Private brokers 20x the web traffic in forex: Drew Neff sounds alarm

Source: financemagnates, 2024/12/25

Drew Neff, CEO of Trader Tools and chief strategy officer at ATFX, shared his thoughts on the evolving landscape of crypto, private trading and the broader brokerage industry at the Finance Magnates (FMLS:24) summit in London. In an interview with Finance Magnates editor-in-chief Yam, Neff outlined the challenges and opportunities facing brokers as competition from non-traditional players and emerging technologies intensifies. “Compared to the big financial firms, the biggest firm in our industry is nothing,” Neff warned.

CFD brokers face existential threat from crypto

Neff noted that while the crypto sector has seen several cycles of growth and decline, its current recovery looks more realistic. “Crypto has lived, thrived, died and thrived again. This time around, it seems to be more sustainable due to increased investment from US players,” said Neff.

However, he warned that deeper pockets and regulatory changes could bring new competition to the FX and CFD space.

“Once the major crypto players gain a foothold, they will undoubtedly come after our portfolio,” Neff noted. He also highlighted a potential crossover, whereby large crypto exchanges could expand their FX and CFD offerings. “This will expand the market but also inject a higher level of competition, forcing brokers to rethink their strategies.”

Neff is not alone in his gloomy outlook for the CFD industry. Another speaker at Finance Magnates’ FMLS:24, Pepperstone CEO Tamas Szabo, admitted that “crypto exchanges are encroaching on our space.”

Neff warned that “crypto companies will spread to a fairly large group of clients that we do not touch.” “We’re not just talking about crypto, but also the Robinhoods of the world, the big stockbrokers, online banks like Revolut – they come in at a completely different scale.”

Adapting to the proprietary trading boom

The rise of proprietary trading firms has also reshaped the industry, with Neff acknowledging their growing influence. “If you asked me three years ago, I would have said that was ridiculous. But over the past 12-18 months, proprietary firms have proven that they can change the landscape of our industry dramatically.”

“Proprietary firms have 20 times the web traffic of the forex industry, providing a significantly broader customer base,” he said. ATFX’s new proprietary trading offering, introduced two months ago, aims to provide a sustainable alternative to traditional models, with a focus on honesty and long-term sustainability.

“Our proprietary trading model is not unrealistically good but it is more honest, offering successful traders not just payouts but opportunities such as copy trading and custody as money managers,” Neff explained. He stressed that this approach would enable brokers to compete effectively while maintaining credibility.

Looking ahead, Neff expects significant consolidation and transformation in the industry. “Will independent support firms be able to compete with brokers if brokers get it right? Probably not. But brokers still need to get the risk-reward balance right to remain attractive to clients.”

Challenges in 2024 and the Trader Tools-ATFX partnership

Looking back on the past year, Neff described 2024 as an improvement over 2023. “It wasn’t the best year, but it was smoother,” he said. “Brokers learned from the turbulence of 2023 and adapted.” This adaptability was the driving force behind the Trader Tools-ATFX collaboration.

“Trader Tools brings the high-frequency market-making tools traditionally used by banks to the retail brokerage space,” Neff explained.

As the industry braces for further disruption, Neff stressed the need for brokers to innovate and adapt. “If management can’t handle change, companies will quickly become obsolete,” he warned. “The biggest companies in our industry are still small compared to the big financial firms and could be crushed if they remain complacent.”