Transaction Fee vs. Lifetime Value of a customer
Within the past three decades, brokerages have been tempting their customers to trade more which will directly lead to more income as Transaction Fees. Since most brokerages charge a fixed $amount for each trade, their revenue is regardless of the user’s asset size or profit. To put this in other terms, it is mostly accurate to assume that the user segment that tends to trade more frequently, such as a day trader, is more valuable than others with lower trading frequency, such as a long-term investor.
If our only KPI is trading frequency, which seems to be the case for most traditional brokerages, the approach should be to encouraging users to trade more frequently. Sending bulletins, news, setting up watchlists, notifications, and technical analysis have been the most common hooks for brokerages to do so, but that’s not all.
A customer, AKA a trader, is not always active. If the market or a shortlist of symbols in the trader’s portfolio is not performing well, it’s most likely that the trader temporarily becomes inactive. To change the state of customers from inactive to active, brokerages should spend lots of money in terms of promotions, bulletins, and educational classes.
If we define the lifetime value of a brokerage’s customer as the duration in which a customer is active, the extension of this duration would have the meaning of more profit. This duration is directly impacted by the loss or the profit of that specific trader. The problem gets more complicated if we believe the brokerage’s job shouldn’t be sending Buy/Sell signals.
It’s a lucrative business for brokerages to charge their customers $5 to $10 per transaction regardless of their profitability. In a competitive world, brokerages could at least provide their customers with few statistical tools to help them improve their trading performance. That’s why major brokerages such as Interactive and Questrade have few tools to do so.
The progress pace for traditional brokerages is too slow. If your brokerage doesn’t provide you with these statistical tools, you might receive such services when you don’t need them anymore.
Metis-Analysis.io transforms your trading history to a more human-readable form of graphs and their description. The tool is free and won’t ask for private information. All you have to do is simply drag and drop your trading history and it gives you your 12 pages full statistical report.
Reports include your profitability chance, the amount you’ve paid to your brokerage, your overall performance, a comparison of your returns with major ETFs, and other key metrics to help you improve yourself.
Let me know your feedback via info@metis-analysis.io
