Sunday, January 29, 2023

‘Low cost’ brokers reinvent themselves in the face of an exodus of retail investors

The outbreak of the pandemic and the confinement of the population increased the interest of retail investors in the stock market, further encouraged by the presence of low-cost or free brokers. A trend that led to events by followers of WallStreetBets, a Reddit forum that threatened to lead a revolution of small investors, but large bearish investors remained trolls and called for a focus on values.

Two years later, retail investors are reducing their exposure to the stock market – and to crypto assets – and brokers are looking for a formula to reinvent themselves after a decline in users and lower profits.

Free broker Robinhood has seen its shares decline 86% since July 2021, just a month after debuting on Wall Street. The volatility of crypto assets, which form a significant part of its business, hasn’t helped either, and the firm has announced two staff cuts so far this year.

With an IPO market almost frozen in both the United States and Europe and the phenomenon of blank check companies (Special Purpose Acquisition Companies, SPACs) in retreat, Israeli broker eToro, for its part, in July announced plans to merge with eToro. retreated to SPAC and list in the US.

In Europe, the stock market sank 36.4% yesterday after broker FlatexDegiro announced a profit warning and admitted that an audit by German market watchdog BaFin had revealed deficiencies in its management. The firm announced a cut to 380 million euros in its expected profit estimates for this year – from 440 million euros just a few months ago – and acknowledged that “business activity from retail investors remains scarce.”

“External factors have pushed retail investor trading activity from an all-time high in early 2021 to an all-time low in 2022, making it the most challenging year yet for the online brokerage industry in Europe.”, to that broker Recognized which will now face “temporary additional capital requirements” by BaFin. The punishment on the stock market also affected its competitor Plus500, which fell 16.2% on the day.

BUX grows in Spain

Bucks Brokers announced yesterday the purchase of Ninety Nine’s retail business. The firm, which has over a million users, allows investing in fractional shares, exchange-traded funds (ETFs) and crypto assets. Ninety Nine, for its part, will stop serving retail customers and focus on B2B and B2B2C both nationally and internationally.

Nation World News Desk
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