Who can disrupt new-age online brokers or even exchanges?

09 Sep 2021

I get asked often, who out there do you think can disrupt the new-age online brokers or even exchanges? Me: I don’t think it will be another stock brokerage firm or a new stock exchange. It will most likely be an outsider, maybe Crypto. Here is why.

In broking or exchange business, both on pricing and product, there is not much left to disrupt. Unless of course, someone figures a way to pay people money for trading (-ve brokerage not allowed by regulation) or figures a way to help all customers make money (very tough)

Brokers & exchanges depend on a small group of active traders, ~1million traders for revenue. If they start trading something else, that will disrupt everything. Btw, active traders also provide liquidity, reduce impact cost & risk, & help better price discovery.

Traders want high leverage, volatility, & markets to be open longer. Crypto kind of scores over stocks on these. Of course, trading crypto is a lot riskier & there is no fundamental information for price movements. But greed usually gets the better of most people with time.

Crypto is what has recently disrupted brokers & exchanges in the US. The AUM of Coinbase is $180 billion, and the crypto AUM of Robinhood Crypto is ~$11.5bil. Many incumbents couldn’t react quickly, fearing regulatory lash back and mostly missed the bus.

While Crypto is still small in India, we’re in a similar situation as the US, a few years back. The regulatory fear doesn’t allow regulated platforms to offer Crypto. Eventually, if the status quo on regulations continues, traders can move away & disrupt the broking industry

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