forex magnates q4 2014 industry report preview

8/9/2019 Forex Magnates Q4 2014 Industry Report Preview

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Contributing AuthorsEditor's Note

Section 1 | Q4 2014 Forex Market OverviewForex Market Quarterly OverviewInstitutional FX Volumes ReviewRetail Forex Volumes

Retail Forex Volumes by AccountRetail Forex Volumes by MT4 UsageExchanges UpdateBinary Options UpdateRegulations Update

Section 2 | Articles

The Bitcoin Exchange: Volatility Breeds Opportunity but Challenges AboundThe Inherent Dependence of Global Businesses on the FX marketThe Impact of Web Analytics: Asset or Aberration?How the West was Won: FX Brokers Eyeing Latin AmericaFX Trading on the Move in Africa's Heart of Gold

Analyzing Volatility: a Bright Future Ahead?Rising Emerging Markets and their Effect on BrokeragesTech Roundtable: The Challenges of Operating an Online BrokerageForex Magnates London Summit: A Showcase of New Products & NetworkingThe City, More than just a Square MileMobile Advertising: The Next BattlegroundBroker Risk Management ChallengesGamification, the Game ChangerCommodities vs. Forex: The Correlationship AgendaExotic Currencies: Sorting Out Fact from Fiction

Section 3 | Detailed Broker Information

Largest Brokers in Terms of VolumeLargest Industry Mergers, Acquisitions and IPOs

Section 4 | Major News For Q4 2014

Top Q4 NewsOur Editors' Favorite QuotesForex Magnates Top 12 For 2014

Infographics Index

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102108114118

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Is the Cup Half Full, or Half

Empty?

That is the question forex brokers

will be answering when they lookback at the year that was in 2014.

Whatever the reason, whether the

World Cup, market complacency

with rising stock prices, or just the

result of an ongoing long term shift

in trading conditions, volatility

was at a standstill for the first eight

months of the year.

The result was that after seeing vol-

umes rebound nicely in 2013 from

their collapse in 2012, the forex

market look primed to achieve new

lows in inactivity. Truth be told, the

March to August period was just as

bad as 2012 if not worse for many

trading venues and brokers.

But, in a blink of an eye, market

conditions made a 180, with Sep-

tember through Decembers trad-

ing saving the year and then some

for the industry. During that pe-

riod, forex trading volatility was

pumped via a slew of events affect-

ing nearly every major currency.

Headline events included the Scot-

tish Referendum (British pound),

ECB announces negative interest

rates (Euro), Japans government

coalition falls with forecasts for

further stimulus (Japanese yen),

FOMC ends quantitative easing (US

dollar) and the SNB keeping the

EURCHF price floor (Swiss franc).

Are Volumes here to Stay?

For brokers and trading venues,

the flood of simultaneous market

moving events led to many firms

reporting both daily and monthly

volume records being broken. The

question now is whether the sec-

ond half of 2014 is merely an aber-

ration, or the return of volatility to

the forex market?

That answer may be tied in how

currencies are viewed as an asset

class. The truth is, that compared

to other asset classes, the foreign

exchange market is historically the

least volatile when compared to

other products such as commodi-

ties, stocks, and bonds. However, it

is the leveraged trading associatedwith forex that creates all the risk

we often hear about that is related

to the market. As such, strategies

that work in other, more active as-

set classes can fail miserably in

forex trading.

What was noticeable during the

Q4 period was that more impor-

tantly than the onslaught on global

news triggering volumes, volatil-

ity seemed to reenergize curren-

cies as an asset class. Multi-asset

strategy traders that had been ig-

noring currencies, once again be-

gan to see the potential in tradingthe product.

Throughout the second half of

2014, the forex market can be

viewed as a cyclical, sleeping gi-

ant. It may have looked dead

during its quiet periods, but the

existence of leveraged trading is

a cant miss opportunity that will

always attract traders as soon an

volatility picks up. This patternis best illustrated in the current

QIR article: Analyzing Volatility:A

Bright Future Ahead where Forex

Magnates studies the relationship

between volatility and volumes.

So are volumes here to stay? They

will always be a volatility deriva-

tive, but despite what the first half

of 2014 indicated, forex as an asset

class is here to stay which bodeswell for the industry.

Lessons from Russia

In terms of volatility, taking the

award for the most active currency

of the year is the Russian ruble. Af-


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ter trading steadily in the low 30s

for most of the year, the USDRUB

began its ascent higher in Sep-tember. The combination of po-

tential economic sanctions due to

Russias conflict with Ukraine and

negative effects of falling crude oil

prices triggered consistent weak-

ness in the currency. Aiming to re-

store demand, the rubles troubles

culminated in a mid-December in-

terest rate hike to 17% from 10.5% by

the Central Bank of Russia. How-

ever, emergency actions also cre-

ated panic in the industry, drivingthe USDRUB to a record high of 77,

before intervention brought the

currency pair below 60 once again.

The volatility was a boon for cus-

tomers, but a headache for forex

brokers. Without much clarity on

the direction of the market and

losses from trading desks, banks

closed trading en masse in the ru-

ble or raised margin rates. Also, andmore impactful was the lack of set-

tlement options available as prime

brokers suspended trades in the ru-

ble, which resulted in a suspension

of ruble trading within the inter-

bank market. For brokers that were

not maintaining a direct relation-

ship with a bank, hedging risk or re-

ceiving market data for consistent

pricing became nearly impossible.

A few lessons learned from the ru-

ble troubles. First, market data and

liquidity for minor currencies that

is distributed from exchanges and

ECNs can become choppy or use-

less in times of severe volatility. A

solution to this problem is to ac-

cess direct streams with banks with

a direct margin account. Secondly,

customers of brokers with floating

spreads reported fewer execution

problems than clients trading the

ruble with fixed spreads. Due to the

volatility and lack of liquidity dur-

ing mid-December, spreads oftenreached over 1%, which resulted in

fixed spread brokers rejecting cus-

tomer trades. Even if a broker fa-

vors the use of a fixed spread model

for minor currencies, there is an

advantage to floating spreads.

The Lean Mean Forex

Broker Machine

During the first half of 2014, there

were several comparisons made

to 2012s poor performance. In

contrast though, was that the pes-

simism that existed at that time

was much less apparent in 2014.

Forex Magnates considers 2012 as a

learning period for brokers, and therealization that the volatile and free

money days of the previous decade

are over. In their place, nearly every

major broker enacted on expense

cuts and refocused their activities

on profitable and growing markets,

or simply exited the market.

The lean attitude was apparent

during the beginning of 2014, as

brokers were optimistic about thefuture despite falling volatility, re-

porting that if the weak environ-

ment would continue they would

simply initiate more cost cutting.

As a result of brokers operating

with greater efficiency in 2014,

market conditions improved they

were in better position to scale

their marketing and products. This

was witnessed in the enthusiastic

interest in the new technologies

and proucts that took centre stage

the the Forex Magnates London

Summit in November.

The Year of CFDs

Many brokers hedged the fall-

ing volumes in forex trading with

CFDs: while nearly every broker

had a fair share of CFD offerings

prior to the beginning of 2014, theyear saw numerous brokers report

record volumes of non-forex in-

struments being traded, as well as

the launch of new products. Gold

and Crude Oil were spotlit by bro-

kers in 2014, but one area that ex-

perienced precedence were single

stock CFDs. Whether the result of

a booming stock market, customer

interest in equities following the

IPOs of companies such as Twit-ter and Alibaba, or the delay of po-

tential taxes in Europe, single stock

CFDs were among the most bro-

ker-marketed products.

One of the problems for brokers

that inhibits CFDs is a lack of li-

quidity to hedge customer order

flow. While brokers can hedge

with a CFDs underlying stock or

future, this isnt always an applesto apples fit due to different mar-

gin requirements or trading sizes

between the two products. As a so-

lution, the second half of 2014 saw

an increase of CFD liquidity being

offered by Prime of Prime brokers.

Consequentially, brokers now have

many more hedging solutions to

their CFD products than in previ-

ous years which should eventually

provide them greater flexibility in

their offerings.


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Latin America has long been

an enticing region for for-

eign investment and FX.

Until recently, many FX brokers

were unsuccessful in overcom-

ing a litany of regulatory barri-

ers, seemingly unable to establish

a foothold in markets. This trend

has changed in recent years, with

many international brokers eye-

ing offices and prospects in sev-

eral countries, coupled with a

blossoming domestic FX market.

Latin America, or LATAM, com-

prises twenty sovereign countries

collectively boasting a population

of more than 600 million people,

rivaling that of Europe. Like many

other regions around the world, the

continent is home to a unique dis-

persal of cultures and populations,

most of whom utilize Spanish astheir primary language for busi-

ness with Brazil being the only

country relying on Portuguese.

Despite a highly developed and

diversified market, several factors

have collectively handicapped Lat-

in Americas development in the fi-

nancial world relative to other hubs

such as the United Kingdom, Unit-

ed States and the antipodes, among

others. These include a specter of

insolvent markets, uneven compli-

ance measures, political instability

and a lack of exposure to interna-

tional financial markets. With these

forces largely mitigated over the

past decade however, several

countries have begun to cultivate a

bourgeoning FX market.

Domestic FX Hotspots and

Barriers to Entry

Much like its continental Euro-

pean counterpart, Latin America

is merely the sum of a number of

countries, each with different ad-

vantages and disadvantages to FX

trading and brokers. Out of this

mix, two in particular have cultured

a functioning domestic FX market

insulated by regulatory oversight -Chile and Peru.

Regulation in particular has long

been an area of contention for FX

market participants, capable of

pushing or pulling brokers to spe-

cific regions or countries, with the

United States and New Zealand be-

ing two recent examples. A num-

ber of Latin American countries

have made major gains on the

Latin America is an

emergent, untapped

resource with countries

such as Chile and Peru

becoming increasingly

developed in terms of FX

infrastructure.

In this article, Forex Mag-nates will investigate the

present state of entry into

Latin Americas FX mar-

kets with an emphasis on

Chile and Peru.

By Jeffery Patterson


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As volatility increases, so do

the dynamic moves that

can be observed on the

market. This attracts further market

participants, and consequentially, a

larger turnover. But what exactly is

volatility? A standard encyclopedia

entry describes it as: a measure for

variation of price of a financial in-

strument over time. Historic vola-

tility is derived from time series of

past market prices.

Can Volatility Be Forecast?

In practical financial terms, vola-

tility provides an explanation just

how much the price of an underly-

ing instrument changes in a given

time frame. Periods of increased

volatility attract market participants

as it creates the opportunities toexploit sudden price fluctuations.

Periods of lower volatility keep

traders at bay, as there isnt enough

of a price change that could be

taken advantage of to make a

profit. Finally, the higher volatil-

ity is, the bigger the uncertainty

is as to how price will change.

Nevertheless, from the perspec-

tive of a broker-dealer, increasedvolatility is a positive which leads

to higher revenues. Sren Ned-

ergaard, Head of CFDs and Listed

Products at Saxo Bank explained

how volatility interacts with oth-

er elements of the brokerage: In

short, volatility create opportuni-

ties. Many of our clients are active

traders and with price volatility

comes opportunities for our clients

to enter and exit positions.

This means that more clients will

find the entry and exit levels they

are looking for, and therefore vola-

tility is correlated positively with

income for firms like ours due

to the higher trading activity, he

told Forex Magnates.

Positive correlation between high-

er volatility and growing turnover

is a well observed fact. It can be

presented in a graphic form basedon publicly available data. Forex

Magnates conducted statistical

measurements using turnover

metrics for two leading retail bro-

kers FXCM and Saxo.

The collected data was compared

to volatility in a corresponding

period of time: volatility was mea-

sured using the popular (Average

True Range (ATR) indicator, whichwas first introduced in J. Welles

Of all the terms listed in

Forexs unique vocabu-

lary, volatility is the one

with near-celebrity sta-

tus due to its standard

association with profit

and a welcome increase

in volumes.

But is it possible to fore-

cast the duration of in-

creased volatility? To

answer this question,

Forex Magnates lined

up and applied specific

technical analysis tools

to identify the tracks ofthe engine that keeps

brokers running.

By Sylwester Majewski


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It's called online trading for a

reason ,and despite the mul-

titude of financial products,

online brokers are genuine inter-

net businesses. The result is that if

technology fails, brokers risk see-

ing clients leave or even worse,never bothering to sign up in the

first place.

Answering our questions are An-

drew Budzinski, Director of IC Mar-

kets, Adam Narczewski, Regional

Deputy Director at XTB. Tom Hig-

gins, CEO of Gold-i, and Andrew

Ralich, CEO of oneZero Financial

Systems.

What would you consider as your

biggest, daily IT issues?

Andrew Budzinski: The primary

issues we face on a daily basis are

platform connectivity problems.

Typically, such problems occur

due to poor internet connectiv-

ity or router packet loss. Connec-

tion problems are more prevalent

in remote areas and in places such

as China, where there are other

factors in place. For the most part,

we are able to solve platform con-

nectivity issues through the use of

data centers spread over the world

in major cities, however, for clients

in remote locations, connection is-

sues can still be a problem. As such,we recommend clients in remote

regions use a VPS located in Equi-

nix NY4 (the same data center our

servers are hosted in).

Adam Narczewski: Most of the IT

issues are solved directly by our

systems provider - X Open Hub.

They manage both our xStation

and Metatrader 4 infrastructure.

Thanks to them, we do not en-counter major problems during

high volatility or silent days. This

way we can fully concentrate on

better service to our clients. The

current market is very competitive,

and to stay on top you can never

stop striving for excellence. This is

where our daily focus on IT comes

- mainly on development of new

functionalities, apps and tweaks to

improve customer experience.

From the front-end so-

lutions, customers trad-

ing with integrating

market data to payment

gateways and CRM sys-tems, the foundations of

online brokers are built

on technology.

In this article, Forex Mag-

nates interviewed leading

brokers and technology

providers for their input

on the challenges andsolutions for operating an

online broker.

By Ron Finberg


10/16

Throughout the Forex land-

scape, extraordinary amounts

of liquidity circulate on a

daily basis, so things have been

known to get quite intense, al-

beit on an infrequent basis. But

throughout 2014, there were plenty

of examples to that effect - from

the dramatic daily moves of the

Russian ruble of 5% to 20% north

and south round trips within a sin-

gle trading day, to sharp Japaneseyen moves associated with the

new round of extra loose monetary

policy introduced by the Bank of

Japan, the Scottish Independence

and the Swiss Gold Initiative refer-

endums, both which proved to be

non-events, this time around.

While a number of brokerages

are fully outsourcing their risk by

sending all trades to their liquid-ity providers, and some major

firms have fully transferred their

business to an agency commis-

sion based model, this is hardly the

standard practice employed across

the industry. There are a number

of brokers that choose to go the

way of the B book, and depend on

the high failure rate of traders los-

ing their deposits to balance their

dealing desks, while others even

rely on a large portion of their cli-

ents losing all of their deposits to

achieve that balance.

But lets not jump ahead of our-

selves: there is nothing that wrong

with B booking as long as it is done

fairly and clients are not directly

targeted with bad spreads, slip-

page or the like. The return on the

flow of such brokerages can be

much higher than a simple Straight

Through Processing (STP) model,but only if it is buffered by an ap-

propriate risk management tactic.

So how can risk be managed prop-

erly on the marketplace and what

challenges are facing brokerages

that run their own desks?

Forex Magnates contacted two

industry risk management spe-

cialists with proven track records

- Carl Elsammak CEO and Head ofTrading at Kammas Trading and

Jeff Wilkins, Managing Director of

ThinkLiquidity, to hear their take

on why they started to provide risk

management services to brokers -

and on the other hand, what perils

lie in store for brokers attempting

their own risk management.

The first challenge they need to

accept is to choose to run their

own book. The prevailing opinion

Just what are those

Black Swans that can

crush a brokers book

- and what poses the

greater challenge to bro-

kers - extreme volatility

or no volatility at all?

While FX is perceived asvolatile per se, there are

exceptions to the rule.

Forex Magnates presents

the setbacks and solutions

associated with unexpect-

ed event management.

By Victor Golovtchenko


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Shareholders and Funding:Public

Investments and M&As: Data at the end of the report

2013 Profit Before Taxes:194.7 million

2013 Profit Before Taxes: 192.2 million

Q1 2015 Global Revenue:86.6 million

Market Cap: $2.25 billion (as of Sept 23, 2014)

Estimated monthly Retail Volume: $180 billion

Number of Clients: 126,100 financial clients (CFDs, Indices, etc)

Regulation: UK FSA, ASIC, NADEX (daughter subsidiary) - CFTC

Company Name:

Status:

Public (LSE:IGG.L)

News for the Past Quarter:

Year Established:

1974

You Can Now Buy IG Group Shares in the US on the OTC Markets Group Platform

Bitcoin Is Back at IG Markets Ladder and Sprint Binary Options Launched

IG Group Holdings Plc on Track for Record Quarter, Shares Hit Record Highs

IG Group Holdings PLC Details FINMA License, Swiss Bank and Securities Dealer Now Official

IG Group Announces 9% Decline in Global Revenues, Obtains Swiss Regulation


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IG Groups Share Price in the Past Three Months (p)

IG Groups Financial Performance in the Past Five Years:


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Set to launch in 2015 is Invest.com, a new investing related site. With stillundisclosed plans of their operations, the startup made headlines with

release that the invest.com domain had been purchased for $5 million,

making it the richest domain deal in the industry. Invest.com is backed

by Singulariteam, an Israeli based VC Fund with investments in digital

startups including Yo! And Mobli. Also part of Singularteams portfolio is

Stox.com, which is believed to be related to the Invest.com initiative. In

advance of the launch, Invest.com has been forming its executive team

which includes long term members of the retail forex industry.

Industry Domain SaleRecord as Invest.com

Goes for $5 Million

FXCM is always on the lookout for a Groyse Metsia (for non-New York-

ers that means hug bargain). On their most recent earnings conference

call discussing Q3 2014 financials though, CEO Drew Niv commented that

although the broker was in discussions with several parties about a major

acquisition, a return of forex market volatility had pushed industry valua-tions above offers from FXCM. In replace of a major deal, an announce-

ment was made of a $50Mln share buyback, which they believe is the best

use of their cash hoard to improve shareholder value.

FXCM Shelving M&A

Plans as Volume In-

creases Bolster Industry

Valuations

A year-plus long investigation by global regulators into the business prac-

tices of major FX bank dealers has resulted in billions of dollars of fines

being levied. In total, the US CFTC, UK FCA, and Swiss FINAM issued $3.38

billion of payments against UBS, HSBC, Citibank, RBS, and JP Morgan.

The penalties were in response to evidence of price collusion of FX trading

taking place among traders at major banks. Further penalties are expected

to be issued when investigations concerning other major dealers such as

Deutsche Bank and Barclays take place. Banks have also become vulner-

able to litigation from clients who have begun to form class action lawsuits

in regards to orders transacted by guilty traders. For an industry where

margins have contracted over the last three years, the fines add another

layer of net income reductions which are expected to impact the workforce.

$3.38 Billion in Fines

Handed Down By FCA,

CFTC, and FINMA in FX

Fix Scandal


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The Forex Magnates London Summit started off with a bang with thelaunch of ten new products at the Innovation Stage session. Among thepresenters were five startups that introduced their products publicly forthe first time. Starting the presentations was Centroid Solutions, whodemoed their new risk management solution aimed at small to mediumsized MetaTrader 4 brokers as an advanced monitoring system to theMetaTrader 4 Manager. Next was Normann, a social behavior trading plat-form interface where traders enter orders but dont control size of tradesto limit negative emotional behaviors. Following was Qubitia, with a cloudbased strategy development and deployment system for non-program-mers. Winners were Tradimo Play for its upcoming Trade Hero gameapp, which is designed to educate new investors. They were followed byExgate, who launched an end-to-end bitcoin trading offering includingliquidity, integrated bitcoin wallets, risk management and a MetaTrader 4white label.

Trade Game and Bit-

coin/MT4 White Label

Lead List of London

Summit ProductLaunches

During November, Saxo Bank announced that it will finally be offering a

No Dealing Desk (NDD) account execution for FX, as well as a more in-

tegrated MetraTrader4 (MT4) solution which will provide clients with a

choice of pricing structures and access to non-FX instruments. The twin

releases are part of expansion of execution services and products initi-

ated by Saxo Bank which began with the launch of their social trading

platform, TradingFloor in January this year. Commenting on the launch,

Neil Browning, Senior Director of FX Sales, said: As Saxo experiences an

increased demand for flexible solutions, we are presenting these new ac-

counts for our clients to empower them with the opportunity to choose

the combination of platform, pricing and market access they believe best

suits their own trading style and needs. Being a trusted service provider,

we continue to provide new opportunities for our clients, as we strive to be

the facilitator of choice.

No Dealing Desk Trad-

ing Comes to Saxo Bank

Hello Markets gains CySEC regulation as it aims toprovide a licensed platform for its binary options

brokers partners Integral launches FX Yield risk

management platform as they bolster tools for mar-

ket-making, redistributing liquidity and monitor-

ing client order flow Software AG and Fluent Trade

Technologies partner to roll out a new FX surveillance

software and feed handler targeted to prime brokers

and buy-side funds

Catch up on our othermajor articles from

November:

forex magnates q4 2014 industry report preview

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