This eToro Interview is brought to you by InvestingReviews.co.uk
Welcome to The C-Suite, a new series of monthly interviews with leading executives in the retail trading industry.
To kick things off, we’re speaking to Dan Moczulski, Managing Director for eToro UK and the DACH region. Dan has been in the industry for close to 25 years and has a wealth of experience. Read on to hear how the sector has changed over time, what’s happening at eToro and what he thinks of new products, like exchange-traded derivatives.
David: Can you talk a bit about how you actually ended up getting into the industry?
Dan M: Okay, well in 2000 I was working for a publisher called Euromoney, which was owned by the Daily Mail at the time, and it was a publication that covered the money markets and I was selling advertising for that. I was contacting various capital markets players around the world, trying to get them engaged in advertising within these publications.
And one day, flicking through the Evening Standard, I saw a very small advertisement, a very small square in the classifieds, saying, ‘city firm wants dealers’. That turned out to be IG.
So I applied for that and I think they were growing so fast at the time that anyone who did apply got the job. So I got the job, started as a dealer and then progressed into sales, then managed the sales department. I then looked after both the B2C proposition and then the B2B proposition for spread betting, CFDs and FX.
I did that for 10 years. And since then I’ve been at different providers, partly on the brokerage side but also technology as well – companies selling tech and other products into the industry.
David: And what are your early recollections of the industry? I would say you joined IG at quite an interesting time as it was an inflection point, where you were transitioning from it being more of a phone-based business to an internet-based one.
Dan M: I think there’s a couple of inflection points that happened around 2000. So point one, and you’ve picked this up when you’ve had conversations with other ex-IG employees in the past, but the business was evolving from being a play thing of [IG founder] Stuart Wheeler’s wealthy contacts and friends.
And so they may have been trading gold, they may have been trading treasuries. But what changed dramatically around that time was the introduction of spread betting on shares and CFDs on shares. And it feels like that was the product that allowed the industry to move away from a very, very small circle of people that were interested in spread betting to becoming slightly more mainstream.
I use the word ‘slightly’ more mainstream because it’s still niche. You know, if you look at any of the surveys that apply to the market, it doesn’t get much bigger over time. There’s maybe 200,000 to 300,000 people that invest in spread betting and CFDs in the UK, and rightly so given its complexity. But that hasn’t changed much over the past 20 years.
So you’ve got that pivot point, from it being a very small circle of people that were looking to trade on this kind of product to becoming slightly wider, that move to offering shares made a big difference.
Secondly, as you pinpointed, the internet was different. You know, you had another interview that referred to the early IG online platform. And that wasn’t much more than a chat function, so really all you had were dealers and sales people putting in instrument prices to clients, which meant they weren’t scalable.
But then over the coming years after that, it became possible to take more and more trades at the same time, more and more investments at the same time, because you could automate the whole process.
That’s when things started to grow. You know I remember at the time on the sales desks at IG thinking, ‘wow, we’re opening 400 accounts a month, it can never get bigger than where it is now’. And lo and behold, you have companies in the market now that would be annoyed if they were only getting 400 accounts per day.
David: So how did you end up in your role today at eToro?
Dan M: Well to really go back, about 15 or 20 years ago, one of the things you’d do to get clients was in-person events. Every six months or so, I’d be on the IG stand and I would see this guy on the eToro stand. And they were doing things very differently to how the rest of the industry was doing things, primarily because of the copy trading mechanism they offered.
So over that time I got to know [eToro CEO] Yoni Assia. There were times where he’d ask if I’d be interested in joining eToro but the timing wasn’t right for me. And then there were times where I’d ask if I could join eToro but it wasn’t the right time at their side.
So I’d been in the CFD and spread betting industry for around 20 years. Crypto was booming, zero commission stock trading was booming. And I really wanted to know how it worked so effectively. So it was a good moment to join because I was interested in seeing how this side of the industry worked and Yoni was looking for someone to run the UK office.
David: One other question I have on this topic is that if you look at a lot of the providers in the industry, big or small, they seem to end up hiring people who were at one point quite senior at IG. Do you think that’s just a function of the fact that IG is a big company and was one of the earlier players in the sector, or do you think that the company makes people into, for lack of a better term, good employees?
Dan M: I think you can’t get away from the fact this has been a rapidly growing industry that is so much bigger and so much stronger and so much more important than it was 20 years ago.
And so you can’t really compare and contrast between where we are now. You know, we only have to look at the coverage that we’ve recently had of our Twitter partnership, where every single mainstream newspaper has made reference to the partnership with eToro. That wouldn’t have happened 20 years ago, it was just so much smaller.
So what I would say is, if you are an employer looking for a senior exec with a lot of experience, the odds are they’re going to have spent time at a company like IG, CMC or even City Index – purely because they are the only ones that have been around for a long enough time.
David: Ok, so moving on to more eToro stuff. One of the things you just mentioned was how you joined partly because of stock trading and crypto. Both of those things have fallen off a cliff. How have you dealt with that as a company?
Dan M: From my experience in the spread betting and CFD space over the past two decades, we see one of two things in markets like this. Either people decide it’s not for me because I’m losing money and want to get out of the market. Alternatively, they see that they can use these instruments to take a position in falling markets.
What seems to have happened over the last, say five years, at least for eToro, is the client is not just looking for capital gains. There’s also an aspect of community. There’s also an aspect of wanting their investment to reflect their own kind of personality, their own community.
So let’s say they believe in the future of electric vehicles. They hold Tesla. Let’s say they fully believe in a decentralized financial marketplace. They hold Bitcoin. So what we are finding is that people are not leaving in their droves or anything like that, instead they’re holding on to those positions they believe in.
To add to that, our number of funded accounts is only going up. We’ve never had a year where it’s gone down. And so even through markets that are challenging, even through markets that are difficult, we’re finding people aren’t leaving the platform or the products. Maybe they’re scaling back in some way, but they’re continuing to engage.
The other point I’d make is that we’re the only player in the market which offers zero commission stocks, real crypto and derivatives. So if there are periods of time where crypto is booming, then they can engage with eToro. If there are periods of time where stocks are getting they can engage with us. And if there is a time when markets are falling, then a small part of the client base can use derivatives to take advantage of that. So I’d like to think in comparison to what you might consider competitors of eToro, we actually position ourselves quite well.
David: So one thing that I’ve always been curious about is how that product set works. Is it just a cross-selling exercise or are you actually generating revenue from all of the products?
Dan M: David, obviously you can do the maths. If we look at our stock offering, it’s zero commission. If we look at our crypto proposition, there is a basis points charge. If we look at our CFD proposition, there is a basis points charge or a spread wider than the market rate.
So inherently, some of those are revenue enhancing more than others. That’s part one. That’s not to say that you can’t make money through zero commission stocks. So if people are trading in different currencies or leaving cash in their accounts, we’re able to generate revenue.
You know, I mentioned that the CFD space has not grown dramatically in the time that I’ve been in the industry. And I think that’s a good thing given that it’s a product that clearly isn’t appropriate for everyone.
And so if you look at what people are trading at eToro, less than 10% of our AUM or client base are in CFDs, so that cross play is not as big or as obvious as you think it might be. And I think that’s as it should be. This is a product that’s more suited to people who understand financial markets well.
Having said that, it is also worth saying that we are one of the few players that allows unleveraged CFDs. So if you are an individual that wants to get exposure to gold or natural gas or oil. You know, that is quite difficult for a retail player to get exposure to these markets directly or without leverage. We’re one of the few players that do that.
David: One of the points that Capital.com’s CEO, Peter Hetherington, made when I spoke to him, was that he wants to ultimately add other products. But he also wants to build a very good CFD product first and so adding other products now would detract from that. From my own experience, I see that a company trying to do 20 different things at once doesn’t often work. So how do you manage your product set at eToro?
Dan M: I am going to frame it slightly differently. I think if you look at our really strong growth over the past four or five years, you get the sense that this was an overnight event. But it wasn’t, eToro has been slowly building for almost two decades now.
So we went live with real crypto in 2013. I think we were the first one in the UK to offer that. Our stock offering went live in 2019. So I can absolutely understand Peter’s position that going too fast and offering too many markets in one time is very difficult.
However, I’d say eToro has shown an uncanny knack of innovating just before these booms happen, so it doesn’t feel like at any one time we’re trying to launch three products. I think eToro has been able to do it quite well simply because it’s been ahead of the curve and able to concentrate on a particular asset class at that time. Now we’ve got three asset classes that are all considered important. But that’s because I’d like to say that we innovated at the right time and did so in a staggered process.
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David: Ok, well another somewhat related point is around a culture gap. eToro’s head office is in Israel and if I think of the UK market, you have things like spread betting on the derivatives side, then ISAs or SIPPs on the investment side. These are things which are quite specific to the UK. Is it difficult to develop products when people in head office might have little or no familiarity with them?
Dan M: To a large degree, you’ve hit the nail on the head describing how eToro has grown over the last 15 years or so. Being based in Israel, I could half call it an advantage and half call it a disadvantage, but if you look at how a traditional brokerage grows, it tends to grow locally. It tends to grow within its home market, reaches a certain critical mass, and then decide that it wants to go outside. So UK brokers have tended to start here, then often go to Australia because there are cultural and legal similarities. Then they might go to Europe because of its proximity
An Israeli broker doesn’t have a large local market, so they have tended to build global products. So if you look at some of the features of eToro, like dollar deposits, it was done to appeal to the broadest set of markets possible.
I think one of the reasons why I found myself at eToro two years ago is because of the realisation that eToro has grown dramatically from a global perspective. And if it wants to continue to grow dramatically from a global perspective, it now has to start thinking locally.
So you may have seen a recent affiliation we have with Moneyfarm in order to offer ISAs. There are changes with the currencies that are going to be on the platform. There are going to be different asset classes that are offered. And so that will happen over time. Everybody else has started local, trying to turn global. We’ve started global and are trying to turn local.
David: That’s a good tagline there. Ok, another area of eToro that I’ve always found interesting is copy trading. From a theoretical point of view, it’s interesting, but practically I don’t get how you make money from it.
Dan M: I think people that invest on eToro, broadly fall into two buckets. There isn’t a clear line between them but I would say you have active investors and passive investors.
I feel nobody should be just an active investor and nobody should be just a passive investor, there should be some co-mingling of the two. What I would say of copy, which is relatively unique to us, is it really works as a product. You have someone that isn’t sure if they’re ready to be an active participant in the markets but they do like active management.
So if I use crypto as an example, one of our largest copied traders is Jay Nemesis, who very early could identify the crypto coins he believed would perform well over the coming years. He was very engaged with the white papers, community and so on of each coin.
Now you have people in the UK that may have agreed that crypto was something important but didn’t have the time or understanding to go through every single white paper and coin.
Well, there you have an example of how the copy mechanism has allowed people like that to engage in financial markets when they wouldn’t have previously. But that copy mechanism we’re using as a way that if somebody hasn’t got the desire to actively invest, they can engage with eToro by passively investing.
David: Another product that you guys are going to be adding, which I think you you already have in the US, is options. You bought Gatsby last year to do that. This is something I see the major players in this sector going for. Can you talk about what eToro’s plans are here but also if you have any thoughts on listed derivatives playing a bigger role in the industry?
Dan M: Point one is thinking about how options can be part of an investor’s toolbox. So you might feel that we’re going to have a period of low volatility. Well, there’s a combination of options that you can use to derive income from that. You might want to use them to take a position on a specific stock and so on.
I think it’s worth pointing out that options lend themselves to markets where maybe CFDs and spread betting weren’t as prevalent. So if you look at the US, they don’t have spread betting or CFDs, so you can see why options are a more important product there.
Regarding the Gatsby acquisition, we’re very pleased with it. We’re pleased with how it’s rolling out within the US. There are various different experiments that we’re doing as a business in various different territories with options and I think if we see it working, then we’ll push forward with it.
But it’s worth saying, David, that the UK doesn’t tend to have a particularly vibrant options market. But covered warrants in Germany, certificates in Germany, turbos in Holland are all very similar to options and are more dominant than CFDs. So I think it’s inevitable that we’ll roll out the options product globally and it’ll be interesting to see which individual markets take to it.
David: So I have a couple of questions to follow up on that. One is, does that mean that you’ll add turbos and similar products? The other one is, I remember a while ago the CEO of B2Broker making this point that crypto investors don’t like CFDs and that is part of the reason perpetual futures were developed as a product. People still wanted leverage but, for whatever reason, not in the form of a CFD. So to your point on options not being popular in some markets, that to me was a sign that actually there may be untapped demand for them. That was something I also noticed during the stock boom during the pandemic. You had a lot of people in Europe complaining about how the only choice they had to trade stocks with leverage were CFDs.
Dan M: I think that’s a very valid point. I’d say from a UK perspective, if options are to be a success, I think it will be defined by the number of people who are keen to trade on exchange.
We started this conversation talking about me having been in the spread betting and CFD industry for about 20 years. So I firmly believe in the product and I think one of the problems here is that a lot of the benefits are not immediately obvious, even to someone that is a more sophisticated investor.
So trading with the company means you don’t have to source the instrument which is being traded. There can be liquidity benefits and better market depth, so you click on the trade and your order is very likely to be filled at that price. Then you have the trade sizes, which can be a problem with exchange-traded products. I’m not saying that means the product is superior, just that there are some clear benefits to CFDs and spread bets, which go some way in explaining their popularity.
However, there are some people that don’t need or like those things. So they do like the idea of actually trading on exchange, where they can look at their firm’s service and price and compare it to another firm’s price on the same exchange. For those people that do want to engage with with markets in that manner, I can absolutely see options being an interesting product for those people.
I think it is worth saying, however, when you’re talking about the perpetual futures, even though you might be trading it on their version of exchange, it’s not fungible. It’s not like you could buy a Binance perpetual future and sell it on a Coinbase platform so that isn’t quite there yet. But yes, that validity of exchange pricing might appeal to some people.
Regarding turbos and other products, I think a little bit like we said when we were talking about starting global, turning local, turbos are unique to some European countries. It’s quite possible if we reach a certain size in those particular countries that we might say, let’s flick a switch and offer turbos. We are not quite there at the moment. Let’s just see what we do with options.
David: Another broader trend I see in the sector is that you have this growing divide. Some players, like eToro, IG, or CMC are evolving into companies more like Interactive Brokers, offering this broad set of assets to a large investor base. Then you have other companies that are sticking to pure play CFDs and, even if they have a European license, are doing the large majority of their business in emerging markets. Do you think that’s a fair analysis or are things more nuanced than that?
Dan M: I think there is more nuance in it but as a broad kind of brush of the industry, I can kind of accept what you are saying. I don’t know whether you’ve picked up the fact that all the names that you mentioned as being similar to eToro all own their own technology.
I’d speculate the firms that you are saying sit solely within the FX/CFD space, tend to have used the MetaQuotes products. And so I think that might give them a slightly different mentality on how they want to grow.
And I’d say there are two ways to grow. One is that you want to grow your product range to get more business or it might be that you want to grow your territorial range, which allows you to grow your business. The firms that you mentioned originally have gone, in part, for broadness of product range.
Then this other side of the industry has gone for expansion in the number of territories they’re active in. You have to look at the ESMA leverage trading restrictions. If we’re talking specifically about CFDs, it has changed the market space and the opportunities for brokerages within Europe and Australia. And so it’s completely understandable that some firms have decide to look at other territories.
David: Given the problems companies are facing, how much room do you think there is for newcomers to market? I remember talking to someone about a year ago, who was saying, to outcompete IC Markets in its core markets, you’d probably need to raise half a billion dollars or more. Just because they can outcompete you on ad spend and basically every other area of marketing.
Dan M: Again, I’d say that relates to the MetaQuotes product. If you’ve got thousands of brokers all with the same platform, really the only way that you can compete, at least for that initial client, is through marketing spend and, to some extent, cost comparisons.
So it’s lent itself in those particular markets to who’s the cheapest and who spends the most money. Another factor is that it means IBs become very important. They’re sticky to a certain extent but they can also move if a new proposition comes out.
If you contrast that with firms with proprietary trading platforms and their own intellectual property, they are able to actually offer something different that can satisfy a different range of clients.
So I’d say as the market and the industry gets bigger by nature, it has a moat around it that means it’s harder to compete. But then, like I said earlier, when I started in this industry, we were opening 400 accounts per month and thought there was no way that could bettered.
New things come up. There will be new players. Look at crypto. When you talk about perpetual futures and you talk about the various different initiatives that some crypto industry players have done, I can’t say that’s not innovation. And that has happened right on our doorstep.
David: You actually think crypto is BS though, right?
Dan M: Well, one point I’d make is that it’s very easy to think that way if you are getting paid in dollars or euros at the end of the month. If you look at a lot of countries in LATAM, Asia or Africa, it becomes much harder to say crypto is BS. If someone is saying, ‘I’d prefer to get my salary in crypto than the national currency’ can you argue with that?
There are clearly lots of coins that I don’t buy into in exactly the same way. But I remember during the Dot Com boom, sitting there thinking, ‘can this all be real? Do we really believe in Amazon? Do we really believe in Google?’
And in 1999 there were loads of companies we thought wouldn’t make it but they’re still around. So I feel, even if you don’t believe in crypto, it makes sense to have some small exposure to it, in case you are wrong. I can’t see the sense of not touching it unless you think you are the world’s greatest investor. You are going to get some things wrong.
David: Well, I must be the world’s greatest investor. Something else I wanted to discuss was M&A. We’re in a tough market at the moment. Are you getting any approaches to acquire companies?
Dan M: The theme I’ve kept touching is that, because we offer a variety of assets, we’re able to generate revenue regardless of the prevailing market conditions. If you only offer one product then you might have done well over the past three or four years but now you are going to be struggling.
So it’s inevitable that some firms will be looking for either help or seeking partnerships from firms that are stronger. There’s got to be some consolidation. As we talked about, zero commission stock trading by nature has thin margins, so not all firms are gonna be able to survive. So I think in the coming years, coming months, you will see an increased amount of M&A.
David: Is that across the board or just in stock trading?
Dan M: I see it across the board, including crypto and CFDs. Any company that hasn’t got the opportunity to drive revenue or grow, I can see being under some form of pressure to partner with other firms or be acquired.
David: Yeah, so the other thing I wanted to ask was on Twitter. How did that come about? Quite a cool idea.
Dan M: Well I’m glad you think that. We all think it’s quite a cool idea as well. It’ll be interesting to see how it grows and how it develops, in terms of what eToro can do with it and what Twitter can do with it.
You know, I do believe that Twitter is a good place for breaking financial news, but it’s not a good a place for nuance or broader context. And hopefully this will be a beautiful tie up. Twitter will be the place where you get your snap news that non-farm payrolls have come in or a merger is happening. And eToro will be that natural place where you can look at the fundamentals, you can look at what’s happened to that particular firm.
You can see what other people are saying but then also if they have some skin in the game, because you can see what their portfolio looks like. So we’ll see how it develops but eToro is the social investing site, so engaging with social platforms seems like an obvious route.
David: Ok, so last one, are there any other interesting updates or things happening at eToro that people should know about or that you can talk about?
Dan M: You know, I would say it’s our size that’s most relevant. We’ve got 3.3m registered UK users and perhaps because of not being not being headquartered in the UK and not being considered one of the big companies here for a while, I’d reiterate that we’re now a major player for stocks, for crypto and for derivatives. Our UK operation is growing everyday based right here in 1 Canada Square in Canary Wharf. We’re here and we’re not going anywhere.
David: Cool, well that’s a very triumphant way in which to finish.
