Brokerages need to democratise trading and embrace emerging markets
Just as mobile banking disrupted traditional payments systems, new retail trading tools could democratise financial trading and put millions of traders in emerging markets on the economic map. A lack of legacy financial institutions and infrastructure along with widespread mobile money penetration are driving a wave of fintech innovation across the developing world. At the same time, new trading tools, technologies and data combined with trading costs are lowering barriers to entry for new traders. No-minimum investment accounts have also made investing accessible to those previously excluded from financial markets. This has produced a record year for retail trading with the brokerage industry adding 10 million clients in 2020.
It’s clear brokers have a huge opportunity in actively expanding their services to support the inclusion of a growing pool of retail traders in Asia. Yet the industry suffers from Western-centric policies and practices which have inadvertently excluded the emerging economies that represent the future of trading.
An institutional bias
The central problem is that an historic lack of established players in emerging markets has produced a retail trading system with an institutional bias in favour of developed economies. The majority of historic brokerages are in Europe and the US which produces a strong Western slant in their payment options, language and support services. There are a few international brokerages but most lack any local presence in emerging markets such as APAC. Most do not provide local support or even language services to make trading data accessible for developing world countries.
Furthermore, the inability to access regular market information in local languages serves to reinforce global economic inequality with informational inequality, perpetuating and accentuating existing disadvantages. A lack of access to comprehensive, current market data also leaves traders in immature markets more exposed to social media misinformation and exploitation by scammers.
Levelling the playing field
Opening retail trading to emerging economies will require the brokerage industry to localise, decentralise and democratise financial data. The market information problem is gradually improving across developing countries, but the responsibility lies with brokers to offer local language customer support from local teams. Firms should have on the ground teams across different regions. Not only can these provide guidance to local clients, but they can help anticipate and avert compliance challenges as emerging markets rapidly implement financial regulation.
More mobile-friendly brokerages are also popular in emerging markets with a lack of legacy financial infrastructure. Trading platforms should therefore be built around integration with local mobile apps or browsers and incorporate local payment options. They should also localise trading models. For example, shariah-compliant ‘swap-free accounts’ which incur no swaps or interest on overnight positions could open global markets to traders across the Islamic World.
Markets of the future
The recent pandemic has accelerated adoption of digital services in finance including online brokerages which make it cheaper and easier to trade, dramatically lowering barriers to adoption for emerging economies. In Malaysia alone, users of online brokerages increased 270% in 2020 while, at Vantage, we saw a 68% increase in our platform users over the same period – many from emerging markets. The development of world trading activity will form a virtuous circle where each new wave of local traders increases the pool of local market data for others, progressively increasing inclusion. As these markets mature, trading companies will increasingly partner to mutual benefit, creating more sophisticated products and services. The ongoing development of local services will lead to a growing community of like-minded traders in these regions.
This demonstrates how online brokerages have the potential to democratise finance and reduce global inequality by making the trading landscape a more inclusive space for new entrants. The brokerage industry can help realise this vision and tap into promising new markets by democratising and localising all their services.
Author： Marc Despallieres, Chief Strategy & Trading Officer, Vantage