2014 Forex Industry Predictions: M&A, Regulation, and Digital Currencies

Following last year’s popular 2013 predictions post, the team at Forex Magnates have come up with our newest forecasts for

Welcome to 2014. Following last year’s popular 2013 predictions’ post, the team at Forex Magnates have come up with our newest forecasts for this year.

Before we take a look at the coming year, let’s review last year’s predictions. Where we nailed it was consolidation, binary options growth, and US contraction. The most accurate of the three was M&A activity of major players which saw GAIN Capital swallowing up GFT, after being approached by FXCM themselves. Also, Swissquote’s purchase of MIG Bank put the combined firms as a potential top ten player for 2014.

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Other forecasts that proved correct were a rebound in volumes as well as greater mobile trading adoption. However, each of those predictions fell a little flat as volumes hit records, but ended the year sizably off their mid-year highs. Also, while mobile trading increasing and several brokers such as OANDA and Saxo Bank tweaking their platforms to meet mobile-only traders, the overall trend wasn’t much different than what is taking place in other industries.

Forecasts that we missed the target on, were big data becoming an industry trend, eToro making a big splash, and exchange traded volumes rising substantially. In terms of big data, it exists, people use it, but hasn’t been emphasized so much. With the exception of launching stocks (not available in the US) eToro was also pretty quiet this year. Definitely nothing like bringing social stock trading to the US like we thought. Last, exchange traded volumes rose steadily in 2013 at LMAX, but elsewhere it was a non-factor.

2014 Predictions (Drum roll please)

With the team growing, we compiled a larger list of forecasters for this year. Once again we’ll start with Michael’s picks.

  • catcoin logoDigital currencies to take bigger portion of trading and bitcoin specifically to be introduced by many brokers (more on this trend from our new creation Digital Currency Magnates).
  • Less acquisitions between bigger players. Meaning that bigger firms will pursue synergy deals instead of clear sales.
  • Binary options to become more regulated with fewer players in regulated jurisdictions and many unregulated ones. This could cause growth of the industry to slow down during 2014.
  • Stricter regulations in Europe will take place, leading to thinner margins for large and mid-tier brokers.
  • Scandals will continue with the current FX price fixing investigations enveloping a wider array of important players in the market.

Hmm… that FX scandal pick seems like a ‘wild card’ for the institutional industry. If regulators are investigating chat conversations, then it would seem valid that there is a lot of potential for the list of involved parties to be far-reaching.

Next up is one of our newest writers, Steven Hatzakis

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  • oanda logoNew regulations surrounding price discovery and Execution processes are developed in wake of FX rate manipulation – effort is multi-national via regulators cooperating.
  • Brokers start to accept bitcoin deposits, or offer bitcoin withdrawls (effectively becoming a bitcoin exchange – like OANDA once started to do with FX – with the fxGlobalTransfer service).
  • USD strength returns – Euro heads back down towards 1.2000′s , JPY further weakens, CAD reaches 1.1500, GOLD hits $1,000, and CHF counters USD strength pushing pair towards .8000, finally GBP & EUR correlation against USD diverges, GBPUSD reaches over 1.7000.
  • More IPOs as OANDA is positioning itself for a sale

We got our first directional prediction with the dollar strength opinion. Brokers probably wouldn’t complain because of the added volatility such a move would bring. In terms of a multi-national regulatory effort, outside of the EU, I’ll believe when I see it

Now to our most tenured writer Adil Siddiqui

  • Africa to develop its overall financial market, more exchanges to launch in frontier African markets, already saw growth in South Africa, new exchange in Zambia and Kenya in 2013.
  • Leverage to be questioned, and more discussions in high leverage countries such as the UK and Australia about reducing it.
  • HFT to play a strong role in FX markets both on retail and institutional level. Leading to enhancements in low latency software, messaging systems and aggregators across the board will put more emphasis on HFT auto trading

Adil is our global exchanges guy, so I’ll take his word for it about Africa

Moving from our exchange expert to Forex Magnates’ resident regulation guru, Andrew Saks

  • European CommissionMiFID rulemakers may well look at CySec closely and consider discontinuing the MiFID passporting to other EU nations. This is because the criteria for registering with CySec is fixed in terms of minimum capital requirements that aren’t dependent on the type of forex firm (although it does grow based on client asset holdings). Also, CySec may be considered by other EU regulators as too broker friendly, while continuing oversight is too lenient. Also with bank financial health in Cyprus declining, regulators from other EU countries may not want to expose their citizens to lax customer protection.

Next, Avi Mizrahi tells us his forecasts for China

  • I think we will see a lot of movement by the People’s Bank of China in the direction finance liberalization. There will be talks, if not actions, of letting the yuan float freely in the new Shanghai Free Trade Zone, allowing more IPOs in the stock markets and letting in big foreign institutional investors into the Chinese equity markets. All the news will lead to more people around the world wanting to hold the yuan and speculate on the time it will be allowed to float, and might increase as much as 30% overnight.

Seems a lot to happen in one year from China, but you never know

Last, a few of my forecasts

  • asia imageThe US and maybe a few other countries begin to initiate methods to apply central clearing for retail brokers. The institutional side has CLS which theoretically greatly reduces systematic risk, but retail clients are vulnerable to the health of their brokers. Wouldn’t be surprised to see the NFA adopt a central OTC FX exchange system with forex brokers its market makers.
  • More asymmetric slippage fall out. FXCM stated in its Q3 results that it was expecting to take a $15 million hit as a result of settling with the FCA. I believe they are just the first of many that will be investigated.
  • The BIS Survey showed the UK increasing its market share as the dealer counterparty for interbank trades. With emerging markets and Asian volumes growing faster than other parts of the world, look for the establishment of regional -based ECNs that are backed by primary dealers popping up in either Tokyo, Singapore, or Hong Kong.
  • Last but not least, I have to disagree with Michael. Fire sale acquisitions will lead M&A activity with more pseudo ‘cash’ sales like that of GFT and MIG Bank where the sellers received very little premiums above their cash holdings.

Let us know what you think and your predictions for 2014 in the comments. On behalf of all of the growing staff at Forex Magnates, we wish all of our readers a successful and healthy new year.

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