Exclusive: ‘Time to strike it rich?’ – Dáire Ferguson, AvaTrade in “The Fintech Magazine”
Like many online trading platforms, AvaTrade has seen a surge of activity as forces – not least a global pandemic – combine to create huge market volatility. To cushion the risk, CEO Dáire Ferguson has introduced a new product for both newbies and practiced hands in the world of investing.
There is nothing like market volatility to whet the appetite of the small investor – and 2020 has seen huge asset price swings as fear, then hope, swept in.
COVID-19, Brexit and the US presidential election have wreaked havoc on valuations, and huge quantitative easing programmes from central banks in spring underlined the extent of the peril markets faced.
During the fortnight before the UK went into lockdown on March 23, the FTSE 100 crashed by 27 per cent, pushing the equity market close to meltdown. Conversely, positive news from Pfizer and BioNTech about a coronavirus vaccine on November 9 drove the London index 4.7 per cent higher in a day, and the US Dow Jones index closed three per cent up.
For those with an appetite for risk, there has been abundant opportunity – and online broker AvaTrade witnessed rising demand for its services as new customers signed up when countries locked down. Now the Dublin-based business’s challenge is to keep these new clients, which it is doing by helping them avoid big losses.
At the forefront of AvaTrade‘s offer is the product AvaProtect, which can be bought when a trade is placed. Similar to insurance, customers pay a premium to protect against losses for anything from one to 72 hours. It covers forex, gold and silver trades, and there are plans to add equity indices by the end of the year.
For chief executive Dáire Ferguson, AvaProtect, plus a focus on educational tools on AvaTrade’s trading website and app, is what differentiates his business from competitor sites.
“Managing the risks is by far the biggest challenge facing our customers and we have gone the extra mile in simplifying this and providing market-leading tools,” he says.
“Increasingly sophisticated risk management tools should open up the industry to a wider audience and we hope that our AvaProtect offering will be among the vanguard here – appealing to the first-time traders and experienced users alike.
“The concept is really simple. If you buy an asset, you have the option to buy protection for that asset in the form of AvaProtect. If the asset has dropped in value when the protection period expires, AvaTrade will refund you the difference, minus the cost of the protection.”
Ferguson explains that the AvaProtect fee is typically only a fraction of the sum being spent on the investment, with pricing based on the options market.
“It prices risk as a function of market volatility and the duration of the protection,” he says. “It works much like paying a premium on an insurance policy and enables customers to feel more confident when executing their strategies, knowing that the downside risk is limited, while the upside is unlimited.”
Ferguson says that news of huge market movements drives customers’ passion for trading, plus the fact that interest rates are near zero which prompts people to seek a return on their savings when cash accounts offer little incentive.
“With COVID-19 dominating the headlines lately, it already feels like a lifetime ago when Brexit was leading the daily news agenda and every major news announcement would cause a swing in the financial markets,” says Ferguson.
“Meanwhile, in the US, talk of trade wars and protectionist policies were reshaping the political landscape, which meant financial markets were already experiencing a fair amount of volatility. For savvy traders, these geopolitical tensions and the increased volatility provided ripe opportunities to profit on significant price movements.
“We have seen a significant increase in people signing up to our platform in recent months, which is great, but the challenge is making sure we can keep these new users on board throughout this economic crisis and beyond.”
Building a fan base
AvaTrade was launched in 2006 and focusses on contracts for difference. Though not one of the industry’s giants, it has built a solid reputation as a broker with strong customer service, market-leading technology and protection in the form of regulation.
There have been minor stumbles along the way – AvaTrade has been punished for breaking market rules on a handful of occasions – but the firm has now achieved regulation in eight jurisdictions, winning it the 2020 No. 1 Broker award from business publication The European.
That, says Ferguson, gives clients the confidence to put their money on the table. That’s especially true for people who new to the game – among AvaTrade’s target demographic are football fans who have a background in sports betting. The business was Manchester City’s official global trading partner for a time, from 2018.
“Being present in a market – and, crucially, having the relevant licences and regulatory approval – are critical in developing trust and this is central to our approach,” says Ferguson.
AvaTrade further nurtures its investors through confidence-building educational tools on its platforms. It also offers copy trading via its new AvaSocial platform for forex dealing – a feature that has proved successful for rival eToro (which, interestingly, also has an extensive Premier League and Bundesliga partnership programme). Such support tools are no doubt being lapped up by many of the AvaTrade customers who joined it this year.
Ferguson believes many people used the extra time provided by lockdown, and in some cases furlough, to enter the world of investing or to build on what they already knew. To that end, AvaTrade seeks to arm its customers with the tools and skills they need for success, because, as he points out, ‘successful traders are repeat traders’.
“We want to make sure all our clients have everything they need to succeed, so we have created a highly replicable service model that ensures everyone receives the highest quality of support,” he says. “Our support is the same for all clients, whether they are depositing $100 or $1million. All our customers receive a call upon signing up, along with ongoing dedicated support in their local language.
“This is not only a fair approach, it also makes business sense – for all we know, the new user depositing their first US$100 could be an oil sheikh testing the waters, so we want to make sure they’re immediately impressed by our service.”
To enhance that user experience, AvaTrade employs the MetaTrader platforms, a benchmark for forex traders, and has leveraged them to offer the MetaTrader 4 based mobile app AvaTradeGo, and advanced platform MetaTrader 5, which covers a wider range of asset classes, with advanced tools and features. Their advantage is that they feature real time insights from traders, sending the user live social trends and push notifications to give them a better chance of making the right call at the most opportune time.
A partnership model
AvaTrade’s commission model is geared to high trading volumes – earnings come via a spread between bid and ask prices.
Ferguson says: “There are different ways for trading houses to make money. One approach, similar to sports betting, is to simply keep the exposures of their clients so that if their users win, the trading house pays out and when they lose, the house profits. However, this approach is not open to regulated brokers and, in any case, it tends to lead to short-term partnerships.
“As a regulated broker, we want to seek out longer term partnerships with our clients. So, what we do is charge a small commission per trade – a spread – in return for executing buy or sell orders. We aim to keep our spreads tight so that the cost to our clients is minimal and feels effectively fee-free, which means that our focus is on the volume of trades – the more our users trade, the more profitable our model.
“This aligns nicely with our focus on education and risk management for clients,” he adds. “If our traders make good trades and profit, they tend to keep trading and so we profit together. That’s why we offer so many resources and tools such as AvaProtect to ensure our clients win as much as possible.”
This article was published in The Fintech Magazine: Issue #06, Page 34-35
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