Last year, global financial markets saw retail investors flood financial markets through online trading and investing platforms. A wave of first-time investors, dubbed “Generation Investor,” took to financial markets, as barriers to entry were lowered and online trading apps stepped up.
This unprecedented boom in the participation of retail investors – a hot topic of discussion in finance circles for most of this year – ignited the growth of companies like Robinhood and Webull. Although the US has been the focus of this retail investing boom, ‘Generation Investor’ also took an interest in markets in Asia and the U.K.
When asked if the Middle East markets saw a similar trend, “100% we did,” Nicholas Wright from Saxo Bank tells Fintech News.
Saxo Bank is a global online retail trading and investing platform, where Wright leads the advanced partner solutions business for the Middle East.
Wright describes the typical retail investor profile as the “average Joe” investing from home. These are home investors with stable earnings who began to accrue savings during the pandemic. The nosedive in financial markets last year became an opportunity for them to put some of these savings to use through small, cautious investments.
Meanwhile, still new to the space of investing, these home investors also started educating themselves to understand the workings of financial markets. They began defining their financial goals and time horizons, discussing their investments with their peers, and looking out for platforms that can make investing easier and more transparent.
“It’s people that are generally white collar and have some savings and some concept of wanting to build wealth. This segment here in the Middle East has been utterly ignored by banks in the past,”
What investors want from online trading and investing platforms
Wright points out that while the retail trading boom most definitely hit the Middle East, unlike the US or Asia, the demand has largely swung towards markets outside the region.
“The MENA region has lagged behind other more developed regions in terms of access to global financial markets and asset classes… What we have noticed is that over the past three to four years, regional markets have underperformed quite significantly [compared to] global markets. And so there has been a huge demand for access to instruments outside of the region,” he explains.
What investors are looking for from platforms in the MENA region, therefore, is two key things.
First, they want to invest in international markets to beat the returns they stand to gain from investments in regional markets. “The local stock markets have also been ignited a little bit because global markets have increased, but the lure of especially the US market has absolutely driven this demand,” Wright says.
Further, much like retail investors worldwide, they are also keen for access to asset classes of varying risk profiles, even newer ones.
Sure, these investors are piling their money into mutual funds and exchange traded funds. Traditional investment classes such as forex and stock continue to be popular in the Middle East, Wright says.
But they are also closely looking to include edgier investment opportunities, such as cryptocurrencies or meme stocks, he notes. For instance, in June this year, The Bitcoin Fund, by Canadian digital asset management firm 3iQ, became the first listed crypto fund in the Middle East after its Nasdaq Dubai debut.
“We were fintech before the word fintech actually existed.”
The retail trading landscape in the Middle East is getting more populated with online trading and investing platforms such as Saxo Bank or AvaTrade, and startups such as StashAway. Local startups are also taking the hint — online trading platforms Sarwa and baraka both raised venture capital funding rounds this month.
In this context, differentiating factors such as a wide range of globalised asset classes, or emerging technologies such as robo-advisory, are picking up pace in the region, Wright notes. An emerging technology that uses algorithms and automation, robo-advisory solutions collect data concerning users’ finances, goals, investment horizons and risk profiles, to help users plan and manage their wealth and investments.
Wright is confident that Saxo Bank can stand up to this bubbling competition, which he highlights is a sign that the market is growing. “The big question going forward is does fintech win, does bank win, or do you see a merger between the two,” he explains.
Technically, Saxo Bank is both, since it is licensed as a bank but operates as a fintech brokerage platform, he adds. But to Wright, the advantage is clear. “Our founder made the statement: we were fintech before the word fintech actually existed,” he says.
The growth in the market of course comes with risks. “Joe,” who is likely making investments from home through an online trading and investing platform, may not be fully aware of the unpredictability of markets. Investing most of their funds in just one or two high risk high yield instruments, or focusing extensively on day trading and speculative activities, are just some of the ways that it can go horribly wrong for them. Worse still, they may also be exposed to some seriously misleading advice through channels such as social media.
The way Wright sees this, it’s important that fintech companies in this space focus on trust and quality of service if they want to stick around in the long run.
“It is in our interest to teach our customers how to hedge their position, how to be well-diversified, and not to be super exposed with too much leverage. The need for our clients to win is necessary for our survival,” Wright says.
Featured image credit: Saxo Bank