Scalable Capital case study: Retail investors trade at lower costs via retail exchanges

  • Competitive prices on retail exchanges combined with the low fees of neo-brokers make investing accessible for retail investors
  • Erik Podzuweit, Co-Founder and Co-CEO of Scalable Capital: "Retail investors achieve the best possible result when they trade via retail exchanges through neo-brokers.”
  • Payments that brokers charge market makers in the interest of their clients - so-called payment for order flows - are beneficial for consumers

Munich, 5th May 2022. Retail investors benefit financially from trading on retail exchanges that are tailored to their needs, such as gettex or Tradegate Exchange – this is the key finding of a case study by Scalable Capital, a leading digital investment platform in Europe. According to the study, both the actual execution prices of financial instruments and the prices to be expected based on spreads on retail exchanges compete fully with institutional exchanges. At the same time, retail clients usually pay significantly lower fees for the execution and settlement of their orders. Therefore, retail exchanges offer the optimal conditions for trading in the best interests of investors. This applies at different times of day, across order sizes and instruments, and includes popular US and foreign stocks.
"The numbers speak for themselves: retail investors achieve the best possible result when they trade via retail exchanges through neo-brokers," says Erik Podzuweit, co-founder and co-CEO of Scalable Capital. "This is consistent with MiFID II, which holds that the best possible result must consist of both execution prices and fees. All in all, the total costs from spreads to fees are significantly lower for small investors on retail exchanges than on institutional exchanges. With gettex & Co., it has become feasible for many people to start investing in the capital markets without the need for large sums of money "

With the study, Scalable Capital provides an empirical contribution to the discussion around the European Capital Markets Union and payment for order flow. “Payments that brokers charge market makers in the interest of their clients - so-called payment for order flows - are beneficial for consumers”, Erik Podzuweit explains. “They enable neobrokers to offer their services at very low prices. Prohibiting these payments would force higher fees from brokers and thereby make access to the capital market more difficult for retail investors. This would put an end to the recent positive retail trend of saving via the capital markets. Moreover, it would undermine the major goals of the European Capital Markets Union by hampering innovation, hindering competition, and reducing the amount of investment available to drive EU growth.”

Investors can expect fair execution prices regardless of the chosen exchange

Institutional exchanges such as Xetra or Börse Frankfurt are attractive for professional investors. They offer high liquidity in many instruments and order variants that institutional investors appreciate. The study shows that the global pricing mechanism works efficiently across the different trading models of institutional and retail exchanges. The comprehensive evaluation of quoted prices (so-called pre-trade data) as well as realised execution prices (post-trade) of different securities and trading venues clearly shows that the price quality via retail exchanges is not worse than on institutional exchanges. In fact, the opposite is the case: the data shows that trading on retail exchanges is usually cheaper – both at different times of the day and with different order sizes and instruments.

Best possible result only achievable with fair execution prices and low order fees

When focusing on the best outcome for retail clients, only taking the achieved price in securities trading into account does not go far enough. After all, order fees in retail investment regularly have a far greater influence on the best possible outcome. The European Union's Financial Markets Directive MiFID II adopts this view as well. To determine the most cost-effective execution for retail investors, it therefore stipulates that the sum of the price of the financial instrument and all associated costs and fees must be taken into account (Article 27 of Directive 2014/65/EU).

The combined consideration of execution prices and fees paints a clear picture: retail investors benefit from significant cost advantages across all instruments and order sizes. For a share order of €3,000 on average €4.80 can be saved when executed via retail exchanges. Here, the average total costs including spreads and all fees only amount to €2.94 - compared to €7.74 on average via institutional exchanges. A similar average cost advantage of €4.44 results from retail trading with ETFs. For the purpose of this study the order fees charged by the Scalable Broker were used for both venue types when calculating the total fees. The typically higher prices incurred by most incumbent brokers, in particular for orders at the institutional exchanges, further reinforce the already strong conclusions in favour of trading at retail exchanges for retail order volumes.

Empirical contribution based on four trading venues

The study is based on 3.7 million data points on prices at four selected trading venues. Xetra, the reference market for German equities and ETFs, and the Frankfurt Stock Exchange with its specialist trading were analysed, two exchanges that are mainly used by institutional investors. Furthermore, Tradegate Exchange and gettex, a trading model of the Munich Stock Exchange, were examined as popular retail exchanges. The latter offers extended trading hours, a wide range of shares, ETFs, funds and more as well as trading without foreign exchange fees. Such fees typically amount to 0.25 % or more for US and other foreign shares, thus quickly outweighing any potential benefits from trading on the reference markets like e.g. NASDAQ directly. The analysis focuses on the 150 most traded financial instruments (86 shares and 64 ETFs) and tracks approximately 70 per cent of the trading volume in Scalable Broker over a six-month period (16 August 2021 to 15 February 2022). Typical order sizes for retail investors of €500 to €5,000 were assumed.

Scalable Capital serves over half a million retail accounts in Germany, Austria, France, Italy and Spain. As a leading digital investment platform in Europe, the company is a major order flow provider on both institutional (Xetra) and retail (gettex) exchanges. As such, the company has relevant data and insights to assess the total consideration of different trading venues from the perspective of both a retail investor and a large asset manager.

The study is published in English and available here:

About Scalable Capital

Scalable Capital is a leading digital investment platform in Europe that makes investing easy and affordable for everyone. With the Scalable Broker, customers can trade shares, ETFs, funds, cryptocurrencies and derivatives independently and thus compile their own portfolio. They can have their savings professionally invested via the digital wealth management service. More than 500,000 customers already use the services.

Scalable Capital was founded in 2014 and is already active in Germany, the UK, France, Spain and Austria. The investment firm, which is supervised by BaFin and the Bundesbank, has more than 6 billion euros on its platform. In addition to its business for private customers, the company develops B2B solutions. Its long-standing partners include ING, Barclays Bank in the UK, the robo-advisor Oskar and the Santander Group in Spain. Scalable Capital employs more than 380 people at its offices in Munich, Berlin and London. Together with the founding and management team around Erik Podzuweit and Florian Prucker, they work to enable everyone to become an investor.

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Ina Froehner
Scalable Capital
Head of Communications

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