Retail options trading has exploded in the US and India over the last decade.
It hasn’t quite had the same reach in the UK and Europe, in part because traders already have access to CFDs and other similar products.
But maybe it’s also because they don’t have the right platform?
Investa is a new UK broker that wants to make options trading simple and easy. Why? We spoke to Co-Founder and CEO Alec Beasley to find out.
Not everyone reading will be familiar with Investa, so can you give some background on yourself and the company?
I used to work in the investment banking world at Citi. I was on the equity options sales desk, so my bread and butter was to facilitate the trading of options, essentially for sophisticated funds, like hedge funds and asset managers. My real focus was on hedge funds.
I was on the desk for about three years or so and I could see how much option trading was exploding over that three year period. It felt like everyone wanted to get into the market.
I wanted to trade options myself. I was like, “great, I’m going to go home and do it.” But it was nearly impossible. Obviously, we’ve got a large penetration of CFD and spread betting firms here in the UK but there just weren’t many platforms offering options.
It was really high minimum deposits – we’re talking £10,000 or £25,000 – and the product was just taking a complex desktop platform and slapping it onto a phone. If you’re a pro trader that might be ok but if you look at 90% of options flow, it’s just outright calls and puts, so you don’t really need a lot of the complicated offerings. Then you add in really high commission rates and it’s just not a great proposition.
I figured, if anyone is going to solve this problem, it’s going to be me. So myself and my co-founder Ross started it from my parent’s garage and we’ve gone on to raise over £2m and have just launched the platform, which is a very simple, easy-to-use options trading app.
If you look over in the US at Robinhood or at Zerodha in India, they don’t really market themselves as options platforms. They do the ‘we’re an investment platform’ model, where they market low risk products, then cross-sell you into higher risk ones. Do you think being a pure play options broker will be a problem for you?
I could eat my words but I don’t think so.
Investa was founded by a group of options traders and that’s who we are. I want people in the UK to think, “if you want to trade options, you go to Investa.” We want that to be our brand.
If we try to get into the investment platform business, it puts us up against firms with huge budgets and dilutes what we actually do.
So it’s a lose-lose on both accounts if we go down that route. We’re a start-up, we need to be lean and to manage our spend well. We can’t compete on that front. And I also don’t want us to be in that share dealing bracket.
The regulators in the UK and Europe are anti-risk and anti-growth, so if you look at their logic for CFDs, it’s basically that because people lose money, the product is bad and has to be restricted. The studies I’ve seen for futures and options in the US, Brazil, and India basically show exactly the same outcomes and demographics. It’s primarily guys in their 30s, 40s and 50s, punting and losing cash. So do you worry the regulator will just do to options what they did to CFDs?
When ESMA were restricting the leverage retail customers could have for CFDs and they banned binary options, if you read the report, they talk about vanilla options being a suitable product for retail for hedging.
So I see that as a positive. They are talking about options being a suitable product for retail investors in the same paper that they talk about restricting those other products.
The products are also inherently different. With options, we are routing your order to the exchange. You can see the pricing very clearly on our platform and about 50 others. CFDs and spread bets, because they are OTC, do have that conflict of interest and less transparency.
Most US brokers make their money on options via PFOF. You can’t do that here. So how do you monetise the business?
The primary driver of revenue is really the FX conversion fee. Most people globally want to invest in the US. People want to buy Apple, Amazon, Microsoft, whatever it may be.
That’s no different with options but obviously they’re listed in dollars. So if a UK user deposit is in GBP and they want to trade US options, they do have to buy a dollar denominated asset and because of that, our execution provider will do the FX conversion for you and we’ll take our markup on that. That’s the primary driver of revenue for now.
Longer term, you can start to see money on cash balances from interest and we want to introduce membership options. So you sign up and get better rates on FX and other benefits. That’s obviously an ideal scenario for us because those revenues are sticky and recurring, so you don’t have to rely as much on transactional revenues.
Would you consider adding futures as well? That seems to be a growing trend in the US
I wouldn’t rule it out. It’s a listed product and there is some overlap with the options market.
Interestingly we have had a couple of early users asking if they can bring their futures trades on to the app as well.
What I think is that the futures market can also end up being complex. And so if I look at the customers asking for futures, they’re also the ones who will start asking for more complex features, like the greeks, time decay, and so on.
Our mission at the moment is just to focus on educating people here about options and keeping it simple. So I would not rule out futures but I just want us to focus on options at the moment.
On that point, one of the positives I think CFDs have is that it is quite simple to understand. You can have your Trading 212 app, put in a pound value that you want to trade and hit buy or sell. Options have the greeks, there is a lot of technical language around them. If you get the tastytrade app, for example, I’d say it’s a lot less user friendly for the average person, compared to the regular IG trading platform. Has that been a challenge?
Like I said, if you look at the overwhelming majority of flow it is just simple call and put trades. I think what other platforms have done is to cater to a more professional audience that wants much more than that, when their own trade flow doesn’t necessitate it, if that makes sense?
So if you get the Investa app, you can see we’ve tried to make it as simple as possible for people making those trades. You have the options card, it shows you the strike price and the call or put and some insights on the P&L.
When I worked on the trading floor, what I found was a lot of people in options like to add complexity, maybe because they’re more mathematically minded. They like all the technical terms and the whole options world around it.
That’s fine but it can mean people make things way more complicated than they need to be. Our goal at Investa is to strip out that complexity so that it’s as simple to trade an option as it is to buy a share. We’ve done a lot to make that happen and we’re also making new products that will improve the app even more, including an AI assistant.
You do have some big competition. Saxo offers options, Robinhood is probably going to go hardcore here too and they have huge sums of money behind them. Then you also have to deal with regular CFD brokers. How do you compete in that market?
Part of it is product. We’ve seen a lot of people come to trade with the app since launch and be a bit like ‘finally, this is all I wanted’. You have a good group of people that just want to trade options in a simple way, affordably and we’re the first in the UK market to offer that.
That’s something you can see from our crowdfunding last year. We were the most participated in crowdfunding campaign for a fintech in 2024. That tells you something.
Those investors are also amazing brand ambassadors, so they are already helping spread the word about the product, which we’ve seen with other fintechs, like Monzo or Freetrade.
I’d think about the target market of a lot of brokers as well. Options brokers in the UK have those higher commissions and minimum deposits, as well as more complex platforms, so that is quite different to what we’re doing at Investa.
It’s also not the case that more competition is a bad thing, right? If more people are aware of the options trading market, that brings you customers as well.
