Reductions in the cost of technology have lowered the barrier to entry for start-ups who previously could not afford to trade on the financial markets, according to a panel of experts at TradeTech Europe this week.
Vendors offering co-location and cloud services, which remove the burden for traders of hosting and managing their own kit, have resulted in entry-to-market costs being reduced dramatically and a democratisation of the marketplace.
“The barrier to entry is much lower now than it used to be. Even if you are a couple of guys sitting in Gibraltar, you can easily implement your kit in a co-located data centre in London,” said Frederic Ponzo, managing partner at consulting firm GreySpark Partners.
“There is also an ecosystem around you. You have got connectivity from the data vendors, and you have got connectivity to a good choice of brokers and clearers. Maybe not all of them, but a sufficient choice to get you going,” he said.
“Are you going to reach a limit when you need to scale up? Yeah, probably. But at least you have the ability to start trading and make a living out of it. Five years ago that wasn’t an option,” he added.
Connecting to and trading through a broker has historically cost quite a lot of money, with minimum deposits reaching as much as £1,500 and per trade costs reaching over £100, but again this has been driven down by the development of online brokerages that charge much less. Banking and technology analyst Bob Giffords agreed with Ponzo, and said that he was noticing more start-ups in the market.
“I think we are seeing democratisation of the market. Trading costs are coming down, which is putting pressure on clearing and settlement to lower costs too. These costs are coming down dramatically,” said Giffords. “I am also seeing a lot more start-up companies attending conferences to find a vendor to support them. Also, we must not forget that cloud is moving up the scales, which also reduces costs and allows a cheaper entry point,” he added.
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