Taken as a whole, the past three years have been good for the retail brokerage industry. Beyond the weird market bubble that created the meme stock phenomenon, there has also been lots of volatility that brokers have benefited from.
That has changed this year. Meme noobs have been flushed out of the markets and things are less volatile than they were. From what I see and conversations I’ve had, you mainly have people going long on gold and punting on commodities.
And if you look at the revenues of listed brokers in 2023 and compare them to 2020, the results are pretty stark. Unfortunately doing a like for like comparison is tricky so I couldn’t make a nice graph for you to look at.
Either way…
CMC Markets made £409.8m in revenue in FY 2021 (ending March 31st 2021)
CMC Markets made £288.4m in revenue in FY 2023
In H1 2020 Plus500 made $564.2m
In its last two quarters Plus500 made $463.9m
StoneX retail made $78.6m in Q1 of this year
GAIN Capital’s retail division (which StoneX acquired in H2 of 2020) made $176.3m in Q1 2020
IG Group made £259m in Q4 (ending May 31st) 2020
IG Group made £239.3m in its latest published quarterly results (ending Feb 28th 2023)
NB the first set of results were also prior to the tastytrade acquisition
Aside from showing that Plus500 is the only company which actually has a normal reporting period (ie. the calendar year), this hopefully gives some indication of how outsized the effect of pandemic-induced volatility was on earnings.
On the other hand, the results that CMC, IG and Plus500 are putting out are still very respectable. They are not at the same level as they were during the pandemic but they’re also higher than in the reporting periods before then – CMC’s latest FY results were their best ever bar the pandemic year.
Nonetheless, there is an interesting question as to whether or not firms overextended themselves during that period. In other words, did they make loads of money, think it would continue indefinitely and then blow it all on massively expanding?
Luckily we have the magic of LinkedIn to answer this question. Yes, there are many annoying people posting about Chat GPT on that fabled website but you can also look at how companies have grown over the past two years. Fortunately this is probably just about the time brokers would have got into hiring mode after making loads of money during the pandemic.
The data below is broken down into six month, one year, and two year periods. Annoyingly LinkedIn data doesn’t go beyond this, so we can’t see further back than that. Regardless, I took those figures for 30 brokers and then created the average below.
I admit there could be some corruption of this information. For instance, not everyone is on LinkedIn and brokers often have customers who claim to be employees (eg. it’s not uncommon to see someone who is a “shop assistant at Uniqlo Bukit Bintang” and also a “prop forex trader at Exness”). However, presumably these things affect brokers somewhat equally and so the impact is equally felt too.
As you can see from the above, growth has been strong over the past two years. In fact, of the brokers I looked at, only two have seen a decline in their total number of employees in that time (Exinity, FXCM) but in both cases, the figure was close to being flat (eg. FXCM employee numbers dropped by less than 2%).
Looking at growth over the two year period, the standout companies were Exness and Capital.com. Exness’s growth is remarkable. Assuming the employee numbers are real (ie. they don’t just have loads of ‘day trader at Exness’ types on their LinkedIn), they have increased in size by 90% over the past two years. But because they were already huge, that meant a net increase of about 1,340 employees.
To put that in context, only eToro, IG Group, CMC and XM have more than 1,340 employees in total. In fact, the total net increase in Exness employees is only just short of the total number of employees CMC Markets has today. I could be wrong but my assumption is this means Exness is the largest retail broker (in terms of employees) in the world.
Capital.com has also seen massive growth in the past 24 months, with the number of employees rising by 103% in that time. However, the company today has 630 employees, so it started with a smaller base than Exness, as well as some of the other players in the sector.
Moreover, the company has seen the second-largest drop off in employees in the past six months among the brokers I looked at. Again, assuming the data is correct, Capital has lost 10% of its workforce in that period.
To be honest, I am surprised that I have not seen more of this. Given volatility is lower and some brokers are probably having a tough time, I was expecting CEOs to be ratcheting up the cuts and forcing HR people to trawl scythe-like through their employees.
This was the case in some instances. For instance Naga has seen a slight drop (2%) in employees over the past half year and the same was true for eToro (8%) during the last 12 months. But the only big outlier here was Infinox which has seen a 33% fall in its number of employees in the last six months, although the remaining number of workers is still close to 50% higher than it was in June 2021.
I think there are probably two possibilities. One is that the industry has just grown a lot in the last three years and we aren’t going back. In that case, higher employee numbers are warranted. Alternatively, we haven’t actually felt the ‘true’ impact of the last c.12 months and we’ll see more cuts on the horizon. Who knows?
Either way, some other interesting information came out of the analysis. One was that Trade Nation has grown a lot over the past two years, with 84 employees now versus 54 in 2021 (or 81% growth). This probably comes from them onboarding everyone from OvalX.
It was a similar story with Zenfinex, which has quadrupled in size over that time. In fact, and as a note for stats dorks, Zenfinex’s growth was so good I took it out of the average calculation above, so as not to distort it. XTB was another broker of note, with the firm increasing its total number of employees by close to 40% in the last two years.
The other interesting thing to look at was how many vacancies there are at companies relative to their number of employees today. Maybe this is already a common ratio to use but I haven’t seen it before. Anyway, I express it here as a percentage, so if you have 100 employees and 10 vacancies, it’s 10%.
The top two here were JustMarkets (11.6%) and Fortrade (6.7%). Among the bigger players, Capital.com (4.9%) was the biggest hirer (if that’s a word). This to me suggests their cuts were more ‘efficiency’ driven, rather than a sign they’re not in growth mode, although even if they filled all these positions, they’d still be smaller than they were six months ago.
Finally, looking at all this stuff makes you realise how great Plus500 is at making money. It may not be a kind thing to say but people are typically your biggest expense, so you are ultimately looking to make as much money as possible with the smallest number of employees.
As we’ve seen here before, Plus500’s profit relative to its number of employees is insane. Even if you look at the last half-year, Plus500 has basically equalled CMC Markets best full year ever. So in a below record six months, the company has made almost the same as CMC did in its best year ever. However Plus500 only has 565 employees, or 40% of the number CMC has.
If you look at the past two years, Plus500 has grown in size by 15%. But employees in the US, Japan, Estonia and the Seychelles account for about half of that increase, meaning a lot of Plus500’s employee growth basically came from acquiring companies (Japan, US) or new regulatory licences (Estonia, Seychelles). Obviously that’s a kind of growth but not quite the same as hiring loads of new software engineers or marketing people.
In other words, having new employees can be a positive sign of growth. But Plus500 keeps making loads of money with what is close to being a flat cost base for its staff, which is a much better strength to have as a business. This is essentially why people like tech firms (asset light, scalable) – so why don’t investors like Plus500?