2011 was a very eventful year in the retail forex market. If anything, 2011 was the year of the regulator.
Regulators worldwide have stepped up their forex requirements and enforcement finally pushing the market into aggressive consolidation as expected. Most vocal of them all were NFA and CFTC. CFTC required all brokers worldwide to either register with it or stop accepting American clients. Many firms still kept accepting U.S. clients — and paid dearly for that as CFTC sued 14 forex firms at the beginning of the year and then 11 more for failing to comply with its various requirements or for accepting U.S. clients. NFA didn’t stay far behind and enacted additional requirements while suing brokers like FXCM for millions for various breaches of its requirements. NFA also launched an extensive inquiry into all forex brokers, trying to find out whether there are more deficiencies. Results of this inquiry will probably be announced early 2012. The latest CFTC/NFA drama has also lead to many brokers exiting the U.S. — dbFX and IG Markets were just a few.
MF Global was the largest broker dealer to go bust after Refco, reminding of that painful incident in many ways. Over half a billion dollars in client funds are still missing with CFTC, SEC and even the FBI involved in the ongoing investigation.
On the legal front, FXCM and FXDD were slapped by class action suits, but these suits haven’t resulted in anything yet. BNY Mellon and State Street have been battling it out with institutional suitors over allegations of unfair currency pricing. While BNY Mellon settled with some suitors, there are still quite a few others out there claiming they were charged not actual deal rates, but the day’s highest and lowest.
Retail forex volumes kept growing throughout the year, especially during March (Japanese tsunami) and September (European zone uncertainty) but not as fast as during previous years. Total monthly retail forex volume, according to a Forex Magnates survey of brokers, was $4,777 billion. Japanese volumes which used to account for about 50% of global forex volume kept shrinking in the past two years due to forced leverage reduction but the local market, which is home to no less than 85 brokers, may still rebound. FXCM emerged as world’s largest forex broker in Q3 mainly due to acquisitions.
Indeed FXCM was one of the most aggressive acquirers in the market, acquiring no less than 3 major businesses during 2011 – UK’s ODL, Japanese GCI and Foreland. Gain Capital slowed down its acquisitions pace and only acquired dbFX’s clients base while losing the Interbank FX deal to TradeStation, which itself was acquired by the Japanese Monex Group. Saxo Bank made several interesting deals by acquiring the EuroInvestor portal and buying a quarter of Leverate.
2011 was also the first full year of public forex brokers – both FXCM and Gain went public during December 2010. 12 months later it seems that the IPO hasn’t benefited investors in the stock nor in the image of forex brokers. Maybe it was related, or maybe not, but FxPro’s scheduled IPO in London was canceled later that year. FXCM’s stock price lost over 30% since the IPO while its year’s low was even lower than that, losing as much as 40% from the original price at one point. Gain is in almost the same situation, losing over 40% at one point and now trading at about 30% lower than the original IPO price.
Financial markets will not be so favorable toward the next forex broker trying to go public, be that Alpari, OANDA or FxPro.
Binary Options became the latest hot product in the market and although it’s just a niche of the retail forex market, the competition is already heating up. Three binary options software providers are competing for dozens of brands — some of which are already making millions a month while others, mainly due to insufficient marketing budget, are struggling. GFT was the first of the major forex brokers to adopt the new product — though using its own software.
With the U.S. and Western Europe being severely overregulated, Japan has become the most interesting hub for foreign brokers and software providers. FXCM, Ava FX, OANDA and Alpari have all acquired local brokerages to gain access to the local market. Software providers like Boston Technologies, Leverate, Gold-i, SpotOption, Tradologic and MarketsPulse have all increased their presence there as well, as both MT4 and Binary Options are getting more and more popular in this world’s largest forex market.
In the social and media Forex arena there has been a lot of growth as usual and there are dozens of new websites launching every month. These sites typically copy one another’s looks and content and rarely stand out from the crowd. In this way they are very similar to the brokerage business — most of the traffic is controlled by the first ten websites while the rest control the remaining 20-25%.
Several new social forex networks have emerged, but for now there is little traction and the market certainly doesn’t live up to its expectations. Currensee, FxStat, marketsbook and fxjunction all compete in this crowded market segment while brokers are not quick to embrace the new technology. It’s worth noting that eToro’s own OpenBook is quite successful, while Interbank FX and FXOpen white labeled fxjunction and FxStat’s solutions respectively.
Myfxbook and Forex Factory are going head to head in the forex stats publishing arena. Myfxbook still has the upper hand but FF’s Trade Explorer is giving it a decent fight with quite a few enhancements launched lately.
ForexPros overtook all other forex media websites and is now the largest forex website in terms of unique visitors by far. The top five media websites – ForexPros, FXStreet, mataf.net (now forexticket.com), dailyfx and forexfactory are far ahead of the other websites and the gap between them and all the others is expanding.
Click here for all the volumes, detailed country reports, industry analysis and more in the premium Forex Magnates Quarterly Reports
Retail Forex Volume
What is found below is the most complete retail forex volumes survey and estimation that has been compiled in recent years. This survey is the result of discussions and surveys made with hundreds of brokers, liquidity and software providers and other market participants. Although this figure is not perfect, it is as accurate as a survey of this very private market can get. This survey humbly started in Q2 2009. Two and a half years later, it encompasses all significant brokers out of a list of several hundred that operate in this market. For the first time, this report also includes the little-known Russian, South Korean and Japanese markets. The total of about 500 micro and small brokers are aggregated into one estimated number. Forex market in 2011 was growing throughout the world except Japan. Volumes in Japan kept shrinking from quarter to quarter mainly due to imposed leverage restrictions (maximal leverage now is 1:25) and due to low Yen’s volatility.
The overall result: Q4 2011 Retail Forex market volume is $217 billion daily and $4,777 billion monthly.
Top 15 world’s largest forex brokers and total volume for the whole retail forex market
|City Index/FX Solutions||75||3.4|
|South Korean Brokers||30||1.4|
|Japanese Brokers 1761||1761||80|
|500 small brokers 275||275||12.5|
|Total (all brokers)||4777||217|
Leverage reduction in Japan has caused its overall market share to decrease from 45% in Q2 2011 to 37% in Q4 2011; still an
Without any doubt, turbulent times are ahead, and with them continuation of the perhaps short-term trend of volumes growth. What’s mostly driving volumes now is not organic growth, but markets volatility. U.S.-based forex accounts are hardly growing and the only way for American brokers to increase their client base is to acquire foreign brokers. Having said that, it is highly likely that the current volumes growth trend is likely to continue for at least several more quarters. The Japanese market is much dependent on JPY’s volatility and contrary to our estimates didn’t grow in Q4 2011. If this continues in 2012 Japan’s market will soon lose its position as world’s largest forex market.
Major news that dominated the 2011 year
CFTC sues 14 foreign forex firms for accepting US clients
- EuroForex Development LLC, a Delaware LLC;
- FIG Solutions Limited, Inc., a Delaware corporation;
- ForInvest, a Delaware corporation;
- FXOpen Investments Inc., a Delaware LLC;
- FXPRICE, a Delaware LLC; GIGFX, L.L.C., a Delaware company;
- InovaTrade, Inc., a company with purported offices in Florida;
- InstaTrade Corporation d/b/a InstaForex, a British Virgin Islands company;
- InvesttechFX Technologies, Inc., a Canadian corporation located in Toronto;
- J&K Futures, Inc., a company with purported offices in California and New York;
- Kingdom Forex Trading and Futures, Ltd., a Nevada company;
- Prime Forex, LLC, a Delaware LLC;
- Wall Street Brokers, LLC, a Delaware LLC;
- ZtradeFX LLC, a Connecticut LLC.
eToro Completes $8.3 Million funding, launches Market Leaders program
Interesting that when Currensee raised its own war chest about a year ago, the funding round immediately preceded an announcement about the launch of the Trade Leaders/Market Leaders programs. I guess the investors see these programs as groundbreaking features and thus as worth the financing.
eToro takes on funding from Spark Capital and existing investors to fuel explosive growth, expand internationally and evolve its social investment network.
MB Trading to pay for limit orders on its ECN
MB Trading Futures announced that it will begin paying $1.95 per $100,000 in currency executed for Forex limit orders posted that add liquidity to its FOREX ECN.
”This is a game changer for the retail FOREX industry and the next logical step for our FX ECN,” CEO Ross Ditlove stated. “Paying for limit orders continues the drive to a fully transparent and efficient retail FOREX market place. It rewards our retail clients with lower trading costs and deeper liquidity.”
On March 31, 2011, MB announced that it paid out over $100,000 to its clients.
NFA to investigate all forex brokers for unfair trading practices
After discovering that Gain Capital was using a Virtual Dealer plugin that had unfair trading settings, the NFA started suspecting (rightfully so) that all other brokers do the same. NFA then launched an investigation involving all U.S. forex brokers in order to find out whether they cheat their clients.
The National Futures Association says it will begin analyzing trades executed by its 16 member forex firms. The regulator will search for signs these firms are designing computer systems to take advantage of what’s known in the industry as “slippage” — small price movements that happen between the time a customer orders a trade and when that trade is actually executed. While some slippage is normal (currency prices naturally fluctuate 24/7), the NFA will be looking to see if trades are being executed only when the currency price moves in the firm’s favor. This would indicate a firm may be violating NFA rules mandating fair business practices, says spokesman Larry Dykeman. The group can then assess fines, and in some cases may suspend or expel a firm from membership in the organization.
Oanda launches Metatrader 4
Oanda is the largest forex broker to add Metatrader 4 to its available platforms. Unlike most brokers, Oanda has customized MT4 by itself and plugged it to its own liquidity providers. It seems that no broker is prone to client requests for offering this platform and GFT was the latest broker to succumb to Metatrader’s overwhelming power. The latest rumor has it that Saxo Bank is also working its way into offering MT4.
Click here for all the volumes, detailed country reports, industry analysis and more in the premium Forex Magnates Quarterly Reports
Trade Explorer – New tool from Forex Factory
Forex Factory has gone ahead and released its much-anticipated Trade Explorer interface. Just like all things Forex Factory, it is done with a minimalist design and useful features. Trade Explorer is an online interface that connects with your MT4-based brokerage account to put hundreds of metrics and over 60 graphs at your fingertips. Explorer not only helps you evaluate your historic trading performance, but it automatically synchronizes with your brokerage account to give you real-time analytical capabilities.
FXCM faces two investigations for alleged securities law violations
It seems like many parties were waiting in line for FXCM to go public, as now there’s a plethora of lawsuits against the forex broker. Morgan Business Trial Group launched a class action suit against FXCM a couple of weeks ago and now two more investigations of FXCM were announced. This time both investigations focus on FXCM’s IPO itself and investigate claims on behalf of investor allegations that certain statements issued by the company regarding FXCM’s business, operations and financial performance were materially false and misleading. This is due to Citi’s earnings downgrade for FXCM’s stock price from $18 to $14, only 3 months after the IPO. On the day of the downgrade the stock fell 14% and many investors may have felt that the IPO price did not reflect the actual financial status of the company.
Since this was announced one of the investigations evolved into a class action suit.
FXCM slapped with class action suit over alleged racketeering and fraud
The plaintiff, William H. Sanders, claims to have lost over $150,000 to FXCM over the years. The two main topics the lawsuit deals with are the demo accounts and execution tactics. Demo accounts serve to attract clients (while not simulating real market conditions) and when clients do switch to a live account they receive a completely different execution. The other point of contention is the execution itself, where it is claimed that FXCM is in fact a market maker which actively goes after profitable clients.
FXDD slapped with class action suit as well
Morgan Business Trial Group has announced that after suing FXCM it has sued FXDD as well. Details of the case are similar to FXCM’s. The basis of the complaint is the allegedly aggressive and misleading marketing by FXDD, as well as that FXDD is in fact a market maker which goes after its clients and doesn’t STP all orders as it claims. The plaintiff Hugo Cruz has allegedly lost almost $300,000 due to these practices. As in the FXCM case, the suit alleges that FXDD has defrauded thousands of customers using deceptive and unfair trade practices, including falsely portraying its forex trading platform as “transparent,” when instead it is a “rigged game,” designed to systematically separate customers from their money.
Gain’s Q4 and full 2010 financial results
- Record Net Revenue of $189.1 million; growth of 23.4% compared to 2009
- Net Income of $37.8 million (Diluted EPS of $1.00); net income growth of 35.0% compared to 2009
- Adjusted Net Income(1) of $33.9 million; growth of 28.9% compared to 2009
- Record Client Assets(2) of $256.7 million at December 31, 2010; growth of 28.4% compared to 2009
Click here for all the volumes, detailed country reports, industry analysis and more in the premium Forex Magnates Quarterly Reports
FXCM Announces Fourth Quarter and Full Year 2010 Results, acquires GCI Japan
- Full year revenues of $360.3 million, up 12% compared to 2009
- Adjusted Pro Forma EBITDA of $120.5 million, up 16% compared to 2009
- Adjusted Pro Forma net income of $69.6 million or $0.92 per fully diluted share, up 13% compared to 2009
- On March 31, 2011, announced that it completed the acquisition of its GCI Capital, its Japanese franchise
Saxo 2010 profits soar, signs Barclays as a white label, censured by Dubai FSA
It seems Saxo not only maintained its strong profitability from the first half of 2010 but has actually grown way beyond industry averages. If public brokers like FXCM and Gain reported earnings higher by 16-23%, Saxo has managed to actually triple its net profit. Not only that, but between the pages you can find that Saxo has managed to sign Barclays as a white label partner. Barclays will join the likes of Citi and even Microsoft, who already lease Saxo’s solution. It seems Saxo, who was going through some rough patch back in 2009, has completely rebounded, rebranded and all but positioned itself as the banks’ retail forex platform of choice.
Saxo was later on censured by Dubai’s FSA for AML and client take-on failings.
Multiple suits against banks for price manipulation
One cannot ignore the flurry of suits and class action suits against major banks for manipulation of forex prices to increase gains. State Street was among those sued the most by several pension funds and so was BNY Mellon. It seems it’s just a start. As more and more of these suits are announced, more clients will start checking whether they were fed honest prices or not. These prices may have seriously affected the end of year results of some funds.
State Street managed to quickly settle with one of its suitors.
ForexYard acquired by the ever-acquiring SafeCap Investments
SafeCap Investments continues to exercise a strategy that is right for a serious broker entering this market so late — acquisitions, acquisitions and more acquisitions. While this deal was announced on Forex Magnates Linkedin group six months ago, it seems it has taken the companies quite a while to actually complete the deal and officially announce it.
Looking back you can see that SafeCap has been looking for a steady direction since its inception. Not being really focused, it first launched as 3gforex (early 2009), then rebranded as GFC Markets, afterwards acquiring Finexo (in a deal they are rumored to be regretting today), then rebranding again – to markets.com and now it’s the ForexYard acquisition.
More data about FXCM/ODL, Gain Capital/CMS Forex and ACM/Swissquote deals
Following the lodging of more updated pre-IPO documents, we are able to gather more data about how these deals were structured.
Eventually FXCM paid $2.2 million cash and gave 5.25% of the company for ODL, which was valued at over $50 million. Gain Capital paid $8 million cash and 15% of future net profit for $32 million worth of CMS Forex clients’ assets.
Swissquote paid about $45 million for ACM, receiving 6,500 clients and $120 million in client assets.
Saxo Bank becomes the first to enter Brazilian market
Saxo Bank just made another major step in its ongoing expansion – it entered the very attractive but highly regulated Brazilian market and will now offer direct online futures trading including the USD/BRL cross. The Brazilian market, just like the Chinese and Indian markets, is very closely regulated and it’s not a free economy in the sense we understand it. Entering this market is next to impossible, certainly for Forex brokers. Forex brokers operate there just like in China and India — under the table, trying to avoid regulatory scrutiny. Local regulator CVM is closely monitoring the situation and is battling foreign brokers much more effectively than its peers in China and India. That’s why entering this market is simply priceless for any broker. More than getting a share of the market, Saxo Bank gets to be there among the very first putting it in a pole position to be a major, if not the largest, player.
GFT launches MT4, the latest broker to do so
GFT is the latest broker to start offering MT4, which basically leaves only Saxo Bank as the last non-MT4 broker standing. Much has been said about MT4 taking over this market slowly but steadily, so there’s really not much to add here. Just as the current wave of revolutions in the Middle East, MT4 taking over large brokers is a people’s revolution. It is only due to the demand from traders themselves that many brokers willy-nilly have chosen to add MT4; it is because you can’t fight the crowd forever. Sure, they prefer their own platforms for obvious reasons, but when this stands in the way of getting more traders, they cannot resist.
dbFX exiting the U.S. market
In a very surprising move, Deutsche Bank, a very large forex liquidity provider and one of the few “retail fx banks,” has announced that it is ceasing to offer dbFX (its retail forex arm). This effectively leaves forex traders with only one forex bank trading option — CitiFX Pro. Gain Capital is the big winner here as it acquires client assets (of those who will agree to this move) of dbFX’s current clients while FXCM loses what’s probably its largest white label. In the latest chapter of the battle between the two largest U.S. forex brokers, Gain Capital takes the upper hand.
FXCM Announces First Quarter 2011 Results and April Monthly Metrics
- 2011 first quarter revenues of $94.7 million, up 23% versus the same period in 2010
- Adjusted Pro Forma EBITDA of $25.5 million, up 2% versus the same period in 2010
- Adjusted Pro Forma net income of $13.7 million or $0.18 per fully diluted share, down 7% versus the same period in 2010
- Customer equity of $775.1 million, up 100% from same period in 2010
- Active accounts of 139,900, up 15% from the same period in 2010
- Completed the acquisition of FXCM Japan, Inc., the retail FX business of GCI Capital, a FX provider in Japan with over 17,000 active accounts and $114.0 million in customer equity
- Declared a quarterly dividend of $0.06 per share of Class A common stock
Gain Q1 2011 and 2010 financial report
Gain Capital, just like FXCM, has just issued its report for the first quarter of 2011. Just like FXCM, Gain too has experienced a spike in traded volumes — it now averages $170 Billion/month in the first quarter, 30% up from the 2010 averages, although this number includes both the retail and the institutional business. Retail Forex trading volume of Gain Capital was left almost unchanged — averaging $134 Billion in the first quarter of 2011 while what really increased is its institutional volume — over Gain GTX platform.
We also finally have some interesting figures regarding the acquisition of dBFX’s client base – Gain managed to add $55 million in assets through 1,650 clients. This means that average dbFX client transferred to Gain had an average of $33,300 deposit, which is more than three times Gain’s average account size. This is simply a huge addition to Gain’s existing client assets base of $283 million — increasing it by almost 20%.
SEC is probing State Street’s Forex prices
State Street Corporation (the parent company that owns Currenex) is now being investigated by the SEC with regard to its foreign exchange pricing. The issue at hand is the foreign exchange pricing that State Street used when providing custodial services to several government pension plans. State Street has previously settled with the Washington State Investment Board for $11.7 million.
Claims against it from Arkansas Teacher Retirement System and the California Attorney General’s office are still ongoing. These are similar to suits against Bank of New York Mellon Corp. Because of the OTC nature of the currency market, I think it is important to choose a counter party that is regulated, credible and respected.
Gain goes back to China
Now that’s a surprising turnaround: Gain Capital had a major issue with China’s regulations back in 2008-2009 which severely affected its profitability — as a direct result of that, Gain’s income in H1 2009 was $11 million less than in same period in 2008. Gain had to leave China completely, losing tens of thousands of accounts — this can be seen in details in one of the first pre-IPO documents Gain filed back in 2009. It’s surprising that given this history, Gain was given permission to operate in China, but nonetheless it seems that this time everything was done by the book, hence the official authorization.
FXstreet shaking the intimate forex portals world announcing its income
This is a level of transparency we rarely see here in our hush-hush retail Forex industry: FXstreet, one of the largest forex portals on the web, has just disclosed its record income in April 2011. Bottom line income, from all media deals, is over $515,000.
This is a run rate of over $6 million a year. It’s safe to estimate that average monthly income is a bit lower, as with all record months, and during last 12 months FXstreet probably saw an income in the region of $5 million. This is an absolutely stunning figure that even beats some of the forex brokers. Our previous estimate was that FXstreet was making around $4 million but it seems that its recently introduced strategy of going multilingual and adding affiliate sites to its media network has paid off faster than expected.
Monex completes TradeStation acquisition
On April 21, 2011, Japanese Monex Group announced that it submitted a tender offer to acquire TradeStation Securities for about $411 million. Acquiring a financial business in most countries requires a regulatory approval and yesterday it was finally given to Monex and TradeStation.
TradeStation only recently decided to enter the retail forex market by itself, as opposed to being Gain’s IB until now, and registered with the CFTC as an RFED. TradeStation had 4,873 Forex accounts with $30.8 million in Forex assets at the time it left Gain.
Saxo Bank launches a retail brand
In an interesting move, Saxo Bank decided against reducing the minimum deposit ($10,000) it requires from its investors and instead of lowering its standards decided to launch another, almost identical service which requires a much smaller deposit — $2,000. So basically you get the same Saxo award-winning platform (with fewer currency pairs and commodities) but with lower cash requirements and tighter spreads. This is an unorthodox move by all means and definitely a unique one.
FX Solutions rumored to be closing down, new CEO denies, FXDD snatches James Chen
Following the multitude of recent rumors about FX Solutions closing down in the U.S. or looking to move offshore, Forex Magnates had a chance to discuss this with FX Solutions’ newly appointed CEO – David Trew.
Oanda adds new products to the market
Oanda is the latest broker to offer new FX products after the introduction of the USD/BRL at Saxo and the Dow Jones FXCM Dollar index. Demand for emerging currencies from retail traders tends to peak during times of uncertainty, which we have seen a lot of in 2011. Traders want to take advantage of volatility generated during uncertain times or earn interest using the carry trade strategy. While Oanda is not the first broker to offer traders access to these pairs, traders at Oanda will be able to take advantage of Oanda’s unique second-by-second rollover interest policy. An attractive feature of exotics: rollover paid out tends to be higher in exotic currencies.
FXCM launches dollar index product
FXCM Inc. (NYSE: FXCM), an online provider of Forex trading worldwide, has collaborated with Dow Jones Indexes, a leading full-service index provider, to develop the Dow Jones FXCM Dollar Index. FXCM will launch a tradable basket on the index. Forex Magnates took this opportunity to interview Drew Niv, FXCM’s CEO.
Saxo Bank acquires 25% of Leverate for $12.5 million
Saxo Bank, one of the largest global forex brokers, has acquired a 25% stake in Leverate, one of the largest MT4 and other Forex software and integration providers. Details were not disclosed, but Forex Magnates sources reveal that Saxo bought 25% of the company for $12.5 million, probably part investment in the company and part payout to existing shareholders. This is no doubt a pretty steep valuation for a company making about $4-5 million in income a year (not sure on the net bottom line). But this is also a strategic investment and acquisition of technology in the longer term.
TPG Capital acquires 30% of Saxo Bank, valuing it at $1.87 billion
TPG Capital, the private equity firm started by David Bonderman, bought a 30% stake in Denmark’s Saxo Bank A/S, and plans to expand the asset manager and online trader in emerging markets. Several longstanding Saxo Bank investors such as General Atlantic were looking to liquidate their investment for a while now and there were several reports of deals almost complete in the past few months. It’s interesting to note that TPG didn’t buy out the full 30% General Atlantic holds or bought this block of share from the owners, who more than once were rumored to be looking to liquidate some of their holdings, but from several various investors such as General Atlantic, Banco Espirito and others.
Saxo Bank reported solid H1 2011 results last week with operating income being $343 million and net profit of $67 million.
OANDA acquires a Japanese broker and establishes OANDA Japan
OANDA, which has been one of the most “silent” large forex brokers, has finally made a big move by acquiring a small Japanese broker and establishing its presence in Japan. OANDA has just announced that it acquired Japanese MyGaika brokerage back in October 2010 and subsequently renamed it OANDA Japan. Forex Magnates found out that MyGaike was established as Livedoor FX, a subsidiary of Livedoor – one of Japan’s biggest IT companies. Apparently Livedoor had some problems with Japan’s FSA which led to Livedoor FX (MyGaika) being not in the best financial position.
Looking at OANDA’s CFTC capital reports, there isn’t any significant change in its capitalization. However, there’s an $18 million drop in its capital in February 2011 which may or may not be related to this transaction.
Turkish regulator paves the way for Regulated FX
The financial regulator Capital Markets Board officially issued its first template on Spot FX on its website on July 20, 2011. This hails one month before the deadline given by parliament to CMB to finalize rulings on the FX Market. The draft is under immense scrutiny, as all market participants are keen to give their feedback.
Daily volumes are reaching in excess of $18 billion in Turkey. The FX Market has been attracting much attention due to its sheer size and aggressive and misleading advertising. Retail clients were inundating CMB’s phones with complaints about their dealings with local FX Brokers. Moreover, non-regulated active companies had also disinclined the potential clients with cold calling and made them understand the market as a money-making “machine.”
Interbank FX becomes first U.S. broker to offer social network to clients
Interbank FX announced the launch of IBFXConnect, its social trading network. We see forex social networks as the next battleground for Forex brokers to win over traders from other brokers. IBFX here took FX Junction’s technology, in a reverse white label.
NFA fines FXCM $2 million for slippage malpractices, FXCM will credit clients back
NFA has just announced that it heavily fined FXCM for slippage malpractices. FXCM will pay $2 million directly to NFA and will compensate all customers who suffered from this practice since June 2008. The details of this case are not very different from the similar fine of $459,000 that NFA imposed on Gain Capital for using the Virtual Dealing plugin and similar slippage settings. According to FXCM’s own estimate, it will pay $8 million more directly to clients.
FXall files for an IPO
FXall (FX Alliance), part of the big 5 in institutional forex, is joining hands with the elite listed FX brokers by announcing its application with the SEC proposing an initial public offering.
During the past five years, the average daily trading volume on its platform, calculated by counting one side of a transaction, has grown from $37.5 billion in 2006 to $62.3 billion in 2010, representing a compound annual growth rate, or “CAGR,” of 13.5%. In the first half of 2011, its average daily trading volume further grew to $81.4 billion, representing approximately 2% of the global FX average daily trading volume during the same time period.
For the twelve months ending June 30, 2011, Fxall generated $106.3 million in total revenues, $50.1 million of Adjusted EBITDA, $23.6 million of Adjusted Net Income and $21.3 million of net income.
FXCM acquires another Japanese broker – Foreland forex Co.
This is FXCM’s second Japanese acquisition after it acquired its Japanese franchise GCI just three months ago. FXCM paid for GCI, which had 17,000 accounts and $110 million in equity, just $5 million. Foreland has almost double the equity on a similar number of accounts and therefore we can estimate that the price was a little over $10-12 million (FXCM paid relatively less for GCI due to its franchise relationship). Apparently Japan is no less lucrative now than it was before the leverage reductions of the last two Augusts and many Western brokers are keen to enter this market (OANDA, Alpari, AVA Forex and others). For American brokers, even the bigger ones like FXCM who either lose money or don’t make much in their U.S. subsidiaries, the only way to grow and offset these huge expenses is through foreign acquisitions and growth of a non-American client base.
FxPro starts releasing its trading metrics
The new trend for the bigger FX brokers seems to be publishing trade figures (usually very sensitive). Alpari announced figures in 2010 and there has been talk of it looking to go public; however, it only released figures on volume and number of clients. FxPro has taken this a step further by beginning to publish its operational metrics including volumes, number of clients and earnings.
August 2011 was a record month for FxPro with volumes reaching $115.4 billion, 57.6% higher than August 2010 and 18.5% higher than July 2011. Trading from Asian clients continued to grow, contributing 49% of volumes. European clients contributed 35%. FxPro had 18,158 tradable accounts at the end of August 2011.
CFTC sues 11 more firms for accepting US clients
After suing 14 forex firms early this year CFTC has now sued 11 more firms for accepting or soliciting U.S. retail forex clients (acting as an RFED without being registered as one). Amazingly, among many unknown firms in this list, there are two very known and established firms: City Credit Capital and Enfinium. This is extremely surprising as both of the companies are regulated (FSA and ASIC respectively) and I didn’t expect them to take this risk.
Gain Capital reports Q3 2011 Results — Net Revenue $53.9 million
Gain just released its Q3 2011 results, which show a solid increase in revenues and improvement in net income. Retail volume was
almost unchanged from Q2 2011. Gain’s institutional GTX platform is experiencing high growth and its volumes were $260 billion in Q3 — a little more than third of all Gain’s volume.
Massachusetts posts BNY Mellon internal emails — smoking gun is there?
BNY Mellon and State Street Corp are under increasing regulatory scrutiny for alleged overcharging of their institutional clients in forex transactions. Steven Grossman, Massachusetts State Treasurer, estimated that BNY Mellon overcharged the state’s pension fund by over $20 million. After additional analysis this figure now seems to be over $30 million.
State Treasurer Steven Grossman also said he has unearthed another $10.5 million in “overcharges” to the state pension fund by Bank of New York Mellon — on top of $20 million found in an audit earlier this month.
Massachusetts State has now published exhibits related to the case that uncover internal BNY Mellon emails and where the possible smoking gun is hidden.
China Union Pay suspends credit card processing for forex brokers for at least a month
This was sent to several forex brokers and is a huge blow to them as it was one of the only few available safe methods of accepting money from Chinese clients:
“I regret to inform you that we received a formal notification from China Pay this morning regarding the suspension of processing for all the Forex business at the China Pay side commencing 1st Nov for about a month’s time.“
GFT now offers CFDs and Spread Betting Binaries
In another sign that binary option trading is one of the more interesting products out there, GFT, one of world’s largest forex brokers, now announced that it will start offering CFDs and spread betting binaries. GFT is now the second major forex broker to start offering binary trading after Saxo Bank introduced its Touch Options back in August. Just like Saxo Bank, GFT here is using its own technology and not a third party’s.
MF Global acquires Strategy Runner for $3.75m
Strategy Runner is a combination of an advanced charting package and a strategy exchange where a retail trader can pick from hundreds of trading strategies — mainly for the futures industry. It’s a very interesting deal for MF, especially given the announced price. The question is, how will dozens of Strategy Runner clients react to this news? Having met the Strategy Runner team sometime ago I can only say that MF has invested here not only in technology, but also in great people.
US Forex brokers profitability report for Q3 2011 – OANDA back on top, profitability up
Finally all US retail forex brokers have updated their profitability stats and the result is surprising — overall profitability is up. This is despite the very volatile quarter forex markets have experienced, which typically leads to high losses to forex traders. Apparently forex traders coped with this volatility better than expected.
The overall result is that most U.S. forex brokers improved in profitability, with FXCM jumping as much as 8% in clients’ profitability — perhaps with the removal of positive slippage. OANDA is now the most profitable broker, with 35.5% of its clients being profitable in the past quarter. This calculation excluded Advanced Markets, which saw profitability jump by no less than 23.8% but considering it had only 45 account, this is insignificant and skews up the data.
Overall American market growth is simply disappointing, as all U.S. retail forex combined have added only 111 accounts in the third quarter of 2011. There are 108,490 active retail forex accounts held with American forex brokers.
* – Average profitability change excludes Advanced Markets
** – Weighted change excludes Advanced Markets and is a more accurate estimate of the average change for the whole market.
FXCM Reports Monthly Metrics for September 2011 — retail volume at peak, acquires Foreland for $17 million
FXCM Inc. (NYSE: FXCM) today announced certain key operating metrics for September 2011 for its retail and institutional foreign exchange business. FXCM also announced that it completed the acquisition of the Japanese broker Foreland for $17 million. I estimated the deal to be in the range of $10-12 million.
Capital Markets Board of Turkey threatens to sue 32 forex websites – but some of them are not even operational
Capital Markets Board of Turkey announced that it is going to file a criminal complaint for the 32 forex websites that are still active after August 31, 2011 after they have released communiqué. It’s pretty much a safe bet that this is not actually going to end in lawsuits, but serves as a warning for firms either to register with CMB or quit soliciting Turkish clients. Apparently some of these sites like tr.ac-markets.com or alpari-tr.com are not even operational.
NFA keeps choking the forex industry — aggressively raises member fees
NFA is doing an amazingly effective job at spitting in the well it drinks from. In fact, NFA behaves not as a regulator, but as a controlling shareholder of its members — as it basically does whatever it wants when it comes to requirements and “membership” fees.
NFA just declared a new “dividend” for itself by aggressively raising membership fees, which for some strange reason will now be in the region of 2% of forex broker’s gross (!) revenue instead of being a flat yearly fee, which it was up until now. To the best of my knowledge, NFA is the only forex regulator charging percentage of volume and/or revenue instead of just charging same membership fee from everyone.
MSN and Saxo Bank discontinue MSN Trader
MSN Trader was an ambitious and an out-of-the-box project co-launched by Microsoft and Saxo Bank exactly a year ago. Basically Microsoft became Saxo Bank’s White Label and was offering forex, futures and CFDs. This is one of those projects that have small chances to become hugely successful and bigger chances of failing. Unfortunately for MSN and Saxo it was the latter.
TradeStation acquires Interbank FX (IBFX)
A couple of months ago I published that Gain Capital is about to acquire Interbank FX after several rounds of discussions with potential investors. In that round Gain remained the last bidder. This deal however failed at the last moment for reasons not known to me — but not hard to guess that it was a disagreement over final price.
IBFX didn’t give up on trying to be sold and today finally succeeded — TradeStation (which itself was acquired by Japanese Monex Group few months back) just announced that it reached an acquisition agreement with IBFX.
FXCM Announces Third Quarter 2011Results and October Metrics
FXCM’s Q3 2011 numbers are out and show outstanding growth in revenues. October retail forex volumes are down 8% but institutional volumes are up by 35%. For the first time FXCM also shows an average number of institutional trades a day — which is 90% higher in October comparing to September. All in all, these are solid results that might help FXCM’s stock, which suffered from several downgrades lately, to rebound.
Swissquote publishes strong results for first 9 months of 2011 – Forex volume up
In line with its semi-annual report Swissquote continues to see healthy growth in its results. Swissquote fully merged ACM operationally and into its books and as expected it fuels its growth. Swissquote’s eForex numbers are up on all parameters. Swissquote’s volume is up 7.3% to CHF 36.53 Billion a month, however dollar value is down to $41.54B due to exchange rates. eForex assets are up to CHF 130.4 million and client accounts are up 5.7% to 10,464 accounts at the end of September 2011.
Korean regulator moves to severely limit retail forex trading
On December 1, the Korean Financial Supervisory Service introduced Sound Forex Market guidelines for the purpose of considerably stepping up forex regulation in Korea. According to Korean FSS, retail forex traders have a high losing probability due to excessive leverage and insufficient understanding of risks involved.
The FSS therefore announced that it is reducing leverage to 1:10 by increasing the initial margin level to 10% from 5% and maintenance level to 5% from 3%. Hedging position will no longer be allowed as well. Furthermore, FSS will demand that securities and futures firms strengthen their risk disclosure statements, including the quarterly P/L account ratio report, and limit excessive promotion of securities and futures companies trying to attract retail users.
FXCM moves retail MT4 support in-house, keeps institutional business with BT
FXCM and BT have certainly had one of the biggest broker-software provider relationships in past years. For about three years now, BT was supplying and supporting all aspects of FXCM’s MT4 business — retail and institutional. In those three years FXCM’s MT4 became one of the largest MT4 brokers in the world — though the exact number of its MT4 clients is not disclosed. The largest brokers in the world such as OANDA and Alpari use their own in-house teams for all MT4 matters and I guess it’s a natural move for a broker that once its client base becomes big enough to move this sensitive part of its business in-house. This is what just happened with FXCM and BT as FXCM is moving all the MT4 technology business in-house. BT will continue providing FXCM with MT4 support for its institutional business.
ActForex launches FXApps – the first platform integrated forex applications store
ActForex one of the largest independent forex platform software providers has just released its FXApps store. FXApps store operates in a similar way to Apple’s App Store and can be accessed from ActForex’s platform.