Social Trading Networks Business Models
So, how do the social trading networks (or their parent companies) currently make revenues from their social trading features and offering? We can currently see three different models:
Broker Only Revenues
Broker firms like eToro, Gallent, RoboForex, InstaForex, anyoption, CM Trading and Alpari UK added a social trading community and autotrading features (called The New eToro, Trade Copier, CopyFX, ForexCopy, CopyOp, CopyKat and TraderConnect respectively) to their existing brokerage offering. They make money from the spread on every trade (i.e. difference between the buy and sell price). As such their aim is that these features will ultimately increase the number of trades going through their network. Through their social trading network they try to attract new customers who before may have been uncomfortable trading on Forex markets, but feel more comfortable by copying the trades from other more experienced traders. Gallant also charge a management fee (5% to 20%) on any profits made in your account.
Network Only Revenues
Social trading network only players such as Myfxbook, MyDigiTrade, SwipeStox and FxStat currently make their revenue from the introducing brokers deals they negotiated with the broker firms investors use to follow the trades from the traders on their social trading network (this normally involves a cut from the spread the broker makes per trade, but can also include a sign-up bonus).
Both Ayondo and Tradeo started out as network only models, but they now offer fully integrated broker services through a dedicated partner broker. They therefore generate revenue through the spreads only.
Tradency, who see themselves more as a pure technology provider, also used to charge a volume fee of 1-2 pips to the brokers using their auto trading platform. However since late 2011 they now also offer a model where they charge the broker a technology fee of a few tens of dollars per active user per month. While this effectively reduced the amount they receive per user per month, they expect that the lower cost will make their platform more attractive to both the brokers and traders, and hence increase their overall customer base over time.
Broker and Network Revenues
ZuluTrade is an exceptional case here in the sense that they’re owned by the same company as AAAfx broker and very closely integrated. However, they allow customers to sign-up via other brokers as well to their social trading network. They make the full broker spread for any customers they attract to their AAAfx broker, and they also receive part of the spread through their introducing brokers deals. It’s worth nothing that these other brokers will normally charge this cost back to the customer as an additional commission cost per trade and therefore many new customers are attracted to their AAAfx broker because it offers 0 commission (just spread).
As with social networks like Facebook, it’s also possible that some additional long-term value may come from the vast amount of data they capture from their active trading communities.
Last updated: April 24, 2017