Once in a while I’ll sit down on a Sunday to write this newsletter and not really have any idea what to say. At the moment, I’m having the opposite problem. Or to paraphrase an apocryphal quote attributed to one former Soviet leader, there are decades where nothing happens and weeks where MetaQuotes gets banned from the Apple App store.
Last week we went through the reasons why MT4 and MT5 were removed by Apple, pooh-poohing the suggestion that this was because of sanctions on Russia and arguing that it was probably due to a growing number of complaints about scammers using the two trading platforms.
Interestingly, I remember meeting up with someone from the CFD world when on holiday a few months ago, who said that Chinese scammers targeting US clients may cause problems for MetaQuotes. From what I can tell, this is exactly what happened.
This week brought more news that would suggest scam complaints were the reason behind the recent problems. According to two sources in the industry, MetaQuotes has stopped approving white labels for new customers.
The company has not said anything, so there is also the normal rumour mill as to how serious this is. One person claims they’ve stopped issuing them entirely. Another says that white labels are still being approved but only those given the greenlight by management at the top are good to go.
Looking at some messages sent out by the company, it seems that it is the former and that the company has stopped issuing them entirely. According to one insider, the option to acquire a white label has been removed from the MetaQuotes marketplace. Messages seen by this author, purportedly from MetaQuotes, also state explicitly that no MT4 or MT5 white labels are being issued.
A couple of points are worth thinking about. One is that this seemed to be on the cards for a while. When the article on white label problems was published here in July, a couple of people got in touch and said this had been going on for over 12 months.
It’s always possible that there were separate problems that existed prior to the ones that have now come into play with Apple. However, if the same set of problems were already there and MetaTrader was making it harder to get a white label for the same reasons that it has now been removed from the App Store, it seems crazy that it said nothing to clients about it or didn’t take meaningful steps to prevent this from happening.
On the other hand, I guess if they sent a note to clients saying, “hey, we might be banned from the Apple Store, please can you get your white label clients to stop scamming people”, it could create lots of panic and then make the whole thing worse.
Another point to consider is whether or not this is really MetaQuotes’ fault. I could, if I was more intelligent and knew some programming languages, use my Windows PC to hack into a bank and steal money. No one would then blame Windows for me doing that, as millions of other people use their products legitimately.
But then millions of brokers don’t use MT4 or MT5 and presumably MetaQuotes has some idea as to who is using their platforms. In that sense, maybe it’s more like me walking into a gun shop and saying, “hello, I’d like to buy a handgun so I can murder a few people” and the gun shop salesperson says, “yup, no problem, can I just make sure you have a valid gun licence for Vanuatu first?”
Public.com might buy BUX
The rise of commission-free trading over the past few years seems to have been built on a couple of premises.
One is that if you have good technology, you can cut costs and therefore don’t need to charge the same dealing fees that brokers did in the past. As a result, you can maintain similar margins and profit levels.
The other was that you could make money in different ways instead of charging dealing fees. If you are in the US then you take payment for order flow (PFOF), sending your retail trades to a market maker who then gives you a rebate of sorts for doing so. Outside of the US, where PFOF is largely prohibited, it could be subscriptions, share lending, or FX fees.
From what I can tell, the technological side of things is unproven. The apps, online platforms, or backend systems these companies are building may be superior to the incumbents but it’s not really clear whether it’s actually helping cut costs.
As an example of this, Interactive Brokers, a company that was founded in 1978, had operating costs in its last quarter that were less than half of Robinhood’s, even though the latter is supposed to be an amazing start-up with great technology. Interactive Brokers is also extremely profitable, whereas Robinhood is extremely unprofitable.
All of this came to mind this week because of news that Public.com, a US company that was set up by ex-Saxo / CFH executive Jannick Malling, may be buying BUX – a Dutch company that lets you trade shares, crypto, and CFDs.
During the meme stock craze that took place 18 months ago, Public said that it would stop taking PFOF as a way of making money. This seemed crazy to me because (1) it was making company policy in response to a bunch of random people on Twitter and (2) it was probably their main source of revenue. It will also make offering options, which they would make more money from, almost redundant, given that PFOF is the main way to generate revenue from them.
Public replaced PFOF with ‘tipping’, meaning customers could choose to add a ‘tip’ if they wanted to when executing a trade. This does not seem like a great replacement as I would imagine it’s an unreliable source of revenue. It also cheapens the brand and, based on my limited experience at a share dealing platform, I doubt many people choose to do it.
It also left Public with only three major ways to make money – share lending, premium account fees, and FX fees (which would probably be comparatively low, except on crypto, given the company is in the US and so its customers already trade in dollars). They have also added ‘alternatives’, which may be more profitable but it’s hard to say.
Doing this may make sense if you can cut costs to be incredibly low. But as we’ve seen, this doesn’t seem to be happening in reality. The result is that you have to look for other ways to make money, which usually seems to be adding riskier products. For example, Robinhood billed itself as a stock trading app, but it makes far more money from options and crypto trading than it does from equities.
Although it’s also an easy way for them to get access to European markets, this is probably why Public.com is thinking of buying BUX. It’s a simple way of getting access to CFDs, which will presumably help them make more money. It’s also a good time to buy. Public likely has cash in the bank from investors, valuations are tanking, and they may be able to take advantage of the dollar’s strength against the euro to make the purchase.
A while ago, I wrote here that, rather than CFD providers adding equities, we may end up seeing share dealing platforms, with ultra low fees, moving into CFDs. This seems to be an example of that. Moving forward I wouldn’t be surprised if it happens more frequently.
Two new UK platforms, Shares and Lightyear, have both said they won’t do this. Given that they charge almost no fees, it is hard to understand how they plan on making money. A broker cannot live by FX fees alone!