‘Profit from disruption’: Two Australian brokerage platforms on the surge in post-COVID trading
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Among the many changes COVID-19 has had on markets, the recent surge in trading activity among retail investors has been a key talking point.
Financial media headlines have largely focused on US trading apps such as Robinhood, which reportedly saw user volumes surge in late April as the post-March rally gathered steam.
To get the local view, Stockhead caught up last week with representatives from two domestic trading platforms — the US-focused Stake, and new entrant Marketech Focus.
They suggest the opportunity to profit from the disruption caused by the pandemic hasn’t been lost on young Australian investors either.
Stake’s head of marketing Bryan Wilmot said new signups rose by 100 per cent between February and May, compared to the previous four-month period. Coinciding with the volatility, he added trading volumes (from both new and existing customers) rose four-fold in that time.
While Clark has only just launched the Marketech service to compete against domestic brokerage firms, he said the recent surge of interest in stocks was reminiscent of the decade that began with the 9/11 attacks and culminated with the end of the mining boom in 2011.
“During those 10 years or so there were periods of time when the stock market was on everyone’s lips,” Clark said. But following the 2008 financial crisis, general interest in shares took a back seat to the east coast property boom.
“This time I’ve had people call up asking for advice who haven’t brought shares for six or seven years,” he said.
“I think the view was ‘well, companies like Westpac or BHP didn’t go broke last time (in the GFC). This isn’t a financial crisis it’s a health crisis, and all of a sudden stocks are looking like they’re 40 per cent off’.”
“That’s probably one reason why retail traders have come back in, and then you’ve also got the fact that a lot of people have been at home during this period with some extra time on their hands.”
So, have Australian investors been following their US counterparts in trading off the key COVID themes and outsmarting Warren Buffett? As it turns out, it looks like they have.
Wilmot said at various times during the pandemic, Stake noted an uptick in buying activity across hard-hit travel sectors (which Buffett famously avoided).
“It’s interesting to watch how trading behaviour tracks what’s happening culturally. Everyone was following the story when the cruise liners dipped, but what we saw was a big move in there,” he said.
“More recently we’ve seen significantly higher volumes in Delta Airlines as well as Boeing. And there’s obviously plenty of interest in the US pharma companies with vaccine developments.”
“So it’s obvious that real, to-the-minute evidence of market news is impacting trading behaviour into those products.”
Wilmot said there’s still been plenty of volume in the US tech titans such as Tesla, Apple, Microsft and Amazon. However, Aussie investors have also allocated their funds broader market products.
“It’s a bit less prevalent now but during March and April, there was a big shift into exchange traded funds (ETFs) with exposure to the volatility index or going long/short the S&P500.”
“There are more products available in the US where you can really get predictive on where you think the market as a whole is going to move,” Wilmot said.
Looking ahead to the market more broadly, both Wilmot and Clark said trading platform capability will become the key battleground, as improvements in technology accelerate the flow of information.
Like other low-cost trading apps such as Robinhood, Stake currently offers zero per cent brokerage fees. But as part of its shift towards a more sophisticated product offering, Wilmot said the company plans to introduce advanced brokerage packs with a tiered pricing model at the start of 2021.
“Our core service is as a conduit to the US market (for Australian investors). So I think what people are looking for is great access, and that comes in many different forms.”
“Fee-free trades is one, but another thing is complexity — how quickly can you onboard to our platform? Then it’s about how to get an advantage in the market — what products and instruments you can offer and the depth of data you can provide.”
“Those are things that build on top of whether you can trade for free. Then the question becomes — how do you enhance the sophistication of that trading experience?”
It’s a similar approach for Marketech, which is offering a subscription-based trading service to compete with local brokerage platforms such as Commsec.
Clark said the importance of a more comprehensive platform may be illuminated in the months ahead, in what looks like an increasingly complex investment outlook.
“Historically, there’s a high likelihood that retail investors will get sucked in to a market rally and then be left holding the bag. And we’re starting to see some concerns now that people who have jumped onto this rally that are getting caught in the old trap.”
In that context, “what we’re selling is effectively improved access to information”, Clark said.
“The March crash effectively wiped out two years of gains in around 25 trading days. Everyone’s a ‘buy and hold’ investor until the market goes down, but in this environment the risk is that those investors who don’t have access to the right information will be more likely to miss their window to buy or sell.”