Four Things to Watch for This Fall

Global markets look poised to emerge out of a historic lull this fall, with several brokers and investors eying critical earnings calls and monthly volumes metrics amid personnel shakeups around the Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term industry.

1. The Return of Market Volatility - Market volatility has been at historically low levels for most of 2014. At first glance this seems strange given the recent geopolitical concerns in Ukraine and the Middle East, however this has largely failed to rekindle forex volatility, which in turn has helped handicap revenues and trading volumes for many leading brokers.

This lack of market volatility will not remain forever and a snap in this lull could lead to a ‘slingshot effect, whereby brokers’ revenues could potentially swell upwards of 30%. With the right conditions in place for a shakeup this fall, the market is likely to witness a return to normalcy in forex markets.

2. Retail Forex Metrics – Brokers’ monthly retail forex metrics have definitely improved since the start of the 2014 calendar year, which were among some of the weakest in recent memory. After H1 2014, many brokers saw retail trading volumes on the uptick, though these figures still pale in comparison to 2013 equivalents. Alternatively, Japanese brokers in particular have been unable to notch significant improvement with retail forex metrics as volatility has prevented any reversal to these trends.

According to Toshihiko Katsuya, President at Monex FX, in an interview with Forex Magnates, “In 2014, from January – June, the USD/JPY volume share has risen to 66%, the EUR/JPY is at 12%, and the EUR/USD is still at 4%. So, unless the USD/JPY volatility goes up, we will not readily see staunch rises in traded volumes in Japan.”

3. Executive Shakeups – The summer months are typically a time for vacations and low personnel turnover, however this year has been a notable exception. From both the institutional and retail side, several brokers, banks, and groups have been particularly active, both on the hiring and firing fronts. Several companies are looking to reverse low revenues and volatilities in their forex business, leading to rampant restructuring, personnel moves, etc. – public companies face an even greater challenge, namely as they have to answer to investors.

According to Jeff Wilkins, Managing Director at ThinkLiquidity, in an exclusive interview with Forex Magnates, “When revenues are decreasing, firms often look first to cost cutting measures protect net income. This often includes personnel moves as employee compensation is the largest expense item for most firms. But changes are not limited to the expense side. Firms may also adjust Risk Management Risk Management One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, Read this Term practices to try to earn more from the flow they do have. Depending on the firm, this can result in taking on too little or too much risk if not done correctly.”

Furthermore, “Another thing we are seeing is that companies are starting to look at IB and partnership numbers and making changes to the commercial structure of the relationships. These changes may not be the best for the long-term relationship, but can help in the short-term by reducing the overall fees paid by the firms. It is also worth mentioning the fact that IBs have had a feeding frenzy in recent years with the explosive growth in the number of brokers. Deals that were written for IBs over the last couple years may not make financial sense anymore,” Wilkins added.

In particular, several CEOs and executives are firmly on the hot seat to help allay sour monthly metrics and performance. In particular, Standard Chartered’s Peter Sand has been under pressure for months as the bank’s forex profits have dwindled considerably, though he is hardly the only one as everyone is curious as to when volatilities and ultimately greater profitability will return.

4. Equity Performance – The fall months have traditionally been a period of growth for the US Stock Markets, notably on the heels of nascent summer volatilities. According to Forex Magnates' researchers, the S&P has risen on average 6.52% from Labor Day (September 1) until December 31 from 2011-13.

This fall will also be crucial as lingering questions over central banking actions will also be clarified or decided, with critical decisions expected from the US Federal Reserve and the European Central Bank. While these decisions are expected to affect equity markets, the potential departure from Quantitative Easing (QE) from the Fed in particular, could really help influence foreign exchange pairs with the USD.

Finally, several notable FX companies have had uneven performances this year, with companies like FXCM (NYSE:FXCM) fighting low volumes and revenues and setting new annual highs. Alternatively, other companies like Interactive Brokers (NASDAQ:IBKR) and GAIN Capital (NYSE:GCAP) have faced lackluster years with critical earnings calls coming up towards the end of October.