Darwinex Revenues Fall 19% in 2019 as ESMA Rules, No-Fee War Bite

Darwinex, a UK-based social trading broker and asset manager, has reported its financials for the fiscal year ending June 30, 2019. Although the group failed to match some of last year’s performance metrics, having suffered from lower revenues, it turned an organic profit for the first time since it was founded in 2012.

Over the previous fiscal year, the broker saw its operating revenue decreased to £2.72 million ($3.54 million) in FY 2019, down from £3.35 million a year ago, or 19 percent lower year-over-year.

In terms of its bottom line, the firm reported its net profit at a figure of £683,146 ($889,397) for 2019, compared to a net loss of nearly £141,804 in the previous year.

Darwinex’s revenues consisted mainly of commission earned on foreign exchange trading by clients. The latest results highlight a downturn for the Darwinex, with the London-based firm failing to grow their revenues the first time in four years.

Darwinex, which offers a hybrid of social-related copy trading solutions, saw its revenues grow from just €146,500 in 2015 to over €1.0 million in 2016, then doubled the figure to €2.15 million for 2017 until it peaked in the prior fiscal 2018.

The primary culprit for the downbeat performance might have been the reduced trading volumes, which the company described as a market-wide phenomenon due to changes in regulations and market conditions. ESMA’s restrictions have already had a more severe impact than most CFDs brokers anticipated.

For instance, the European regulator has banned any welcome bonuses or other incentives that encourage clients, prospective or existing, to trade CFDs or to trade larger contracts.

This was problematic for many firms who often rely on such bonuses as a means of attracting clients, including Darwinex, which previously offered traders rebates on commission fees.

The UK broker also acknowledged that it faces two primary risks and uncertainties, the Brexit and the trend towards zero-commission brokerage in the industry. In anticipation of Britain’s divorce from the European Union, Darwinex is preparing to apply for a regulatory license in Spain as a back-up to a potential no-deal Brexit.

The no-fee war, however, could remain the biggest concern with the company booking a reduced, but still significant proportion of its revenue from brokerage commissions.

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