Is the potential ETX Capital sale a sign of more consolidation in the Spread betting and CFD industry?

The Times reports that JRJ Group, who bought ETX Capital for £15m in 2009 have hired Royal Bank Of Canada on Strategic options for a sale between £20m and £50m.

The CFD broker and spread betting industry is certainly bi-polar.

On the one hand you have the recent sale of City Index to Gain Capital by Michael Spencer and now the potential sale of ETX Capital.

Then on the other, every Tom, Richard and Harry is setting up a brokerage using offshore regulation and white label technology.

Which means that the bigger get bigger and the small get smaller. In terms of active clients that generate significant revenue for brokers, these numbers are not getting much bigger, so more and more brokers are chasing the same pool.

Because of the recent scammers in the binary options industry using Cypriot or no regulation to hoodwink customers the FCA and other regulators have cracked down on the leverage, negative equity and new client sign up incentives such as deposit bonuses.

So for smaller brokers it is now harder to persuade existing traders to switch brokerage accounts as they can’t offer incentives. They can’t even compete on spreads and pricing any more as the industry leaders are pretty much in line with the discount shops.

Therefore, clients choose a brokers on the ‘flight to safety’ basis, i.e. go with the biggest brokers that are listed on the LSE. Good visibility, regular reporting, strict governance and tight compliance controls.

There should be more consolidation for the spread betting and CFD brokers, but really the only asset a broker has is their client list and brand. So if a brand is small and the client list crosses over a lot, where is the value?

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