For quite some time now, the subject of customer acquisition and retention has posed something of a conundrum to FX and binary options brokerages.
As a result of the evolution of the retail FX industry from its fixed-spread market-maker model of old, to the current direct market access (DMA) methodology, extremely low spreads have contributed toward low margins for brokers.
In addition, with the rise of competition in the retail sector around the world, the cost of client acquisition has risen tremendously, resulting in a requirement for firms to lengthen the lifetime value of each client in order to mitigate the cost of acquisition. This has in turn led to an increased emphasis on retention.
Innovative and technologically advanced solutions for this exact purpose are now beginning to make inroads into the FX and binary options industry, with an example being Optimove, a firm which provides a retention automation platform which uses predictive micro-segmentation technology in order to personalize marketing campaigns and extend customer lifetime value.
Optimove has recently produced conducted research into the FX and binary options sector, and provided a synopsis of its findings.
The research compared the retail FX business model to that of binary options, and deduced the differential between the two. The company asserted that the metrics differ insofar as that while FX traders are less likely to convert initially, they are more likely to remain more engaged and for a longer period of time. This leads to a higher customer lifetime value among FX traders. On the other hand, Binary brokers enjoy a higher initial conversion rate and are less dependent on a small percentage of VIP traders.
On this basis, Optimove’s research found that the conversion rate (from registration to first deposit) of binary options traders is 34% higher than that of FX traders.
Once a first deposit has been made, however, FX traders are 14% more likely to make second deposit (39%) than are Binary Option traders (34%). This is an important indicator of trader engagement over the short term.
In terms of trading volume, Optimove found that active binary options traders trade 30% more frequently (once every 3.3 days) than active Forex traders (once every 4.3 days). The firm considers this to be an important indicator of trader behavior and overall engagement.
From its own research, LeapRate considers that binary options companies are required to invest substantially more in acquiring new clients than FX firms, as binary options customers often deposit once, then very soon after their first deposit, they deposit again, and then the customer no longer trades, whereas retail FX customers generally have a longer relationship with the company with whom they trade. This results in a high acquisition cost for binary options companies, and a dependency on advanced retention tools.
Optimove’s study reflects this line of thinking, stating that FX traders are 154% more likely than Binary Option traders to remain active traders six months after their first deposit.
As far as customer loyalty is concerned, the Optimove study shows that customer lifetime value (LTV) of FX traders is 11% higher than that of Binary Option traders. This is the most telling indicator of the full potential value of each customer, and the top 10% of FX traders (in terms of total deposits) represents a 29% higher share of all deposits (80%) than the top 10% of Binary Option traders (62%), making binary options brokerages less dependent on a small group of VIP customers.
In summary, Optimove considers that these results are not surprising. Binary options is a much easier field for beginning traders to enter, so it makes sense that more demo traders end up converting to real-money traders. On the other hand, because traders who get involved with Forex managed to get through a longer and more difficult learning curve, it is reasonable that they will continue trading longer: they have more interest in leveraging what they already know and in further improving their trading skills.