cBridge: leading technology, 80% lower pricing
Although it does not attract the same vitriol as its prop trading peer, copy trading is a product that once in a while will attract some level of scorn from someone I talk to in the industry.
But even though this does happen on rare occasions, brokers that don’t offer copy trading are now the exception, rather than the rule.
Take the 2-minute forex broker survey and win a pair of AirPods
Even bigger players that don’t offer it explicitly offer products that are pretty similar, by giving insights into what top traders on their platforms are doing, what instruments they’re trading in, and offering signals.
If you look at the ten largest brokers by volume, based on the latest quarterly report by Finance Magnates, 7 of them offer copy trading. Two – IG and Plus500 – offer very similar products that let you see what positions top performing traders are taking and/or offering trading signals.
Get real Prime of Prime liquidity with ATFX Connect
The outlier is Saxo Bank, which used to offer copy trading but has since pursued the ‘I am not gay, I have relationships with women and sex with men’ business model where they pretend to be an investment platform, even though they make almost all their transactional revenues from derivatives.
Offload 100% of your prop firm’s risk with FX-EDGE
So is copy trading indeed a thing? We think so.
Broadly search interest for the product has been going up since Covid. Even the weird skew over the last few months suggests people search for the service more when volatility increases – a clear positive for those offering the product…
Trade on Raw Pricing with IC Markets
Hedge your crypto risk with Scope Prime
We also surveyed a group of 10 brokers and found that copy trading tended to average 7.5% of overall volumes at those firms. The highest was 25% and the lowest was 0.5%.
However, I would add an important couple of caveats to this. One is that some firms purportedly do consistently high volumes from copy. We asked a couple of these firms for volume figures and they did not respond to our request. In other words, we think the firms that really make use of the product have much higher copy trading volumes than the average would imply.
Manage your risk with Hantec Prime
Secondly, volumes obviously aren’t static. One CFD provider noted that they tend to have a range of 5% to 15% of volumes from copy trading.
Finally, although headline volumes might look ‘low’ (if you consider 7.5% of your flow to be low?) it conceals how significant copy trading can be for specific markets.
All the best brokers use Pelican for copy trading – why don’t you?
For example, one provider noted that copy was 5% of overall volumes but much higher in LATAM and that their firm had to have the product to compete in the region. Another provider noted the same thing for an individual country in a different region.
That final caveat is also significant as it points to the ultimate reason any broker adds any product – attracting and retaining customers.
Manage your broker’s risk with Centroid Solutions
Two business owners that we spoke to were fairly ambivalent about copy trading as a product – not that they disliked it, but they didn’t see it as particularly amazing (most execs are trading purists at heart). However, both noted that they had to have the product for marketing purposes, as IBs, affiliates, and end customers demanded it.
There is also the cross-selling and retention element. Many eons ago, eToro founder Yoni Assia noted that half of eToro customers who use one product will go on to use another. It is hard not to see copy trading being one of those ‘entry point’ products.
26 Degrees: Optimised precious metals liquidity for your brokerage
“There’s a big impact on client retention and also an uptick in user numbers when brokers add copy trading,” said Edward Hancock, Chief Operating Officer at copy trading tech provider Pelican. “Our viral coefficient is 0.4 on average, so for every 10 new clients, another 4 are added by word of mouth. This reduces brokers’ client acquisition costs greatly. With the Pelican system, brokers get 9,000 strategies on the platform for free, so your IB costs are also reduced massively if the product is marketed correctly.”
This leads into the final point, which is effectively cost vs benefit. In other words, even if you accrue benefits from copy trading is the time and money needed to put into it worth it?
The answer to this again would be yes. If you look at something like adding cash equities, that is extremely expensive to do and typically comes with huge operational burdens. To top that off, marketing spend for the product is very high.
By way of comparison, adding copy trading costs very little. For example, Pelican’s fee structure in effect means you only pay if the product actually generates revenues for you. If it doesn’t work, you don’t pay.
Indeed, the bigger problem seems to not be the monetary cost but having someone internally to do something useful with the product. This is something we’ve looked at in the past and it also fits with the conversations we had with brokers – basically the lower volume brokers also noted that they didn’t really do much internally to promote or market the product.
So is copy trading a thing? Definitely. But you have to actually put some effort into it to make it work. Maybe it’s time for you to hire a product manager?
