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For those that missed it, our latest podcast is out. This time around I spoke to PipFarm CEO and Founder James Glyde. We look at some key questions about the prop industry, including…
- Do props hedge?
- What are marketing costs like as a % of revenue?
- Are marketing costs rising?
You can listen via the links here.
Now on to this week’s article…
Every once in a while I sit down to write this and can’t think of anything to talk about. This is one of those weeks.
So I figured I’d try and impart some peanut gallery advice from my limited experience of flogging investment trusts over the past few years – yup, readers, I’ve had a job this whole entire time, something a surprising number of people who sub seem to not realise.
Anyway, the basic lesson question is – how do you get people to buy and sell more when they are using your broker?
Trying to get people to buy funds is different for a few reasons and there are pros and cons as compared to running a broker. It’s worth looking at these before we embark on our journey of how to get people to buy/sell more.
Speak to Centroid Solutions about your bridge and risk management technology.
CFDs – pros vs closed-ended funds
To my mind there are two key benefits for CFD brokers who want to write stuff to get people to trade with them more.
- You can go long or short. If you are shilling funds, you can only convince people to buy or try and get them not to sell.
- CFD providers are not beholden to anybody. You are not going to have the marketing guy at Schroders call you up and start berating you for not using the correct investment objective from their fact sheet.
These are very important benefits – it basically means you can take a view of the market in any situation and also don’t have to worry about losing your paycheque if you haven’t shilled the product you were supposed to be selling correctly. Many people in investment banks / asset management would love to be in your position and I’m always amazed that brokers don’t just absolutely dump on whatever company, FX pair etc they’re talking about – you have no reason to be nice!
ATFX is on a hiring spree – read about it here
CFDs – negatives
The main negative for CFDs is that they are typically short term volatility plays. Unless you have someone sitting in a carry trade or someone who is minted doing spread bets on equities / gold, the odds are people will open and close positions quickly to take advantage of volatility.
The downside from a selling point of view is that it does make your best potential arguments more limited as they typically have to hinge on something that will cause a sharp price rise / drop. In contrast, I can make a longer term argument for investing in something like a listed private equity or UK equities fund.
Another factor is that brokers tend to want their clients to trade FX and indices, but these are – in my opinion – harder to make good buy / sell arguments for, particularly indices.
Other general observations
- Probably because content gets lumped in with marketing in a lot of brokers, there can be loss of sight on what you are supposed to do. When you are selling funds, research is there to sell and work with sales to help them sell, not marketing. To my mind, it should be the same at brokers, you are trying to sell a buy or sell decision and get the client to trade. This is why I never understand market updates that just say what’s going on. Eg. The S&P rose X today. Maybe it’s good for SEO or PR, but it doesn’t make the client buy or sell.
- A lot of people obsess over whether or not they’re going to be right. And the problem is this often becomes more pronounced the more you know about markets. The risk is that you then end up pontificating about stuff or fretting about whether you are correct. In reality you have to balance making good arguments (ie. you have to know your stuff) with getting people to trade. Getting people to trade is the goal, not being right or showing how smart you are, even if showing how smart you are is a useful way of reaching that goal.
- You can bring a horse to water but sometimes there will be periods where it is beyond a grind getting people to make trades. This has been obvious over the last couple of years. There is not much you can do about this.
Basic steps
- You need people to read or watch your stuff. Put out market updates every day via email with strong buy / sell ideas. Put the email sign up in the onboarding process (this worked extremely well at Freetrade for us but brokers don’t seem to do it) and potentially with aggressive pop ups, in app and on web.
- Set out for yourself and clients, clear price change opps and what they will be. Go hard on a particular angle, with obvious caveats to keep compliance happy. Pepperstone does this well as they clearly lay out (1) upcoming events that will cause price changes short term and (2) what those price changes could be.
- Set up looker for trades by instrument and create a couple of filters. Eg. you can do what instruments are most traded in general, what your most active traders are trading in the most, what most profitable clients are doing. Base what you write about around this to a large degree. I guess most brokers are doing this anyway.
The ideal client
Another area to think about is who you are trying to attract by writing / making videos. In general, the ideal client is probably someone who is clued into markets (or – even better – thinks they are), has a decent amount of cash but isn’t going to be a high maintenance billionaire / wipe your company out, punts regularly, and doesn’t go and complain if they lose cash.
In the UK, my view is that this character type is ‘attracted’ – kind of like catnip – to certain things…
- Middle-aged to old people – ideally posh – who’ve worked in finance for a while talking knowingly about markets. This is partly Capital.com’s strategy with its new YouTube series. Get them to make arguments that this audience will agree with, which is usually right of centre talking points about the economy / world. Also put down the UK but then caveat that with points about how it’s actually great eg. ‘yea the UK stock market is dying but [insert optimistic stat] and valuations are just crazy [insert Yardeni Research P/E averages]. If only we got rid of that damned stamp duty…’ or ‘the reality is hydrocarbons are here to stay, but we do need energy independence because of Russia. And listen, the UK has a lot of problems but it has done a fantastic job at building wind farms, which is also a great investment opportunity. I mean look at UKW’s [insert yield] and you just think, how is it trading on a [insert discount], given its prospective IRR of 10% in NAV terms? I mean, that is definitely going to come in when we see rate cuts later this year. The downside of this is that you can get dragged into forgetting about making people trade. Pontificating / having interesting discussions can get people in, which is positive, but it’s hard to see a direct connection in making them trade.
- Small caps – this audience loves UK small caps, which is why you often see IG Group posting videos with small cap CEOs or similar. They aren’t doing this because they want people to invest in those companies with them, they’re doing it because it’s a way of bringing in the personality type described above. Moreover, research elsewhere on these companies is very limited, so it gives you something of an edge if you can write knowingly about them.
- Investment trusts – I am talking my book to a certain degree here but from my experience trusts attract this audience. This is because trusts are smaller and closed-ended, meaning they can invest in the sort of small caps that these people like and more illiquid stuff, which they also like. Institutions are increasingly unable to hold them, which makes them more attractive from the punter’s point of view, in terms of gaining an edge. Another factor is that there is something about the discount that appeals to the punter mindset – the idea that you can buy something for cheaper than it’s worth and with potential catalysts for a rerating that would cause that to tighten.
Anecdotally, if you go on forums where these people hang out (ADVFN, LSE), you can see the overlap of small caps, trusts, and spread betting quite often. As another tip, if a broker went to Citywire at the moment and said ‘wow, our clients are absolutely lining up, with a huge x% increase in people buying spread bets in Scottish Mortgage (or something else, maybe private equity) relative to 2023. We think this is because of rate cuts / belief in big tech / stronger than expected economy / some other reason. Also we specialise in spread bets on trusts and have added many in response to client demand’. Citywire may run that story and then you’d get some press. - Niche opportunities. This is harder to describe but basically involves you coming up with some kind of market opportunity that is weird and niche, but which is compelling. Examples could be, buying NIS after it tanked at the end of last year, shorting Plus500 when Odey asset management scandal happened and they were a forced seller, shorting trusts held by Rathbones after the merger with Investec last year, going long FTSE 250 UK based on trust discounts, monitoring SpreadEx DDs and then going long whatever they are long. There is too much trust stuff in there but you get the point. If something is slightly weird and shows you ‘know’ market dynamics, then this client base likes that.
The final point is that this character type exists in every country. I believe in the US, for example, they are also big fans of small caps but I don’t know a lot about it. I hear that UAE clients like gold and local stocks as well.
And there you have my two cents on how you can get people to punt more. Sometimes it works, sometimes it doesn’t. But I guess you already knew that anyway.
