Fresh online trading channels for DIY investors
New providers are entering the market, and business models are changing and expanding, writes
Since the boom of online trading platforms in South Africa during the pandemic, when retail investors had extra time and disposable income to exploit the market volatility, the sector has gone through a period of rationalisation.
While sign-ups continue to trend upwards, investor activity has normalised to below the pandemic peak due to the cost of living crisis and reduced discretionary consumer spending.
“Hype from fee-free trading apps like Robinhood and the meme stock trend that hit the mainstream in 2021 also drove the growth in online share trading during the pandemic,” says Tinus Rautenbach, business head of Clarity by Investec. “We are seeing the value proposition evolve amid a shift in the way people want to invest and save their money.”
These trends have supported innovation in the local sector, with new providers entering the market, as well as a diversification in the investable universe available to DIY investors via a range of traditional and alternative asset classes.
“Investors can get convenient and affordable exposure to different investment options via online platforms,” says Belinda Rathogwa, head of digital & ecommerce at Standard Bank. “Investors can invest in shares in listed companies, exchange traded funds [ETFs], futures contracts, contracts for difference and warrants, and trade forex [FX].”
Additional options include unit trust funds, fractional share ownership, property, cryptocurrencies, retirement funds, portfolio-backed credit, tax-free savings accounts and rand- and foreign currencydenominated savings accounts.
Investors enjoy diversification benefits, with access to investment instruments across local and global financial markets, she adds.
“For example, the Standard Bank AutoShare Invest account allows investors access to more than 250 JSElisted shares and ETFs, while Shyft accounts provide investors looking for exposure to global markets with more than 800 shares and ETFs on UK, European and US stock exchanges, and instant access to major currencies.”
Clarity by Investec offers banking clients access to about 600 instruments, with options to invest in the most liquid stocks in South Africa, the UK, Europe and the US via single stocks, fractional shares and ETFs. Clients can also have access to a low-risk savings product on the platform, with the ability to convert rands to dollars immediately, and can save in either currency, creating FX arbitrage or currency hedging opportunities.
Rautenbach says development on the platform continues, with new products added according to client demands, and there are plans to extend the platform’s reach to markets further east, such as Hong Kong and Australia.
The rationalisation of daily trading activity has forced a shift in business models as platform providers find ways to generate revenue from lower trading volumes.
While some platforms have introduced differing fee and commission structures, others, such as Clarity by Investec, maintain a fee- and commission-free model, generating revenue from the spread on FX and share trades, with the greatest value derived from creating a more compelling digital offering to banking customers.
“An increasing number of high net worth individuals and private banking clients want to manage the discretionary portion of their investment portfolios themselves, expressing their personal investment flair without input from an adviser,” says Rautenbach.
“In this way, offering a platform that enables DIY investing becomes complementary to other offerings in the Investec stable to meet a growing demand among clients.”
A key element relates to investor education. Rathogwa says providing market information, including the price of investment instruments and their historical performance, can support an investor’s decision-making process.
“The timing of the information is also critical, as investors require the most up-to-date information to make decisions.”
Online platforms make educational information available via multiple channels to help investors improve their investment strategies, and many offer tools that can make the investment process easier.
“For example, investors have access to a wealth of easy-to-understand educational content presented in everyday language on the Standard Bank Shyft blog,” says Rathogwa.
“Investors using AutoShare Invest can automate their investing by scheduling instructions to buy or sell instruments on a specified date, helping them manage investments at a convenient time. In addition, they can choose to reinvest proceeds from their investments as part of the next scheduled order.”