now make up almost 30% of the app’s customers, as per the reports of Robinhood app

     

    E-BROKERAGE  MARKET SIZE 

    As of 2020, the global brokerage market US alone accounted for ~48% of the global market share followed by China with 10.7%.

     

    The E-brokerage market has a very good positive correlation with the economy of a country. Developed countries with a majority of the population working in the tertiary sector like USA, Singapore, and Hong Kong fosters the broking industry driven by well-established financing services in these countries.

     

    The market participation in developed countries like the USA is around 50% of the total population while in a developing country like India it is around 3% as of current trends. With growing corporate culture and financial institutions, this figure is poised to surge and hence remains as the potential market with steady growth in years to come.

     

    In the coming decade, the industry is set to see rapid growth in fast pace developing economies like India, whereas it may remain muted in developed countries where the market has reached a near saturation level.

     

     

    E-BROKERAGE  MARKET COMPETITIVE LANDSCAPE

    With China’s ambition to become the next superpower and overtake USA in every aspect, it is posing a severe threat to robust and resilient American financial markets.

     

    The Asia Pacific region is also characterized by the dominant presence of India where fin techs are driving the industry forward by providing customized products and solutions at the user’s smartphone. Major startups such as Zerodha, Upstox are providing lucrative offers to attract the millennial investor that accounts 34.33 % of the Indian population. The European Markets are also heading for a change as European Union plans to make amendments to its Markets in Financial Directive (Mifid) that aimed at the separation of trading and research arms of brokerage firms in order to increase the influx of foreign capital.

     

    The “sell-side” securities industry (i.e., the brokers) faced fierce competition in the last few years as the technology drift in the industry led to structural changes that allowed new entrants to form upon the new structure whereas the conventional firms faced strain to restructure their business.

     

    Companies are trying to increase their profitability by acquisition with other organizations to reach customer needs in pre-covid market. This in turn improves the market share by reaching different parts of the world.

     

    Trading volume at TD Ameritrade Holding Corp. and E*TRADE, collectively, has hit an all-time high with Charles Schwab having trading volumes increased by ~52% in 2020.

     

    In the US, the top 3 e-brokerage firms with the highest number of clients under them were Fidelity, Charles Schwab and Vanguard. These 3 cumulatively accounted for 79% of the overall client base.

     

    Collaboration between the financial services sector and FinTech startups is gaining momentum, providing both parties with exciting opportunities.

     

     Zerodha alone had 2.3M DEMAT accounts registered which is higher than the number put together by 2nd & 3rd placed ICICI & RKSV Securities (Upstox)

     

     

    THE WAY FORWARD IN GLOBAL E-BROKERAGE  MARKET

    As investors are provided with a bunch of alternative platforms to trade, customer loyalty becomes transient. Research indicates that around 35 % of the customers in USA switch their trading accounts on getting better deals that too within 3 months. Leveraging the use of Artificial Intelligence and Machine Learning by brokers would aid their customers to take informed decisions based on their investment appetite.

     

    Artificial Intelligence would a game-changer as such a tech-driven approach can help them to correlate and categorize the factors that impact daily trade irrespective of the quantum of data available. Data security continues to be a concern but as per a report by Identity Theft Resource Center, online trading platforms are secure which is evident from the fact that the number of leaks of users data .

     

    Technology would continue to be one of the most crucial factors in the future but only those firms would be successful who can strike the right balance between automating the process with physical support and a more human-driven approach for managing relations with customers.

     

    The investment range in millennials, accounting to self-education and with coincidence of brokers introducing zero-commission trading, resulted in a high growth rate in 2021 compared to the last 10 years. With brokers further introducing bots with help of Machine learning and AI, by 2030 about 25% of the trades will be executed by Bots Globally.

     

    The dominance of the New York Stock Exchange (NYSE), the Nasdaq, the London Stock Exchange (LSE) and the Hong Kong Stock Exchange (HKEX) is not as great as before, with Indian exchanges, Shanghai’s SSE and Brazil’s Bovespa moving up the ranks, in recognition of the growing maturity of EM exchanges. 

     

    Discount brokerage will be force to reckon and will reach new heights in the period 2021-2026

     

    COMPANY PROFILE

    1.  Interactive Brokers
    2. Charles Schwab
    3. Fidelity Investments
    4.  TD Ameritrade
    5.  E-Trade
    6. TastyWorks
    7. Etoro
    8. X-Trade Brokers
    9.  IC Markets
    Sl no Topic
    1 Market Segmentation
    2 Scope of the report
    3 Abbreviations
    4 Research Methodology
    5 Executive Summary
    6 Introduction
    7 Insights from Industry stakeholders
    8 Cost breakdown of Product by sub-components and average profit margin
    9 Disruptive innovation in the Industry
    10 Technology trends in the Industry
    11 Consumer trends in the industry
    12 Recent Production Milestones
    13 Component Manufacturing in US, EU and China
    14 COVID-19 impact on overall market
    15 COVID-19 impact on Production of components
    16 COVID-19 impact on Point of sale
    17 Market Segmentation, Dynamics and Forecast by Geography, 2020-2025
    18 Market Segmentation, Dynamics and Forecast by Product Type, 2020-2025
    19 Market Segmentation, Dynamics and Forecast by Application, 2020-2025
    20 Market Segmentation, Dynamics and Forecast by End use, 2020-2025
    21 Product installation rate by OEM, 2020
    22 Incline/Decline in Average B-2-B selling price in past 5 years
    23 Competition from substitute products
    24 Gross margin and average profitability of suppliers
    25 New product development in past 12 months
    26 M&A in past 12 months
    27 Growth strategy of leading players
    28 Market share of vendors, 2020
    29 Company Profiles
    30 Unmet needs and opportunity for new suppliers
    31 Conclusion
    32 Appendix

     

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