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EFT FX Trader Mag - Retail FX Industry Watch 7.2011

EFT FX Trader Mag - Retail FX Industry Watch 7.2011

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Published by eliteforextraining
Retail FX Industry Watch - FX Trader Mag
Retail FX Industry Watch - FX Trader Mag

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categoriesBusiness/Law, Finance
Published by: eliteforextraining on Oct 31, 2011
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07/28/2012

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 “Fr the rst time we may have a situatin with Frex that retail traders can havethe same pprtunities as lare market players such as anks and Hede Funds” 
RETAIL FX INDUSTRY WATCH
Market Watch
FX
14
FX TRADER MAGAZINE
July - September 2011
 
FX
Market Watch
DeFInInG RetaIL
Even the deinition o what ‘retail’is has evolved. Retail used to be a100,000 minimum, now at somebrokers retail is 100. Generally,retail is considered to be individualtraders opening accounts withrelatively small deposits. he NFAdeines retail as anyone who isn’ta EP (Qualied Eligible Person)
i
.However, reading the regulatorydeinition precisely, one notesseveral categories that althoughEP’s, would by industry standardsbe considered retail: “non-UnitedStates persons” and “KnowledgeableEmployees”. he thinking hereis that the NFA doesn’t regulateoreign persons and oreign markets, which is correct. However most would consider a non-US personrom India with a $500 depositretail.Retail traders are - almost by denition- undercapitalized. Tus they aresubject to the problem o gambler’sruin. In a “Fair Game” (one with noinormation advantages) between two players that continues until one tradergoes bankrupt, the player with thelower amount o capital has a higher probability o going bankrupt rst.Since the retail speculator is eectively playing against the market as a whole- which has nearly innite capital -he will almost certainly go bankrupt.Te retail trader always pays the bid/ask spread which makes his odds o  winning less than those o a air game.Additional costs may include margininterest, or i a spot position is keptopen or more than one day the trademay be “resettled” each day, each timecosting the ull bid/ask spread.
RetaIL FOReX:
evOLutIOn, ReGuLatIOn, anD cuRRent tRenDs
The retail Forex market has evolved quickly, rom being nearly non-existent 20 yearsago, to being a major Forex liquidity provider (about 5% o Forex volume is retail trad-ers). Unlike other more established fnancial markets, such as the Stock, Commodity,and Bond markets, Forex trading didn’t start until the early 1970’s and the retail Forexmarket didn’t begin until the early 1990’s. With the retail oering o orex brokerssuch as Oanda, Saxo Bank, and others, retail traders had the same access as banks andother large institutions. So retail Forex can be examined and deined by brokers oer-ing retail trading, because without this market access, the retail Forex market wouldnever have evolved. Also, because Forex was an unregulated market, it allowed or many unethical practicesand outright raud. This has been approached by the regulator, the National Futures Association, although not explicitly a Forex regulator, they became the de-acto globalForex regulation model.
FX TRADER MAGAZINE
July - September 2011 15
 
DeFInInG FOReX InDustRY
Te Forex industry didn’t exist when Forex rst started. Bankstraded currencies on behal o theircustomers and that was it. Nowthere are companies that specializein providing services to Forexcompanies, such as technical servicesas provided by companies such as FXSystem Hosting, who oers dedicatedservers and domain names specic toForex companies. Te Forex Industrycan be dened as the growing numbero companies oering Forex specic products and services, and service providers to those companies. Tere isnow a specic registration category inthe NFA called RFED, or RegisteredForeign Exchange Dealer
ii
. Tis is anew category that didn’t exist 5 yearsago.
PRObLeM ObtaInInG Data
Since Forex data is available on asurvey & voluntary basis, data isdicult to analyze. For example, evenor the entire Forex market, ocialBIS data used commonly “4 rillion per day” is a mere survey. While mostaccept that it is accurate, the data isobtained by banks volunteering thisinormation to the survey, which isunaudited.Retail Forex is even harder to quantiy.Many brokers are private companiesor based oshore. As no reporting o nancial or customer data is required,it leaves researchers to only speculate.FXCM can provide a good modelbecause they are considered to bethe largest retail broker in the world,and as they are a public companythey submit customer and nancialdata. According to Google Finance,FXCM has 165,000 customers
iii
.FXCM releases monthly metricso their trading volumes on theirInvestor Relations website.See their latest release:May 2011Retail rading Metrics:
•Retailcustomertradingvolume
 
o $328 billion in May 2011, 12%higher than April 2011 and 5%higher than May 2010.
•Averageretailcustomertrading
 volume
 
 per day o $14.9 billion inMay 2011, 7% higher than April2011 and no change rom May 2010.
Anaverageof363,579retail
client trades per day in May 2011,13% higher than April 2011 and 8%lower than May 2010.
Activeaccounts
 
o 155,592 as o May 31, 2011, a decrease o 2,410 or2% rom April 2011, and an increaseo 26,465 or 20% rom May 2010.
Tradeableaccounts
 
o 167,844 aso May 31, 2011, an increase o 1,696or 1% rom April 2011, andan increase o 6,635 or 4% rom May2010.Institutional rading Metrics:
Institutionalcustomertrading
 volume
 
o $80 billion in May 2011,28% higher than April 2011 and 4%higher than May 2010.
Averageinstitutionaltrading
 volume
 
 per day o $3.6 billion in May2011, 22% higher than April 2011and no change rom May 2010.
•Anaverageof8,694institutional
client trades per day in May 2011,28% higher than April 2011 and 95%higher than May 2010.More inormation, including historical results or each o the abovemetrics, can be ound on the investorrelations page o the Company’scorporate web site
iv
.
WHITE LAbELINg
Another phenomenon in Forex isthe prolieration o White Labeling 
 v
.Private Labels exist in all industries,however in Forex it is very common.Tere are a ew companies oering  platorms and trading strategies,and 10x more who white label that product and market it as their own.For example, Citibank uses a whitelabel o Saxo Bank or their retailbusiness.
The Natinal FuturesAssciatin ecame thede-fact lal Frexreulatin mdel
Market Watch
FX
16
FX TRADER MAGAZINE
July - September 2011

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