Q u a r t e r l y Industry Report
2 0 1 4
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
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
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
M A R K E TO V E R V I E W
Forex Market Quarterly Overview Institutional FX Volumes' Review Retail Forex Volumes Retail Forex Volumes By Accounts Retail Forex Volumes By
MT4 Usage Exchanges Update
Three months can fly by quickly, especially when there is a lot going on around
the globe. And while many indus-try 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 ap-parent during this time: The Feder-al Reserves 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 Feb-ruary. It seems that tensions that have been building up in Europe have had an impact on traders' ap-petite for trading.
January appeared to be a break-through 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
month of February, attributed to the escalating geopolitical spat be-tween 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 sustain-ing 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 wasnt traded today, will certainly be traded to-morrow.
The dollar appeared to have stabi-lized just as the end of the quarter approached, and a gentle nudge from fundamentals might actu-ally 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 representa-tives argue that it might actually just pass without disrupting eco-nomic growth, some prudent mar-ket 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
FOREX MARKET QUARTERLY OVERVIEW
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. Wheth-er its the result of monetary stimu-lus, 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 con-trast to reports from brokers in the region over the previous two years.
Benefiting from the European and UK performance have been pub-lic UK online brokers. In its past two trading updates, IG Group has cited double digit percent-age 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 com-pany 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 mil-lion 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 emerg-ing market regions.
Starting February 12th, the Eu-ropean Market Infrastructure Regulation (EMIR) mandatory re-porting has kicked-in. The report-ing obligations under the new regulatory framework, dubbed as the European version of Dodd-Frank, has challenged companies across the industry. Firms now need to implement their own so-lutions, or to find a third party to assist them to file their reports with an authorized Trade Re-pository, as guided by the Euro-pean Securities Markets Authority.
All open trades in forex and cer-tain derivatives contracts (such as CFDs) held at the brokerages are to be reported on a daily basis under the freshly implemented regula-tions. Certain companies from the industry have claimed that they
don't fall in the category of enti-ties that are obliged to conduct mandatory reporting, however all prominent industry players have implemented the procedure.
Copy Trading Regulation
The FCA is on the move to regulate copy trading, as announced in a letter to brokerages regulated under the FCAs 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 compa-nies trying to overcome the regu-latory challenge could be to elect trade leaders only from a pool of already licensed investment man-agers. MiFID is also presenting an alternative, as companies regulated in any other European jurisdiction will have the benefits of cross-bor-der regulation enabled.
Could this be a renaissance for CySEC, as top rate agencies have changed their outlook about the is-land-economy and its ailing banks to a more positive one?
This is highly unlikely, however some companies have already gained a license for managed in-vestments on the island and are promptly prepared for whatever other European regulators decide.
Meanwhile in Japan, Tradency has become the first mirror trad-ing provider to get regulated under the Japanese Financial Services Authority, unlocking a huge legally recognized market for copy trading services.
Chinese Yuan Gains Traction
The Chinese yuan has started gain-ing more prominence amongst re-tail 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 pro-vided 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 broker-age will afford to miss from its of-ferings soon.
This era may come sooner than expected: With the Shanghai Free Trade Zone implementing full Chinese yuan convertibil-ity by the end of June, coun-try-wide implementation of the
ARTICLESTurkey 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?
In recent years, every analysis of global economic trends in-cluded the acronym BRICS, a
group of five developing countries that were expected to contribute most of the growth to the whole worlds 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 com-mentators. Based on the fear of se-vere financial troubles in emerging markets following the American Federal Reserves stated commit-ment to tapering its quantitative easing, the "Fragile Five" consists of the countries most likely to suf-fer economic hardships that might lead to a global contagion.
Broadly speaking, many emerg-ing 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. Tur-key, 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 capi-
TRADING UNDER CRISIS: THE TURKISH CASE
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 geopo-litical instability. This article will focus on Turkey as a case study to examine the effects of economic volatility on online retail Forex bro-kers. Being one of the Fragile Five, Turkey is experiencing an ongoing political crisis, thus allowing us to examine its effects on the countrys FX trading trends.
During December 2013, the current Turkish governments public im-age declined after a major scandal was unfolded, which resulted in several notable ministers resign-ing. The liras gradual decline dur-ing December-January was further ignited after the government tried to intervene in a bid to save the currency. On January 28, the Cen-tral 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.
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 affect-ed by such geopolitical turmoil.
By Avi Mizrahi
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 Feds bond buying program could wrap up by the middle of the year, 2014 will prove to be a chal-
lenging year for the world econ-omy 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 Brazil-ian real, Indian rupee, Indonesian rupiah, Turkish lira and South Af-rican rand as those will attract investors as well as the medias at-tention. These currencies are also expected to have the most volatile swings. Emerging market curren-
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 an-other case study in this respect. It will be interesting to review fig-ures 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
very dramatic shift with regards to the Ukrainian currency (UAH), published by the Derivatives mar-ket of Moscow Exchange, where a USD/UAH futures contract was launched in June 13.
Aleksandr Ezhov, Head of FX Busi-ness Development at the Moscow Exchange, told Forex Magnates that, Before the beginning of the Ukrainian political turmoil in No-vember 2013 the total monthly turnover of this contract was about 319,000 USD. In comparison with November, in February 2014 total
turnover raised to 3.86 million USD, 11 times higher than in Novem-ber 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 Febru-ary was about 200,000 USD. Num-ber 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?
As volatility has always been a source for rising activity across most asset classes, emerging mar-kets topped with political crisis cre-ate 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 in-vestors or just a plain risk? As of writing this article, the political sit-uation has yet to settle in both Tur-key and the Ukraine. If it doesnt, can trading volumes maintain such record highs? Forex Magnates will continue to monitor the situation and report accordingly, to assist in-dustry professionals to make edu-cated decisions when focusing on emerging markets currency pairs.
Ukrain Contracts Volumes Spike During February
Source: Moscow Exchange
Total Volume, Contracts Total Volume, RUR Hundreds of ThousandsNumber of trades
In a world that operates on tan-gible goods, tangible means of exchange and an overarching
sense of accountability, the genesis of digital currencies seems an odd-ity in the modern financial realm, namely as it abstains from most economic and commercial para-digms. As such, tracing the origins of digital currency or cryptocur-rency 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 todays financial markets. Moreover, of-ficial 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 govern-ments, legitimate entities, etc.. As a corollary, digital currencies lie at the counterpoint of this ar-chetype, operating outside the realm of multi-national govern-ments or central banking bodies.
THE DIGITAL CURRENCY AGE: IS CRYPTOCURRENCY TRADING THE FUTURE?Cryptocurrencies pres-ent exciting and unique alternatives to conven-tional currency trad-ing. 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.
By Jeffery Patterson
The abstention of digital curren-cies from more conventional mea-sures yields several advantages and disadvantages for users and traders alike.
Furthermore, the infancy of digi-tal currencies on a global scale has fostered a sense of latent misun-derstanding. 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 meta-morphosis of the currency trading industry presently unfolding: The rise and inclusion of digital curren-cy trading as a legitimate member of financial markets.
The Fundamental Attributes of Digital Currencies
Digital currencies in the most rudi-mentary sense can be defined as an electronically created and stored
Bitcoin Exchange Volume Distribution By Market
Bitcoin Exchange Volume Distribution By Currency
Source: Bitcoincharts.comSource: Bitcoincharts.com
Source: Forex Magnates
Cryptocurency Market Capitalization
Including Bitcoin & Litecoin
Cryptocurency Market Capitalization
Excluding Bitcoin & Litecoin
Fig 23.Fig 22.
Digital Currency %
MOST NATIONAL BANKS WARNED ABOUT THE RISKS IN TRANSACTING VIRTUAL CURRENCIES
Before Its Collapse in February 2014, MtGox Held 43% of All Bitcoin Trade
Germany and France are the two biggest countries in Europe. In 2012, their
joint GDP accounted for 49% of the euro zones GDP, and their popula-tion makes up 43% of the total euro zones population. At first sight, one could expect, due to these countries characteristics, that they would be destined to take a lead-ing 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 de-veloped economy has a relative-ly small FX market and industry.
GERMANY, FRANCE & CANADA: UNDERDEVELOPED FOREX MARKETS IN HIGHLY DEVELOPED ECONOMIES
Are Local Markets Spacious Enough?
While the UK, the USA and Japan are all countries with strong econ-omies which also enjoy leading po-sitions in the worlds forex industry, Germany and France take a relative-ly 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 coun-terparts when it comes to forex.
Germany, Europes biggest econ-omy 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
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 de-termine whether these countries can produce a thriving forex market.
By Sylwester Majewski
Source: TSX, EUR/CAD
Source: TSX, EUR/CAD
GDP Growth (%)Fig 52.
CANADA'S ECONOMY & FINANCIAL MARKET
Population: 34.8 millionArea in km2: 9,984,670Literacy rate: 99%Capital City: OttawaHouseholds with access to internet: 83%Individual mobile telephone access: 75%Facebook Users: 19 million
Fig 51. Unemployment Rate (%)
Source: Forex Magnates
TMXCapitalization in 2013 1.58 trillion EUR
Spending Habits of Canadian Investors (% of Pay)
FXCM | Oanda | CMC Markets | Questrade
Active traders 15,000 Leading Brokers
Save Invest Bills/Debt/MortgagesMoney Left
14 10 48 28
73%PERCENT OF INVESTMENT IN LOW OR NORETURN CASH INVESTMENTS
DETAILED BROKER INFORMATION
For The Largest Brokers in Terms of
VolumeFXCM Saxo Bank Alpari OANDA IG Group GAIN Capital CMC FxPro Pepperstone AxiTrader
FXOpen DMM.com GMO Click Securities
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 $16.9M Asymmetric Slippage Settlement with FCA Read More Here
FXCM Reports Upbeat January Retail and Institutional Volumes Read More Here
Kanto Business Bureau Lifts Improvement Business from FXCM Japan Read More Here
FXCM Ends 2013 in Green as MoM Volumes Grow Read More Here
FXCM Eyes Assets as Troubles Beset Infinium Read More Here
Fig 58. FXCMs Share Price in Past Three Months:
Fig 59. FXCM Retail vs Institutional Volume ($B):
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
Jan 14 Mar 14Feb 14
MAJOR NEWS OF THE QUARTER
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 mil-lion, 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
2014 Begins Like 2013, Volumes Rise
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 pro-gramming language that would make it more similar with that of MQL 5. In addition, the update is making the MetaQuotes' MT4 Marketplace avail-able 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 numer-ous brokers to issue guidelines helping users deal with the build update.
Read the entire article
MetaQuotes Releases Much Anticipated Build 600 to User Problems
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 cli-ents $10 million while paying an addition fine of $6.9 million to the regu-lator. Commenting on the actions of FXCM, Tracey McDermott, the FCAs 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 partic-ularly 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
FXCM UK Announces $16.9 Million Settlement with FCA for Asymmet-ric Slippage
Keep Your Eyes On: Some more stories that you may have missed but are worth watching
Adverse effects of the FX fixing scandal which led several banks to apply new compliance rules in 2013 have continued in 2014. The scandal cen-ters 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 po-tential fines. Among them, UBS has reportedly been in communication with global regulators about receiving immunity in exchange for coopera-tion with the investigations.
Read the entire article
Banks Report Trading Desk Firings as FX Fixing Investigations Continue
In a tragic ending for what once was the largest bitcoin exchange by vol-ume, commanding over 65% market share, MtGox filed for bankruptcy. The news occurred after weeks of customers having been unable to with-draw 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 exchanges 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
MtGox Files for Bank-ruptcy as Bitcoins Go Missing, Industry Reacts
Alpari UK Folds Binary Options Operations, Cites Regulations Boston Technologies Reports 2013 Revenues, Up 38% to $20.5M Invast Securities Fo-cuses 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 Crush-es Q4 Financial Results, Shares Higher, Considers Main Market Listing on LSE