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Editor's Note Section 1 | Q1 2014 Forex Market Overview Forex Market Quarterly Overview Institutional FX Volumes' Review Retail Forex Volumes Retail Forex Volumes By Accounts Retail Forex Volumes By MT4 Usage Exchanges Update Section 2 | Articles Turkey FX Conference: Where is Local Industry Heading? Trading Under Crisis: The Turkish Case Platform Wars: What Should I Offer and Why? Iran: Middle East's Shining Star in Need of a Polish EMIR: Centralized Reporting Hits Europe Going Public: The Costs of the FX IPO Trend Fixed Income: Are FX Prices Affected as Desks Struggle? The Digital Currency Age: Is Cryptocurrency Trading the Future? FXPB Credit: Expensive on the High Street, Cheaper on the Side Street Trading Down Under: Australia Country Report What Really Matters? Executives Talk From Milli to Micro: Latency Still a Driving Force in e-Trading Germany, France & Canada: Underdeveloped FX Markets in Highly Developed Economies IOSCO: Can Forex Regulation Go Global? Regulation Vs. Prosperity? The Challenges of U.S. Forex Industry Section 3 | Detailed broker information Forex Industry Biggest M&As and Investments Section 4 | Major News of the Quarter 168 174 38 42 48 54 62 68 74 80 88 94 102 110 116 126 132 10 16 22 26 30 34 7
Forex Market Quarterly Overview Institutional FX Volumes' Review • Retail Forex Volumes • Retail Forex Volumes By Accounts • Retail Forex Volumes By MT4 Usage • Exchanges Update
hree months can ﬂy by quickly, especially when there is a lot going on around the globe. And while many industry insiders remember the mighty volumes from the ﬁrst two quarters of last year, most of what has been going on in the markets during the ﬁrst three months of 2014 has been somewhat different. Catalysts of growth were quite apparent during this time: The Federal Reserve’s long-awaited exit from its Quantitative Easing Program, the Russia-Ukraine geopolitical spat throughout the quarter and more. Based on these, one could have expected things to be quite different by the end of March 2014. But reality is that substantial FX volatility ensued for only the ﬁrst month of 2014 - a great start no doubt, but a poor follow-up in February. It seems that tensions that have been building up in Europe have had an impact on traders' appetite for trading. January appeared to be a breakthrough month for all major ECNs and a record month for Thomson Reuters' FXall division. However, the main beneﬁciary in the institutional space has been the Moscow Exchange which has reported record volumes in the
FOREX MARKET QUARTERLY OVERVIEW T
month of February, attributed to the escalating geopolitical spat between the West and Russia. February and March looked more like the fourth quarter of 2013, with single events managing to give a boost to volatility, but not sustaining the momentum to establish major trends in the most traded currency pairs. The market seemed to be geared to a ‘wait and see’ mode, which could only mean that what wasn’t traded today, will certainly be traded tomorrow. The dollar appeared to have stabilized just as the end of the quarter approached, and a gentle nudge from fundamentals might actually trigger what striving FX traders have been awaiting for a while now - a new batch of US dollar strength. The Japanese yen pairs have been relatively quiet with expectations focusing on the incoming sales tax rate hike at the beginning of April. While government representatives argue that it might actually just pass without disrupting economic growth, some prudent market participants voice worries that the event could shake-up the three pillars of Abenomics and leave the only lever in the hands of the Bank
of Japan. Will it pull it off again?
Mired in a ﬁnancial crisis for much of 2011 to 2013, Western Europe and the UK both appear to be turning the page in recent months. Whether it’s the result of monetary stimulus, improved corporate balance sheets, or rallying stock and real estate prices that have created new wealth, the European region has become one of the hotter markets for online retail brokers over the last six months. The surprisingly positive results from Europe contrast to reports from brokers in the region over the previous two years. Beneﬁting from the European and UK performance have been public UK online brokers. In its past two trading updates, IG Group has cited double digit percentage growth in its revenues per average clients from Europe, as well as overall higher earnings expectations. As a result, shares of IG Group have set all-time highs this year, with the company now sporting a $2.33 billion market cap, tops in the industry. Elsewhere, arguably the poster
child for a vibrant forex and CFD market in the UK and Europe is Plus500. Since going public in July of 2013, shares have rallied over 450% to a recent 675p. The increase in price has occurred as the broker recently reported record revenues of over $60 million for Q1 2014. Among unique features of Plus500 has been their focus on the UK and other slow growing but wealthier countries. This strategy differs from many other newer entrants of the last ﬁve years which have put their efforts into attracting clients from emerging market regions.
don't fall in the category of entities that are obliged to conduct mandatory reporting, however all prominent industry players have implemented the procedure.
Meanwhile in Japan, Tradency has become the ﬁrst mirror trading provider to get regulated under the Japanese Financial Services Authority, unlocking a huge legally recognized market for copy trading services.
Copy Trading Regulation
The FCA is on the move to regulate copy trading, as announced in a letter to brokerages regulated under the FCA’s authority, to outline its position on the growing popularity of social or mirror trading services. According to the document, such services do constitute managed investments and companies will be required to address the issue by obtaining permission to operate as licensed investment managers. Another possible path for companies trying to overcome the regulatory challenge could be to elect trade leaders only from a pool of already licensed investment managers. MiFID is also presenting an alternative, as companies regulated in any other European jurisdiction will have the beneﬁts of cross-border regulation enabled. Could this be a renaissance for CySEC, as top rate agencies have changed their outlook about the island-economy and its ailing banks to a more positive one? This is highly unlikely, however some companies have already gained a license for managed investments on the island and are promptly prepared for whatever other European regulators decide.
Chinese Yuan Gains Traction
Starting February 12th, the European Market Infrastructure Regulation (EMIR) mandatory reporting has kicked-in. The reporting obligations under the new regulatory framework, dubbed as the European version of DoddFrank, has challenged companies across the industry. Firms now need to implement their own solutions, or to ﬁnd a third party to assist them to ﬁle their reports with an authorized Trade Repository, as guided by the European Securities Markets Authority. All open trades in forex and certain derivatives contracts (such as CFDs) held at the brokerages are to be reported on a daily basis under the freshly implemented regulations. Certain companies from the industry have claimed that they
The Chinese yuan has started gaining more prominence amongst retail traders (especially in Asia) as the People's Bank of China has decided to end the easy one-way carry trade bet that has been tracking the yuan for almost a decade. According to sources close to the local FX market it is precisely the central bank that has been heavily encouraging the switch to two-way trading of the USD/CNY. Several brokerages have decided to implement the pair within their offerings and more are hopping onboard every passing month. The volatility that the pair has provided since the start of the year as well as liberalization efforts which are gathering support amongst Chinese political elite, mark the possible beginning of the era of a new major FX pair that no brokerage will afford to miss from its offerings soon. This era may come sooner than expected: With the Shanghai Free Trade Zone implementing full Chinese yuan convertibility by the end of June, country-wide implementation of the
Turkey FX Confreence • Trading Under Crisis: The Turkish Case Platform Wars • Iran Country Report EMIR • Going Public: FX IPOs • Fixed Income & FX Prices • The Digital Currency Age • FXPB Credit • Trading Down Under: Australia Country Report • What Really Matters? Executives Talk • From Milli to Micro: Latency a Driving Force in E-Trading Underdeveloped FX Markets in Highly Developed Countries • IOSCO: Can Forex Regulation Go Global? Regulation Vs. Prosperity?
TRADING UNDER CRISIS: THE TURKISH CASE
As the US Federal Reserve's tapering policy brings the age of easy money to an end, developing countries are more vulnerable to economic and political crisis. This article will explore the case of Turkey as one of the “Fragile Five”, examining whether and how FX trading is affected by such geopolitical turmoil.
n recent years, every analysis of global economic trends included the acronym BRICS, a group of ﬁve developing countries that were expected to contribute most of the growth to the whole world’s gross domestic product. At the start of 2014, the term “Fragile Five”, coined by Morgan Stanley, seems to be establishing itself as the hottest buzzword on the minds of economists and market commentators. Based on the fear of severe ﬁnancial troubles in emerging markets following the American Federal Reserve’s stated commitment to tapering its quantitative easing, the "Fragile Five" consists of the countries most likely to suffer economic hardships that might lead to a global contagion. Broadly speaking, many emerging markets’ currencies have been volatile recently as the age of cheap money - fuelled by the Fed – is perceived to be nearing its end. This is forcing central banks in those countries to react, mainly by sharply raising interest rates. Turkey, Brazil, South Africa, India and Indonesia are these ﬁve countries particularly vulnerable to a loss of investors’ conﬁdence, as they are heavily reliant on foreign capi42
tal which makes their economies especially fragile and most likely to be the ﬁrst markets to develop structural problems. Moreover, February's events in the Eastern European country of Ukraine show that beyond the Fragile Five, more countries may face ﬁnancial crisis amid geopolitical instability. This article will focus on Turkey as a case study to examine the effects of economic volatility on online retail Forex brokers. Being one of the Fragile Five, Turkey is experiencing an ongoing political crisis, thus allowing us to examine its effects on the country’s FX trading trends. During December 2013, the current Turkish government’s public image declined after a major scandal was unfolded, which resulted in several notable ministers resigning. The lira’s gradual decline during December-January was further ignited after the government tried to intervene in a bid to save the currency. On January 28, the Central Bank took measures whereby it doubled its borrowing rate from 3.5 percent to 8 percent, and raised the lending rate from 7.75 percent to 12 percent.
By Avi Mizrahi
ARTICLES cies pairs’ volumes were reported to Forex Magnates to be up across the board, with the rupee, lira and rand faltering the most as of the writing of this article. Ukraine, with its recent political and military crisis, could set another case study in this respect. It will be interesting to review ﬁgures of retail FX spot markets in the country, as reports are expected to be published at the start of Q2. The data available now shows a turnover raised to 3.86 million USD, 11 times higher than in November 2013. By the end of February in USD/UAH futures, it reached 2.63 million USD. It is 214% higher than in November 2013. ADTV in February was about 200,000 USD. Number of trades in February – 952.” During the unfolding dramatic events in Ukraine, the Russian ruble also experienced untypically high levels of trading volumes, only as a result of the currency weakening due to the proximity to a troubled country. This demonstrates that there is a risk of regional contagion when problems arise and can also lead to increased trading volumes in neighboring markets. Can Political Crisis Continue Driving Forex Trading?
FX Conference in April by Forex Magnates will deﬁnitely increase the awareness of the leveraged FX market in Turkey as well as help to increase the knowledge of clients about the risks involved in OTC FX trading,” opined Mr. Akdemir. Not Only Turkey
As the Fed’s bond buying program could wrap up by the middle of the year, 2014 will prove to be a chal-
Ukrain Contracts Volumes Spike During February
600 500 400 300 200 100 0
Total Volume, Contracts Total Volume, RUR Hundreds of Thousands Number of trades
Source: Moscow Exchange
lenging year for the world economy and for emerging markets especially. The example of Turkey shows that the Forex industry has much to gain from such a trading environment. Brokers should consider adding trading pairs based on the Brazilian real, Indian rupee, Indonesian rupiah, Turkish lira and South African rand as those will attract investors’ as well as the media’s attention. These currencies are also expected to have the most volatile swings. Emerging market curren-
very dramatic shift with regards to the Ukrainian currency (UAH), published by the Derivatives market of Moscow Exchange, where a USD/UAH futures contract was launched in June 13. Aleksandr Ezhov, Head of FX Business Development at the Moscow Exchange, told Forex Magnates that, “Before the beginning of the Ukrainian political turmoil in November 2013 the total monthly turnover of this contract was about 319,000 USD. In comparison with November, in February 2014 total
As volatility has always been a source for rising activity across most asset classes, emerging markets topped with political crisis create even greater opportunities for investors. Judging by the case of Turkey, and what is already known about the Ukraine, trade of pairs containing local currencies soar in times of crises. But is this a calculated risk for investors or just a plain risk? As of writing this article, the political situation has yet to settle in both Turkey and the Ukraine. If it doesn’t, can trading volumes maintain such record highs? Forex Magnates will continue to monitor the situation and report accordingly, to assist industry professionals to make educated decisions when focusing on emerging markets currency pairs.
THE DIGITAL CURRENCY AGE: IS CRYPTOCURRENCY TRADING THE FUTURE?
Cryptocurrencies present exciting and unique alternatives to conventional currency trading. The expansion of numerous options and exchanges has forged a new channel of investment. This article will examine the current landscape of digital currencies such as bitcoin and altcoin, and their ascension as a tradable ﬁxture in the ﬁnancial world.
n a world that operates on tangible goods, tangible means of exchange and an overarching sense of accountability, the genesis of digital currencies seems an oddity in the modern ﬁnancial realm, namely as it abstains from most economic and commercial paradigms. As such, tracing the origins of digital currency or cryptocurrency trading is not merely a look into the past, but quite possibly the future. Modern currency trading of forex has ironed out a niche in today’s ﬁnancial markets. Moreover, ofﬁcial currencies, while varying in market exposure, popularity and stability, are all considered ‘hard’ options, if only in the sense that they are backed and supported by gold reserves, national governments, legitimate entities, etc. . As a corollary, digital currencies lie at the counterpoint of this archetype, operating outside the realm of multi-national governments or central banking bodies.
The abstention of digital currencies from more conventional measures yields several advantages and disadvantages for users and traders alike. Furthermore, the infancy of digital currencies on a global scale has fostered a sense of latent misunderstanding. Individuals ranging from economists to basic traders generally hold reservations for that which theory and laws do not quite yet understand. However, past this cautionary line of thinking lies a very real metamorphosis of the currency trading industry presently unfolding: The rise and inclusion of digital currency trading as a legitimate member of ﬁnancial markets. The Fundamental Attributes of Digital Currencies
By Jeffery Patterson
Digital currencies in the most rudimentary sense can be deﬁned as an electronically created and stored
MOST NATIONAL BANKS WARNED ABOUT THE RISKS IN TRANSACTING
Cryptocurency Market Capitalization Including Bitcoin & Litecoin
Cryptocurency Market Capitalization Excluding Bitcoin & Litecoin
% 30.8% 22.5% 10.2% 7.6% 5.3% 3.4% 2.8% 2.8% 2.6% 2.1% 1.8% 1.0% 0.9% 0.8% 0.7% 0.7% 0.6% 0.4% 0.4% 0.3% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 1.1% Source: cryptocoinstat.com
0.30% Namecoin 0.70% Dogecoin 1% Peercoin
Digital Currency Peercoin Dogecoin Namecoin
1% Other 4.70% Litecoin
Protoshares Quarkcoin Feathercoin Megacoin Infinitecoin
Source: Forex Magnates
Before Its Collapse in February 2014, MtGox Held 43% of All Bitcoin Trade
Source: cryptocoinstat.com Fig 26.
Primecoin 92% Bitcoin Source: cryptocoinstat.com Fig 27. 4% EUR Novacoin Worldcoin Tickets DevCoin DigitalCoin Zetacoin Freicoin Netcoin Terracoin 1% PLN Anoncoin Mooncoin Unobtanium Sexcoin
Bitcoin Exchange Volume Distribution By Market
2% krakenEUR 1% bitcurexPLN 1% localbtcGBP 1% btcdeEUR 1% localbtcUSD
Bitcoin Exchange Volume Distribution By Currency
2% HKO 1% GBP
2% anxhkHKD 7% lakeUSD
Bbqcoin Cryptogenicbullion Goldcoin
33% bitstampUSD Source: Bitcoincharts.com
82% USD Source: Bitcoincharts.com
GERMANY, FRANCE & CANADA: UNDERDEVELOPED FOREX MARKETS IN HIGHLY DEVELOPED ECONOMIES
Despite having strong economies, Germany, France and Canada are dragging behind the rest of the Western world when it comes to Forex market and industry. This article will examine various factors to determine whether these countries can produce a thriving forex market.
ermany and France are the two biggest countries in Europe. In 2012, their joint GDP accounted for 49% of the euro zone’s GDP, and their population makes up 43% of the total euro zone’s population. At ﬁrst sight, one could expect, due to these countries’ characteristics, that they would be destined to take a leading position in the forex market, not only among their European neighbors but also globally. Yet, the presence of French and German brokers in the global forex market is almost marginal compared to their respective economical stand. A similar situation can be seen also in Canda, where a strong, well developed economy has a relatively small FX market and industry.
Are Local Markets Spacious Enough? While the UK, the USA and Japan are all countries with strong economies which also enjoy leading positions in the world’s forex industry, Germany and France take a relatively small share of this market. This article will take a closer look into these countries and their unique characteristics in a bid to provide some answers as to why they seem to be falling behind their counterparts when it comes to forex. Germany, Europe’s biggest economy is located between the Rhine and Oder rivers, geographically in the center of Europe and with GDP that was equal to $340,058 bn in
By Sylwester Majewski
CANADA'S ECONOMY & FINANCIAL MARKET Key Facts
Spending Habits of Canadian Investors (% of Pay)
Invest Bills/Debt/ Mortgages Money Left to Spend
Population: 34.8 million Area in km2: 9,984,670 Literacy rate: 99% Capital City: Ottawa Households with access to internet: 83% Individual mobile telephone access: 75% Facebook Users: 19 million
PERCENT OF INVESTMENT IN LOW OR NORETURN CASH INVESTMENTS
Active traders 15,000
FXCM | Oanda | CMC Markets | Questrade
Source: Forex Magnates Fig 51. 10 8 6 Fig 50.
Unemployment Rate (%)
Source: TSX, EUR/CAD Fig 52. GDP Growth (%) 3.2 1.8 3.1 2.1 3.5 3 2.5 2 1.5 1 0.5 0 -0.5 -1 -1.5 -2.5 -3 1.1 1.5 2
Source: TSX, EUR/CAD
Capitalization in 2013
1.58 trillion EUR
DETAILED BROKER INFORMATION
For The Largest Brokers in Terms of Volume
FXCM • Saxo Bank • Alpari • OANDA • IG Group GAIN Capital • CMC • FxPro • Pepperstone • AxiTrader FXOpen • DMM.com • GMO Click Securities
Year Established: 1999
Shareholders and Funding: Publicly owned, list of shareholders here Investments and M&As: Data at the end of the report Reported Net Income in 2012: $9.0 million Reported Net Income in 2013: $14.8 million Reported Net Income in Q4 2013: $2.97 million Market Cap: $1.32 billion (as of March 23, 2014) Reported Monthly Retail Volume: $306.3billion (Average for December, January, February) Reported Monthly Institutional Volume: $164.0 billion (Average for December, January, February) Number of Active Clients: 180,933 (As of February 2014) Regulation: NFA/CFTC, UK FCA, HK SFC, ASIC
News in the Past Quarter: • FXCM Reports 2013 Results and February Metrics Read More Here • FXCM Announces $16.9M Asymmetric Slippage Settlement with FCA Read More Here • FXCM Reports Upbeat January Retail and Institutional Volumes Read More Here • Kanto Business Bureau Lifts Improvement Business from FXCM Japan Read More Here • FXCM Ends 2013 in Green as MoM Volumes Grow Read More Here • FXCM Eyes Assets as Troubles Beset Inﬁnium Read More Here
FXCM’s Share Price in Past Three Months:
15 Jan 14 Feb 14 Mar 14
Fig 59. FXCM
Retail vs Institutional Volume ($B):
$600 $500 $400 $300 $200 $100 $0 1/12 2/12 3/12 4/12 5/12 6/12 7/12 8/12 9/12 10/12 11/12 12/12 1/13 2/13 3/13 4/13 5/13 6/13 7/13 8/13 9/13 10/13 11/13 12/13 1/14 2/14 Retail Institutional Total Source: Forex Magnates
MAJOR NEWS OF THE QUARTER January February March
FXCM UK Announces $16.9 Million Settlement with FCA for Asymmetric Slippage
FXCM announced that it had settled with the FCA after being investigated for applying asymmetric slippage practices that cost customers millions of dollars. According to the FCA settlement, FXCM agreed to reimburse clients $10 million while paying an addition ﬁne of $6.9 million to the regulator. Commenting on the actions of FXCM, Tracey McDermott, the FCA’s Director of Enforcement and Financial Crime, stated “Not only did FXCM UK fail to treat its customers fairly or correctly apply our rules, I am particularly disappointed that it was not transparent in its dealings with the FCA. We expect all ﬁrms to put customers at the heart of their business, and we have taken action to ensure clients of FXCM UK will get redress.” Read the entire article
MetaQuotes Releases Much Anticipated Build 600 to User Problems
In one of the most anticipated updates for Metatrader, Build 600 went into effect during February. Build 600 includs an update to the MQL 4 programming language that would make it more similar with that of MQL 5. In addition, the update is making the MetaQuotes' MT4 Marketplace available directly from the platform. The update to MQL 4 is expected to allow developers to create EAs and custom indicators that will be more easily adaptable between both MT4 and MT5. However, despite assurances from MetaQuotes that old EAs and indicators would operate correctly after the build update, developers expressed that they were having conﬂictions and were required to recompile their programs. The problems caused numerous brokers to issue guidelines helping users deal with the build update. Read the entire article
2014 Begins Like 2013, Volumes Rise
Dancing like it is 2013, the new year started off with a bang as nearly every trading venue and broker posted solid volumes to begin the year. Among ﬁrms doing especially well were Japanese brokers, which were led by a 55% surge in month-over-month volumes at DMM Securities to $771 million, while GMO Click and Monex Group also posted multi-month highs. Among non-Japanese brokers, GAIN Capital was an outperformer as it reported that volumes rose 38.4% from December 2013. Elsewhere, ECNs did well with EBS, KCG Hotspot, FXall and Thomson Reuters all reported double-digit growth. Read the entire article
MtGox Files for Bankruptcy as Bitcoins Go Missing, Industry Reacts
In a tragic ending for what once was the largest bitcoin exchange by volume, commanding over 65% market share, MtGox ﬁled for bankruptcy. The news occurred after weeks of customers having been unable to withdraw bitcoins which led the ﬁrm to blame a ‘ﬂaw in the bitcoin protocol’ that had caused transactions to be reported incorrectly. However, industry reaction was mostly unsympathetic to the exchange’s problems, believing that MtGox failed to apply proper solutions to deal with a problem that had been well documented for two years. According to its ﬁling, about 750,000 customer bitcoins (around $400 million) went missing due to a bug in their software. In addition to bitcoins, MtGox also reported a shortfall of $275 million of customer funds being held at ﬁnancial institutions, thus leading to speculation of insider fraud. Read the entire article
Banks Report Trading Desk Firings as FX Fixing Investigations Continue
Adverse effects of the FX ﬁxing scandal which led several banks to apply new compliance rules in 2013 have continued in 2014. The scandal centers around whether trading desks among primary FX dealers colluded and shared information about client orders expected to be ﬁlled during the London FX ﬁxing period. As a result of internal investigations, it was reported that Deutsche Bank and UBS ﬁred members of its FX trading desks who were involved with the FX ﬁxing collusion. This is in addition to communication restrictions between banks that many ﬁrms applied in 2013. Financial effects of the FX investigations made their way to annual reports with several ﬁrms stating they were setting aside reserves for potential ﬁnes. Among them, UBS has reportedly been in communication with global regulators about receiving immunity in exchange for cooperation with the investigations. Read the entire article
Keep Your Eyes On: Some more stories that you may have missed but are worth watching
Alpari UK Folds Binary Options Operations, Cites Regulations • Boston Technologies Reports 2013 Revenues, Up 38% to $20.5M • Invast Securities Focuses on Risk Management with Launch of TriAuto • Lucera Launches HFT Platform In a Bid To Benefit FX Traders • ZuluTrade Goes Head to Head with MT4 with Launch of Web Based Platform • Plus500 Crushes Q4 Financial Results, Shares Higher, Considers Main Market Listing on LSE
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