Despite a tough financial year for some brokers, the demand for over-the-counter (OTC) derivatives and exchange-traded products remains strong, with contracts for differences (CFDs) and exchange-traded instruments driving significant growth in specific regions and segments. While some brokers, like XTB, are experiencing strong growth driven by CFDs and exchange-traded products, others, such as IG Group and Swissquote, have faced challenges, including declining revenues and reduced client activity.
Having
analysed the financial results of some of the larger brokers (including IG
Group, CMC, Plus500 and Interactive Brokers) over the last few months, Finance
Magnates though looked at how OTC derivatives and
exchange-traded products businesses compare in terms of revenue.
We
contacted an extensive list of brokers for comment, most of which either failed
to respond or declined to provide details of their OTC derivatives and
exchange-traded products businesses beyond what was already publicly available.
Given
that many of these brokers are not public companies, we were unable to access
information for Trade Nation, Oanda, FxPro, Tradu, eToro, Pepperstone,
AvaTrade, FXOpen and Alpari. For the remainder we analysed annual reports and
income statements, some of which were more detailed than others.
“The Dynamic Growth in Revenues Generated by Stocks and
ETPs”
Polish-based
XTB was the most forthcoming. Filip Kaczmarzyk, head of trading and member of
the management board explains that the platform’s revenues are dominated by
CFDs, which accounted for more than 99% of revenues last year and just under
98% in the first half of 2024.
“However,
it is important to note the dynamic growth in revenues generated by stocks and
ETPs,” he says. “Data for the first half of this year shows that
exchange-traded instruments generated nearly three times more revenues than in
the corresponding period of 2023.”
Kaczmarzyk
adds that XTB is confident that this part of the company’s revenues will
continue to grow dynamically as its reach expands and on the back of a strategy
to create an ‘all-in-one’ investment application.
On
the question of how demand for these products differs across countries and
customer segments, he observes that in the first half of 2024 revenue structure
by geography was not much different from has been observed in previous years.
“Central
and Eastern Europe – including Poland – clearly dominated,” says Kaczmarzyk. “However,
it is worth noting another period of dynamic revenue growth in the MENA region,
which increased by over two-thirds compared to the same period in the previous
year.”
In
2023, XTB reported a 10% increase in revenue from PLN 1.45 billion
(approximately $366 million) to PLN 1.59 million ($403 million). High
transaction activity was expressed in an increase in CFD contracts concluded in
lots of 16.5% compared the same period in 2022. Transaction volume in CFD
instruments amounted to 7.4 million thousand lots from 6.4 million, although
profitability per lot fell from PLN 227 ($57.6) to PLN 214 ($54.3).
CFDs
as a percentage of overall revenue rose slightly from 46.4% to 47.8% on the
back of high profitability of CFD instruments based on the US 100 index, the
German DAX index (DE30) and the US 500 index. The second most profitable asset
class was CFDs based on commodities.
Brazil Is a Growth Market
StoneX’s
OTC derivatives business revenues rose by 11% to $232.2 million in the 12
months to 30 September 2023 with a 7% fall in rate per contract to $65.78 more
than offset by a 20% increase in the number of contacts (most notably in
agricultural and soft commodities) to just over 3.5 million, with the Brazilian
market experiencing particularly strong growth.
The
company makes brief reference to its ETF business in its annual report without
providing any specifics on volumes or revenues. Its listed derivatives
performed less well in the last financial year, with a 3% drop in revenues to $416.5
million as the number of contracts remained unchanged at just over 160 million
but the rate per contract fell by 4% to $2.44.
A
spokesperson for VT Markets explains that most of its products are OTC
derivatives and exchange-traded products in the form of CFDs and says there has
been no significant change in demand over the last few years.
When
asked about local or regional variances in appetite for OTC derivatives and
exchange-traded products, she adds that there are no obvious differences.
IG Saw a Revenue Decline
IG
might be the largest provider of OTC derivatives by revenue globally but the
last financial year was a tough one with revenue down 9% and the number of
clients actively trading OTC products falling by 6% in the 12 months to 31 May.
eFX
and CFDs accounted for 15% of Swissquote’s total revenue in 2023, although this
dropped to 11% in the first half of this year. In terms of derivatives held for
trading, Swissquote held a contract notional amount of CHF1.184 billion ($1.4
billion) for CFD derivatives along with CHF4.04 billion ($4.8 billion) of
currency forwards and CHF71.7 million ($85 million) of currency options.
Higher
options and futures volumes boosted Interactive Brokers’ commission revenue by
3% from the prior year to $1.36 billion in 2023. The firm’s Q1 2024 results
showed a continuation of this trends with commission revenue 6% higher than in
the same period last year as options activity remained strong.
Options
and futures volumes were up 12% and 1% respectively in 2023 with more than one
billion options (contracts).
CFD’s
share of total income at Saxo Bank fell last year with clients reducing their
average overnight exposures. Income from exchange-traded products (which is
bundled with stocks and mutual funds) also fell as a percentage of overall
products and services revenue.
In
terms of future developments in the OTC derivatives and exchange-traded
products space, CMC Markets’ financial year 2024 included the rollout of OTC
options, with futures and exchange traded options set to be delivered in the
first half of the current financial year.
Meanwhile,
in its latest financial year Plus500 launched a new proprietary FX OTC trading
platform tailored specifically for the Japanese retail market.
Despite a tough financial year for some brokers, the demand for over-the-counter (OTC) derivatives and exchange-traded products remains strong, with contracts for differences (CFDs) and exchange-traded instruments driving significant growth in specific regions and segments. While some brokers, like XTB, are experiencing strong growth driven by CFDs and exchange-traded products, others, such as IG Group and Swissquote, have faced challenges, including declining revenues and reduced client activity.
Having
analysed the financial results of some of the larger brokers (including IG
Group, CMC, Plus500 and Interactive Brokers) over the last few months, Finance
Magnates though looked at how OTC derivatives and
exchange-traded products businesses compare in terms of revenue.
We
contacted an extensive list of brokers for comment, most of which either failed
to respond or declined to provide details of their OTC derivatives and
exchange-traded products businesses beyond what was already publicly available.
Given
that many of these brokers are not public companies, we were unable to access
information for Trade Nation, Oanda, FxPro, Tradu, eToro, Pepperstone,
AvaTrade, FXOpen and Alpari. For the remainder we analysed annual reports and
income statements, some of which were more detailed than others.
“The Dynamic Growth in Revenues Generated by Stocks and
ETPs”
Polish-based
XTB was the most forthcoming. Filip Kaczmarzyk, head of trading and member of
the management board explains that the platform’s revenues are dominated by
CFDs, which accounted for more than 99% of revenues last year and just under
98% in the first half of 2024.
“However,
it is important to note the dynamic growth in revenues generated by stocks and
ETPs,” he says. “Data for the first half of this year shows that
exchange-traded instruments generated nearly three times more revenues than in
the corresponding period of 2023.”
Kaczmarzyk
adds that XTB is confident that this part of the company’s revenues will
continue to grow dynamically as its reach expands and on the back of a strategy
to create an ‘all-in-one’ investment application.
On
the question of how demand for these products differs across countries and
customer segments, he observes that in the first half of 2024 revenue structure
by geography was not much different from has been observed in previous years.
“Central
and Eastern Europe – including Poland – clearly dominated,” says Kaczmarzyk. “However,
it is worth noting another period of dynamic revenue growth in the MENA region,
which increased by over two-thirds compared to the same period in the previous
year.”
In
2023, XTB reported a 10% increase in revenue from PLN 1.45 billion
(approximately $366 million) to PLN 1.59 million ($403 million). High
transaction activity was expressed in an increase in CFD contracts concluded in
lots of 16.5% compared the same period in 2022. Transaction volume in CFD
instruments amounted to 7.4 million thousand lots from 6.4 million, although
profitability per lot fell from PLN 227 ($57.6) to PLN 214 ($54.3).
CFDs
as a percentage of overall revenue rose slightly from 46.4% to 47.8% on the
back of high profitability of CFD instruments based on the US 100 index, the
German DAX index (DE30) and the US 500 index. The second most profitable asset
class was CFDs based on commodities.
Brazil Is a Growth Market
StoneX’s
OTC derivatives business revenues rose by 11% to $232.2 million in the 12
months to 30 September 2023 with a 7% fall in rate per contract to $65.78 more
than offset by a 20% increase in the number of contacts (most notably in
agricultural and soft commodities) to just over 3.5 million, with the Brazilian
market experiencing particularly strong growth.
The
company makes brief reference to its ETF business in its annual report without
providing any specifics on volumes or revenues. Its listed derivatives
performed less well in the last financial year, with a 3% drop in revenues to $416.5
million as the number of contracts remained unchanged at just over 160 million
but the rate per contract fell by 4% to $2.44.
A
spokesperson for VT Markets explains that most of its products are OTC
derivatives and exchange-traded products in the form of CFDs and says there has
been no significant change in demand over the last few years.
When
asked about local or regional variances in appetite for OTC derivatives and
exchange-traded products, she adds that there are no obvious differences.
IG Saw a Revenue Decline
IG
might be the largest provider of OTC derivatives by revenue globally but the
last financial year was a tough one with revenue down 9% and the number of
clients actively trading OTC products falling by 6% in the 12 months to 31 May.
eFX
and CFDs accounted for 15% of Swissquote’s total revenue in 2023, although this
dropped to 11% in the first half of this year. In terms of derivatives held for
trading, Swissquote held a contract notional amount of CHF1.184 billion ($1.4
billion) for CFD derivatives along with CHF4.04 billion ($4.8 billion) of
currency forwards and CHF71.7 million ($85 million) of currency options.
Higher
options and futures volumes boosted Interactive Brokers’ commission revenue by
3% from the prior year to $1.36 billion in 2023. The firm’s Q1 2024 results
showed a continuation of this trends with commission revenue 6% higher than in
the same period last year as options activity remained strong.
Options
and futures volumes were up 12% and 1% respectively in 2023 with more than one
billion options (contracts).
CFD’s
share of total income at Saxo Bank fell last year with clients reducing their
average overnight exposures. Income from exchange-traded products (which is
bundled with stocks and mutual funds) also fell as a percentage of overall
products and services revenue.
In
terms of future developments in the OTC derivatives and exchange-traded
products space, CMC Markets’ financial year 2024 included the rollout of OTC
options, with futures and exchange traded options set to be delivered in the
first half of the current financial year.
Meanwhile,
in its latest financial year Plus500 launched a new proprietary FX OTC trading
platform tailored specifically for the Japanese retail market.
This post is originally published on FINANCEMAGNATES.
