We’ve been saying this for some time now. We predicted it more than a year ago and we are now seeing the changes in the financial trading industry take place. The sector is becoming much more competitive, regulation is getting stricter and acquisition costs are rising.
Brokers are consistently looking for ways to cope with these changes and manage their businesses to succeed in a market that promises to be entirely different in a few years from now.
The most concerning part of it all is that the changes are far from over and those brokers who fail to see the big picture and take action to refocus, will see themselves forced out of the market.
Let’s first take a glance at what is happening in the binary options and FX markets in the EU:
In recent months, there have been impactful changes in regulation throughout the European Union and in particular in CySEC, a hub for many binary options and Forex companies.
We have seen changes affecting the financial sector across the board, establishing new guidelines and imposing stricter enforcement over Forex companies, liquidity providers, call centers, portfolio managers and more. Forex companies have faced hefty fines and entered into settlements worth several hundreds of thousands of euros.
Rules regarding the operation of call centers have become stricter. Regulators across the globe are systematically targeting binary options companies, who are finding it increasingly difficult to maintain a competitive edge and grow.
The pressure currently being experienced by financial trading brokers is causing the structure of the brokerages and the entire landscape of the industry to shift dramatically.
What about the binary options market in the US?
The US has banned binary options companies from doing business within their borders, however, some companies have continued to operate outside of the framework of the law.
Rumors have begun circulating during the past few weeks about investigations being opened by the SEC, as an effort to establish a stricter enforcement of the field and crack down on unregulated binary options brokerages.
There are several key trend changes which are just the tip of the iceberg.
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We saw this phenomenon in the gaming industry a few years ago as US authorities, in an attempt to clamp down on internet gambling, arrested the heads of several gaming companies upon their arrival in the US. How long will it be before binary options brokers have to think twice before visiting the US?
With the above mentioned changes taking effect, what will be of the financial trading market?
Trend change #1: Non-regulated companies will exit the market, after finding it increasingly difficult to acquire traders’ trust and cope with regulators’ clamp downs.
Trend change #2: We have been seeing, and will continue to see consolidation amongst brokers. We will see less, but bigger players dominate the market.
Trend change #3: in order to hedge their risk, binary options companies have begun exploring the possibility to expand or completely shift their business models to Forex. Brokers can use their existing call centers, marketing departments, providers, etc and add a suite of products to target a new breed of investors interested in Forex
Trend change #4: Binary options companies will be forced to change their methods of operation and will soon have to stop operating under the market maker license as they have been doing in the past.
Trend change #5: According to the latest consultation paper released by CySEC, call centers will be required to operate from within the EU, or else hold €1,000,000 of their own funds as security. This new guideline will affect binary options and forex brokerages dramatically and will make it impossible to continue to operate for some.
For those brokerages who decide to continue to operate from outside the EU, tech providers can help them compensate for the added expense by lowering their operating expenses with automation tools. Stable and efficient automation tools that assist in the conversion and retention process not only increase their C&R rates, but also decrease the number of sales personnel required to operate their business.
Trend change #6: Technology providers are becoming more cautions and shying away from providing services to unregulated brokers, especially those operating in the US without a license.
Trend change #7: Tech providers are adapting their suite of products to serve brokers who are shifting their business models from binary options unto FX.
These changes are only the tip of the iceberg. We will continue to hear a lot more about these changes in the upcoming weeks and months.
As brokerages try to adapt and cope with these changes, it is the responsibility of tech providers to develop on-going, clean solutions in the form of automation and regulated products, as well as solutions to help them make the switch from binary options to FX.
As the market continues to evolve, the role of tech providers becomes more and more crucial for brokerages trying to compete and succeed in this changing and challenging market.