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Institutional FX Volumes' Review • Retail Forex Volumes • Retail Forex Volumes By Accounts • Retail Forex Volumes By MT4 Usage • Exchanges Update
ising from the ashes of 2012, retail forex is proving to be quite resilient and showing more signs of being a cyclical industry with its booms and busts, than a typical financial sector. This was specifically seen during the third quarter as many brokers reported record volumes and revenues for their first half of the year results. The figures were attributed to a return to volatility, which led many market makers to record their highest revenues per million dollars ($rev/m) since 2011.
FOREX MARKET QUARTERLY OVERVIEW R
market, bringing itself a valuation of over $200 million. For much of the industry, the IPO came out of nowhere and led talk among insiders of the likes of, “if Plus500 can get that evaluation, imagine how much we should be worth." Beyond Plus500, a growing list of firms are rumored to be evaluating liquidity events either through an IPO or sale to another broker.
in research firm Faros Trading, as well as picking up Alpari’s US retail MT4 book as the broker decided to exit from the region. Similar to FXCM’s purchase of Faros Trading, the quarter also featured other brokers involved with diversifying projects. This included OANDA’s decision to acquire Currensee and ILQ entering the futures business by buying Velocity Futures. While not the largest deals expected in the industry, they highlight that firms are actively evaluating the entire market for opportunities. On the topic of large-sized deals, Swissquote’s purchase of fellow Swiss firm, MIG Bank, topped the quarter’s list of M&A deals. With MIG clients trading around $60 billion a month, the combined firms could be near cracking $100 billion in monthly FX volumes, and among the top 10 of non-Japanese global retail brokers. Despite the rising valuations, Forex Magnates estimates that the deal may have been a fire sale and similar to the GAIN’s buyout of GFT, where the latter firm received very little above its cash value. Similarly, following in 2012 when MIG Bank reported a $9 million loss, and appeared to be headed for a profitable but subpar 2013, the
An M&A Boom All-Time High Stock Prices Leading the pack of the aforementioned mergers and acquisition (M&A) talk has been FXCM. The broker has not been shy about showing interest in being an acquirer, and this was most recently seen via its hostile buyout plans for GAIN Capital. However, with their goals of only achieving meaningful accretive deals, along with rising valuations that brokers expect to receive for their firms, FXCM may have few options to fulfill their M&A wishes. Finding smaller deals during September, FXCM announced that it was acquiring a controlling stake
As a result, from depressed valuations and all-time lows achieved in public FX broker stocks during 2012, the sector has suddenly become the hottest market. Beyond just in the stock market, where during the quarter we saw shares of FXCM and GAIN Capital hitting all-time highs, the return to favorable status has reopened the capital markets to brokers in the industry. Taking advantage, in the first notable initial public offering (IPO) in two years, UK and Israeli Forex and CFD broker, Plus500, sold $75 million of shares on the LSE’s AIM
broker’s owners appeared to have decided to just ‘throw in the towel’ and cash out.
cluded statistics of retail volumes. The figures measured primary dealer volumes with retail driven counterparties. This volume is primarily liquidity that was being sourced for aggregators targeted for retail order flow. At 3.5% of the total $5.3 trillion in daily FX volumes, retail trading accounted for $185 billion in activity. Of the $185 billion, $78 billion was registered as FX spots with a slightly smaller amount in FX swaps. Accounting for the fact that the BIS survey uses ‘single counting’ for its calculation, retail FX spot figures were $156 billion a day when double counted. Based on Forex Magnates, research of average daily volumes of $325 billion, the numbers represent that more than 50% of all retail volumes are being warehoused internally by brokers.
4. MetaQuotes launched a new marketplace for MQL4 EA’s and indicators within its MQL5 forum as well as creating a new programming code to merge much of the MQL4 and MQL5 languages.
A Silence of News
With the exception of an active second half of September, the quarter was surprisingly quiet in terms of news. Perhaps due to the summer lull or brokers simply taking their foot off of the accelerator after an active beginning of the year, the quiet period was notable. However, coupled with rising volumes and valuations taking place in 2013, as mentioned above, the slow period quickly vanished and was replaced by a rash of deals and announcements taking place. As such, it is Forex Magnates’ opinion that the quiet period was also the result of discussions taking place between firms, as witnessed by the active second half of September. Looking ahead, we expect that this quiet period will bear fruit to a continuation of wheeling and dealing in the coming quarter.
New Entrants To Watch For
1. Malta – Headlined by Swissquote and FXDD that opened offices in the country, the island is receiving more interest among new brokers seeking EU regulation. 2. Seer Trading – Institutional algorithmic trading platform provider enters the retail market. 3. Myfxbook/cTrader – cTrader becomes integrated into the popular forex analysis portal for the first time.
1. After topping $1 trillion in monthly volumes, GMO Click and DMM Securities, along with most Japanese brokers, saw trading activity decline in August and September due to a decrease in yen volatility, as well as brokers widening spreads. 2. Australia continues to be one of the hottest markets for brokers with Pepperstone the target of IPO and takeover talk. 3. The US lost another retail Forex with the exit of Alpari from the retail market during the quarter.
4. Whotrades/Finam FX – Russian securities giant, Finam, enters FX with the launch of Finam FX and accompanying social trading network, Whotrades. 5. BTC-e– Bitcoin exchange launches MetaTrader 4 version of their liquidity.
BIS FX Survey Released
One of the more interesting reads during the quarter was the much awaited Bank of International Settlements (BIS) Triennial FX Survey. For the first time, the FX survey in-
Forex Magnates Tokyo Summit Recount • FX in Spain and Italy • White Labels in FX • The Future Role of Polish Banks in their Home FX Market • FX Prime Brokerage in the Post Dodd-Frank Market • The Financial Commission: A Useful Q&A • Regulatory Surveillance in the Asia-Pacific Region • Upwardly Mobile: Access In Institutional FX • Bloomberg: The Quiet Giant in FX Trading • The Russian FX Market The Wider Gold Market • Binary Options Industry in the US
SHADOW OVER POWERHOUSES: FX IN SPAIN AND ITALY
Spain and Italy are two of Europe's largest economies, each with its own unique attributes. However, the ongoing European debt crisis, in which both countries play a major role since it has erupted in late 2009, spreads a dark shadow over their economic stability and financial markets’ prospects. In this article, we explore the two countries’ FX and CFD market, their past and current status and examine future opportunities for investors looking in that direction.
istorically, Italy and Spain have been major contributors to the European identity. The Renaissance era introduced culture, history and art to a growing number of communities, and lead – centuries later – to countries having a sophisticated and educated population. Italy is known worldwide for its developed industries of fashion, automobiles, innovation, technology and industrial manufacturing. Spain has benefited from its 600 - year reign across the Americas and Africa. The Spanish empire brought wealth and culture from all parts of the world. But how did these two regions accept the world’s most liquid asset class, i.e. FX? Spain Key Facts Language: Spanish Population: 46.7 million Internet usage: 31.6 million Smart phones: 24 million
Macroeconomic Data Spain has been starring in the headlines for all the wrong reasons these past two years; the fourthlargest economic power in the Eurozone has seen its economy go from bad to worse after public borrowing and the country's deficit burden crossed unthinkable heights of 10.6% of Gross Domestic Product (GDP) in 2012. Nonetheless, the facts are that Spain is a large economy; its total GDP measures $1.349 trillion according to the World Bank (2012); it’s the fifthlargest economy in the European Union, and the fourth-largest in the Eurozone. On a global scale, Spain battles well; it is the thirteenthlargest economy by nominal GDP in the world, and fourteenth- largest by purchasing power parity. Spain is also an important nation when examining the global economy; the GDP value of Spain represents 2.18 percent of the world's economy, and hence the deepening crisis in Europe has had an adverse effect on the world's economy over the last five years. The GDP per capita in Spain was $25,250.64 in 2012 (according to the World Bank) – A decrease
By Adil Siddiqui
Fig 8. Broker DIF Interdin IG Markets Click Trade Cortal Consors ActivTrades Self Bank XTB CMC Markets Tele Trade Admiral Markets Fibo Group Hanseatic Total Fig 10.
SPAIN'S ECONOMY AND FINANCIAL MARKET Fig 9. Main Instruments: % traded by Main Brokers and Trading Metrics traders of Total Instruments
Numer of Clients 5,000 4,000 3,000 2,500 1,500 2,000 2,500 2,000 1,500 2,000 2,000 850 550 29,400 ADV/$mn 550 500 350 350 300 250 250 250 200 200 150 75 75 3,500 Source: Forex Magnates Source: Forex Magnates Fig 11. Main Products: % Traded of 2,024.0 2,013.3 2,192.4 2,111.2 Local Office yes yes yes yes yes no yes yes yes no yes no yes
GDP in $bn
2,307.3 1,873.0 1,786.3 1,514.5 1,735.5 2,127.2
2,400 2,200 2,000 1,800 1,600 1,400
Stock Indices Source: Forex Magnates
Source: World Bank Fig 12. 30% 25% 20% 15% 10% 5%
AVERAGE UNEMPLOYMENT RATE IN THE EUROZONE
Source: INE 45
UPWARDLY MOBILE: HOW IMPORTANT IS ON THE MOVE ACCESS IN INSTITUTIONAL FX? T
The rapid acceptance of mobile applications as a means of trading FX accounts remotely in the retail sector of the industry has led to a constant demand across a majority of companies. It is now accountable for significant volume that brokers can ill-afford to miss out on by not having such a solution. This article investigates the mobile trend in the institutional sector.
he institutional and banking sector is somewhat different, and by nature has numerous employees dedicated to trading accounts from within the premises of the companies. This is being done by using very fast computer processors, and, as further exemplified by this year’s increase in availability provided by many technology and connectivity firms facilitating low-latency access by banks and brokers to the world’s venues, aimed at supporting the institutional FX traders from within their large corporate entities, rather than whilst on the move. Therefore, the business requirement for mobile applications, if at all needed, contains a different set of criteria when approaching the institutional user base. There are some schools of thought which consider mobile applica84
tions redundant for the purposes of trading in the institutional sector, with the only value being the ability to mitigate disaster if a trader happens to be away from his desk, or in the event of the failure of a fixed system at a critical point. “We only really use mobile applications for our retail broker clients, and then only relatively rarely," Jonathan Brewer, Head of eFX Business Development at Sucden Financial, told Forex Magnates. Mr. Brewer finds that there is very little usage among the majority of institutional organizations and that unlike the retail sector, companies using institutional technology are more accustomed to arranging their working environment as sitebased, as opposed to how mobile trading is marketed to retail traders who may have other occupations, therefore, increasing the need for mobile access.
By Andrew Saks-McLeod
“My opinion would be primarily that mobile applications are not really used in the institutional sector," continued Mr. Brewer. “Any serious institutional trader will have someone trading on a fixed connection 24 hours a day, and would only use a mobile trading solution in extremis, because of the inherent latency and lack of reliability involved. Generally, even this wouldn’t be necessary, because most institutional traders will be running stop losses on their positions which mitigates the need to be trading mobile,” he concluded. Customization to Serve a Niche
importance seems to be within branding and client acquisition, and an important point is their ability to increase brand awareness. Mobile applications expose users to the broker’s brand every time the user looks at the application on his phone. On the retail side, we do currently see an increasing number of users who only trade on tablets.” When focusing specifically on the user base for mobile accessibil-
technology and the array of global following users who use the public services on our website. They serve as our ambassadors.” Mr. Brylle concluded by emphasizing the need for adaptability and customization when offering mobile applications, as all end-users have different requirements and different business models. “Any application that ties clients closer to the institution should be viewed as important. We do custom develop-
NetDania's App White Labeling Solution - Components
Trading & Alerts Rates, charts, news Custom Broker specifics, value-added function Read-only Or info-only mode Trading In mobile app Source: NetDania
Stig Brylle, CEO and Founder of Danish institutional technology provider NetDania, subscribes the point of view that brokers and large banks have clear ideas about their requirements, and therefore the resultant product should have specific competitive edges. On the use of mobile applications in the institutional market in general, Mr. Brylle explained to Forex Magnates, "We have seen two approaches from institutions. One is for brokers and banks to white label our application to increase awareness of their brand. NetDania is known to produce very highly regarded financial applications, so it is natural for institutions to look to us for an edge. Another approach is advertising, where institutions place their advertisements in our application. Here we are talking about both brokers and larger banks.” On the importance of these applications within banking and institutional environments, Mr Brylle stated that, "At the moment, their
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ity relating to specific business to business requirement, and fitting into the institutional FX market, Mr. Brylle reaffirmed their purpose in maintaining brand awareness, “It depends on what you mean by institutional, and as to what function these applications perform. Evidently, we have an institutional market in the sense that we sell apps to brokers and not to endusers. As to large institutions and banks, their app usage seems to be centered on client acquisition and branding. We have two core audiences. The institutions that buy our
ment, so at NetDania, ‘white label’ does not mean ‘one size fits all’. Our principle is to provide the flexibility to code what our clients consider important.” Whilst retail FX companies in North America have begun over the last two years to readdress whether their business is viable given the regulatory bureaucracy and associated operating costs, technology providers and software companies continue to innovate and develop solutions, aiming them at the institutional sector which is very much
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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 2011: $12.7 million Reported Net Income in 2012: $9.0 million Reported Net Income in Q2 2013: $10.1 million Market Cap: $1.49 billion (as of September 11, 2013) Reported monthly retail volume: $363.7 billion (Average for June, July, and August) Reported monthly institutional volume: $193 billion (Average for June, July, and August) Number of active clients: 182,598 (As of August 2013) Regulation: NFA/CFTC, UK FCA, HK SFC, ASIC
News in the past quarter: • FXCM Acquires Controlling Stake in Faros Trading LLC Read More Here • FXCM Assumes Alpari’s Retail MT4 FX Accounts Read More Here • FXCM Posts Record Institutional Volumes in August Metrics Read More Here • FX Options Volumes Inflate on FXCM’s DCX Platform Read More Here • FXCM In Discussions with Infinium Capital Read More Here • FXCM Posts Record July Volumes and Quarterly Revenues Read More Here • FXCM Reports Record Trading Volumes During June Read More Here • FXCM Sets Eyes on China, Partners with CITIC Newedge Read More Here
MAJOR NEWS OF THE QUARTER July August September
Plus500 IPO and MultiYear Highs
When it came to 2012, the FX industry was beleaguered by a perfect storm of both a contraction on margins due to falling spreads and competition, as well as falling volumes. Not only were broker clients trading less, but revenues on those volumes declined as well. The effect was a severe drop in broker valuations. Case in point were all time lows achieved in the stocks of GAIN Capital, FXCM and London Capital Group. However, thanks to robust trading activity in 2013, along with firms reducing their operating expenses, profits have rebounded, leading to a return of rising valuations. CFD and FX broker, Plus500 successfully went public on London’s AIM during July, as it sold $75 million to investors, and is trading with a market cap of around $200 million. Such a deal would have been unheard of in 2012 and has reignited speculation of a coming wave of forex related IPOs in the future. Read the entire article Japan is by far home to the largest retail forex trading market in the world. But, despite the success brokers have achieved in their local market, very few have expanded overseas. This is slowly changing as Invast Securities launched its Australian subsidiary during July, while at the same time, DMM FX is putting the final touches to its ASIC regulated office as well. These launches come after GMO Click, the world’s largest retail forex broker by volume, announced that it was opening a London based branch in June. Known for their thin margins and tight spreads, the Japanese forex industry is operated differently than in much of the world. As such, with their emergence as players on the global scene, they could very well become prominent competitors to established players, thus evolving the retail landscape in the future. Read the entire article
Japanese Expansion Continues
Overall Broker Volumes Stay Strong
During July, brokers continued to report solid volumes as they released their June figures. During the month all time records were seen from FXall, FXCM, the Moscow Exchange, GMO Click, DMM Securities, and the CME Group. In addition, worth watching is the quick progress the among Australian brokers, as they continue to see quick expansion of their businesses, with IC Markets and Enfinium reporting volume records. Read the entire article
US Broker Profitability at 35%
US profitability during Q2 fell slightly by 0.3% to 35%. During the quarter, brokers reported an aggregated total of 100,543 accounts in the US, which were 1,336 higher than Q1. The largest account growth was seen at InteractiveBrokers, which added 2,474 new customers. Among other brokers, ILQ raised eyebrows as it added 411 accounts (40.3%), extending its total to 1,432 customers. Among the smaller US forex brokers, ILQ is currently the fastest growing. Also of note, was an increase in profitability at MB Trading, whose customers rose from the bottom rank of performance in Q1 becoming to the middle the pack. Read the entire article
Fig 55. Q2 2013 % Profit Interactive Brokers CitiFX Pro OANDA Gain Capital ILQ MB Trading FXDD IBFX/TradeStation Alpari FXCM 46.5 42.0 35.1 33.0 32.6 32.0 31.5 30.9 30.6 28.0
US Broker Profitability Report
Change from Q1 2013 % Loss 53.5 58.0 64.9 67.0 67.4 68.0 68.5 69.1 69.4 72.0 Total Accounts 22,140 665 21,633 11,855 1,432 3,815 5,278 9,427 2,103 22,196 % Profit 3.2 2.0 -3.0 0.0 2.3 5.1 -4.7 -2.1 0.7 -1.0 Accounts 2,474 12 (488) (529) 411 (62) (429) (365) (109) 421 Accounts % growth 12.6 1.8 -2.2 -4.3 40.3 -1.6 -7.5 -3.7 -4.9 1.9 Source: Forex Magnates
Keep Your Eyes On: Some more stories that you may have missed but are worth watching
Myfxbook integrated with cTrader • City Index launches MT4 • CySec announces 17 new firms received licensing • More of the OTC Market is Heading onto Exchanges • Binary options providers conform platforms for Japan • eToro launches social stock trading
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