In an era where some firms are exiting the FCM business, one sees opportunity.
OptionsHouse, a long-time securities broker, is also officially a futures commission merchant, making it one of the few new recent entrants in the space. The online brokerage used to have an introducing broker which it didn’t market much, but that will change with the FCM, launched on May 25. Now, OptionsHouse customers can trade equities, equity options, futures and futures options with one integrated platform.
However, none of this would have been possible if it were not for the successful merger of tradeMonster and OptionsHouse in early 2015.
At the time, OptionsHouse was still owned by the investment firm PEAK6, which founded the broker in 2006. PEAK6 sold OptionsHouse to private equity firm General Atlantic, which concurrently gained a majority stake in tradeMonster. With the merger, OptionsHouse shed its platform and migrated all its customers onto the tradeMonster platform.
“The other piece of the puzzle, but a much smaller piece, is that OptionsHouse was a PEAK6 company and there was some integrated technology there,” said Joe Corso, senior vice president of brokerage at OptionsHouse. “We weren’t really sure what the ramifications of trying to pull pieces of it away, or all of it away, would be in terms of functionality and performance. So, we went with [tradeMonster] and it happened to be more functional anyway.”
The platform transition went smoother than expected. The tradeMonster platform then supported some 15,000 customers but proved scalable as OptionsHouse added multiples of that initial customer base to the tradeMonster platform.
“You know, people don’t like change,” Corso said. “So, we had planned for a certain amount of attrition. And we didn’t come anywhere near losing the amount of customers that we thought we would end up losing.”
In the year since integrating, OptionsHouse’s account base has grown about 25 percent and there has been little downtime. The firm beefed up personnel and hired Dan Ryba as head of futures in preparation for becoming a non-clearing FCM. Ryba, like many of OptionsHouse’s staff, had years of previous experience in futures retail broking, including time at E-Trade when it became an FCM. Ryba believes there’s real opportunity for multi-asset retail brokers.
“We have some pent-up customer demand, and I think we can make a big splash within the industry. You’ll look at the futures only brokers, they’re hemorrhaging. Another firm that is a multi-asset class firm — stocks options, futures, futures options — they are thriving,” Ryba said. “And I think we are not only going to take market share from those guys that are multi-asset class due to our service and the offering that we have, but then we’re also going to, easily in my opinion, take away market share from the single asset class brokers.”
OptionsHouse estimates that some 25 percent of its active options and equity traders will or already do trade futures. It expects to grow organically as current customers who trade futures elsewhere shift their accounts to OptionsHouse while current customers start trading futures. The firm also moved to allay fears about customer fund protections, who still have MF Global and PFG debacles on their minds.
With more diverse trading, OptionsHouse hopes to improve the longevity of its traders. Ryba’s experience has been that customers who trade more asset classes don’t blow up as much and that slows the turnover rate, which has long been a problem for FCMs. OptionsHouse already claims sophisticated traders in its ranks — meaning those who are constantly tweaking and hedging their positions. They have access to the platform 24 hours a day, 6 days a week. More access, and more time to manage risk, will lead to a more nimble trader, and similarly help longevity. Access will further improve in Q3 when OptionsHouse expects futures to be fully integrated into its mobile platform. These active traders are essential as even during recent periods of low volatility OptionsHouse still hit its volume targets.
Key to all of this is education. OptionsHouse knows a reinvigorated educational effort is needed to inform customers of the benefits of its respective products in a portfolio. They have educational content from their affiliate, optionMONSTER, and an in-house education team on the broker-dealer side. They have also brought in a third party, Options Animal, to coach customers. (OptionsHouse and optionMONSTER are subsidiaries of the same parent company, thus the affiliation.)
OptionsHouse is still dwarfed by the likes of TD Ameritrade and Charles Schwab/optionsXpress. But with the right technology and a plan for growing as a multi-asset class firm with plenty of veteran staff, the brokerage may have the combination to join that upper echelon of retail brokers and carve a niche for itself in the futures space.