Bite Sized: TD Ameritrade’s FCM Looks for Bigger Slice of Retail Pie

Spencer Doar

Spencer Doar

Associate Editor

Who says there aren’t any retail futures customers out there? Not TD Ameritrade.

The online discount brokerage has built a steady book of futures business over the past several years as it looks to grow in the derivatives trading space.

TD Ameritrade offered futures trading for more than five years as an FCM broker-dealer before altering its business structure in late 2014. TD Ameritrade Inc., which served as the FCM BD, was changed to a standalone FCM called TD Ameritrade Futures & Forex LLC, allowing the entity to become more efficient in dealing with regulatory obligations.  

Those efforts along with a strategy to attract new participants to the futures markets continue to pay off for TD. Analysis of TD’s customer segregated funds, a measure of the overall size of an FCM, shows it grew its customer assets $30 million in Q1 2016 to $286 million from the end of 2015. As a point of comparison, it took all of 2014 for TD’s business to garner $30 million more in customer funds. Over the past 4-plus years, TD’s customer seg funds have grown 97 percent, from $145 million to its $286 million mark in March 2016.

While these are still considered small numbers compared to other FCMs in the space, it is an example of how traditional retail securities firms are finding ways to diversify their business, not to mention get current stock and equity options traders to move into futures. 

Today, 45 percent of all trades through TD are derivatives. Some of that can be attributed to the acquisition of Thinkorswim in 2009,  providing a jumpstart in the options space. The company’s challenge was taking that successful options model and applying it to futures.  

Much of that model hinged on the same theme as other retail brokers offering multiple asset classes: education.  

“The problem that retail traders have, overall, is not making money, it’s learning how not to lose it,”  said JJ Kinahan, chief strategist and managing director of market structure strategy. “What we try to do is put people in a situation where their losses are small. Once you learn how to stop losing, you can start to make it.”  

As life often does, it comes down to sports analogies.  

“We look at the world as a series of singles and too often people look for home runs and that’s why they blow out,” said Kinahan. “And I think the message is getting out to retailers — single after single after single.”  

TD strongly encourages their customers to experiment with its paperMoney computer simulated trading platform in order to become acquainted with TD’s functionality and any products new to them.

The 24-hour nature of futures markets also aids TD in its educational efforts. Any event, at any time, that presents new risks to a portfolio can be hedged via futures. So, for futures greenhorns, there are more opportunities to access the market, learn the ins and outs and trade.

People are trading on the go more, too. Some 17 percent of TD’s trades are executed on mobile devices. The increasing relevance of mobile trading presents a challenge as customers now want the same functionality on mobile that they get on their laptop or desktop. But development just isn’t as easy, Kinahan said. Trading platform development for PCs has been going on for two decades, whereas mobile development of trading platforms has only emerged in the last eight years, less for futures-only platforms. There is a learning curve that TD is still trying to overcome. It doesn’t help that mobile devices are limited by smaller screens and that TD has to develop for Android and IOS, without the ability to easily transfer the work done on one operating system to another.

As trading becomes more accessible and accepted by retail traders, TD and some exchanges are embracing this customer base.  

“Some of the exchanges have just sort of come around to the fact that there is great potential in retail. It’s not just a professional’s game anymore,” said Kinahan. “With that, you’re starting to see the futures exchanges reach out to retail clients in a way that didn’t exist five years ago — particularly over the last two years.”


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