Reviewing Our 2014 Forex Industry Predictions

The time has come to check how well we predicted the landscape of the forex industry in this year, from

With New Year’s quickly approaching and our 2015 predictions coming out soon, it’s time to review how well we predicted the landscape of the forex industry for 2014. Let’s put it this way, we did much better with our 2013 predictions.

Before we look at the bad, some of the areas we were right on:

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Dollar-SignKudos to Steven Hatzakis, who during his less than a year tenure of writing for us had probably the best prediction of 2014, as he went bullish on the future of the dollar as he expected more yen weakness and the EUR/USD dropping to the 1.2000’s.

Also well forecasted was Adil Siddiqui’s view that HFT would “play a strong role in FX markets both on [a] retail and institutional level.” After restricting HFT players from the interbank FX markets, major dealers and ECNs began to play nice with the buyside in 2014. This led to HFT participants now becoming liquidity providers to retail order flow and interbank ECNs via their prime broker relationships with major FX dealers.

Moving to China, Avi Mizrahi has put his sights on China where he correctly predicted that we would see more IPOs and foreign investment take place. These forecasts played out both through Alibaba’s IPO (which fueled interest in other potential firms that could go public) as well as a hot equity market.

Weekend Binary OptionsAlso predicted well was Michael Greenberg’s opinion that binary options firms would face more regulation but non-regulated brokers would continue to be the vast majority of players in the market.

During 2014, warnings about binary options were flying all over the place from global regulators. Nonetheless, new brokers continue to take the view of launching without regulation first and worrying about getting a license later.

Now to where we didn’t do so well (in defense, many of the predictions were “pushes” where the prediction may have been sort of correct but weren’t much of a big deal)

bitcoin-metatrader-600x294Bitcoin, what happened? Bitcoin trading and deposits were predicted to become an important product for brokers. While the beginning of the year saw the launch of bitcoins across many brokers, the digital currency’s price fall for much of 2014 caused interest to wane.

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IPO bubble popped? Our writers predicted more IPOs emerging from the industry. While IPO talk was consistent, it remained just that, talk, as no major brokers were able to pull off an IPO during 2014.

Michael Greenberg and I argued about what M&A would be like in 2014. I envisioned we would see a continuation of deals like GFT and MIG Bank’s sales of cash-rich brokers for small premiums, while Michael predicted synergy deals would emerge in 2014.

What we had was a few more firms selling their US books and the larger deal of GAIN Capital buying City Index. However, there lacked any single theme for 2014 M&A as the market threw a curve ball with a combination of a weak first half (that brought brokers to the brink of being sold) and a rebound in the second half.

Also not taking place were forecasts of restrictions on cross-border financial passporting in the EU through MiFID regulation. Even with the euro’s weakening in 2014, the idea never got much traction with EU officials and the ECB favoring stimulus to invigorate all economies of the EU.

In regards to margin usage, it was predicted that regulators such as those in the UK and Australia may apply stricter limitations to leverage. Although some jurisdictions like Israel and Russia created forex frameworks including limitations on leverage, nothing new was even proposed in Europe and Australia.

My non-existent forecast for 2014 (which I may recycle for 2015) was the establishment of a cross-broker central clearing system for US retail brokers. The reality is that the US retail forex industry isn’t one that the regulators really care about to spend any time initiating something like an SEF model for forex trading.

Some predictions that are still a work in progress

finma-cftc-fcaRegulations due to FX rate manipulation: With investigations still ongoing even after the initial round of fines, there is talk of new guidelines to prevent rate fixing, but it is still up in the air.

Also in regard to regulation, I forecasted more firms to be hit with fines due to asymmetric slippage. During 2014, the FCA began to investigate execution quality but has yet to issue any substantial fines.

Last, I predicted the emergence of new Asian based regional ECNs being formed. There were a few small ones such as FastMatch launching a trade engine in Tokyo, but nothing too major.

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