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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Bulls and Tigers and Moomoos — oh my! Online brokers, sensibly named and otherwise, have this year proved a better trade than betting on the broader market. On Wednesday, eToro joined the herd with an upsized New York $620mn initial public offering, creating yet another chance to wager on the rise of the small trader.
Robinhood, up more than 60 per cent this year, is the biggest in a group that includes Tiger Brokers and Futu — branded Moomoo for its US users. All are benefiting from a belief that “mom and pop” is increasingly a misnomer for retail investors. Aided by zero-to-low fees, amateur traders around the world are starting younger and, glued to their phones, seem to keep trading even when stocks head south.
In theory this group of self-directed investors will only increase in number and wealth as they age. Analysts at Bank of America in April called it a 30-year global theme and pointed to BCG forecasts that worldwide financial assets would grow at a compound rate of 6 per cent through 2028, and a little faster in Asia Pacific.
So strong is the interest that the New York Stock Exchange and rivals are planning to extend out of hours trading to capture retail’s rise. Talk from Donald Trump’s administration of regulating cryptocurrencies, and thus giving digital assets an official imprimatur, should boost activity in this sector too. Crypto already makes up about 40 per cent of Robinhood’s transaction revenue, and eToro’s trading commissions.
One issue for investors is that no two brokers have the same model. Robinhood has millions more users than Interactive Brokers, but the latter holds far greater assets per customer, and is more global. Charles Schwab is a Main Street behemoth, but has been slower to expand its online offering. Others have regional strongholds, with Futu and Tiger Brokers in Asia while XP is targeting Brazil. More than two-thirds of eToro’s users are in Europe.
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EToro, whose shares leapt 29 per cent on Wednesday’s debut, probably resembles Robinhood most closely, not least because of its sizeable crypto business. Now priced at 31 times 2024 earnings, it is closer to Interactive, on 29 times, than Robinhood’s multiple of 40. EToro might not love being compared with Robinhood, since the green-clad crusader’s full-year earnings, bereft of 2024’s post-election boom, are forecast to slip 17 per cent.
Better eToro’s moderate day one rally, though, than Webull, another broker that floated last month via a blank cheque company. Its shares rocketed 400 per cent only to slump within days. That’s not a good look for a trading business, however strong the underlying trend. For the sector as a whole, though, such bumps and spills are not necessarily bad news. Even the most promising herd needs to subdue its very wildest animal spirits.