There’s a report by WSJ that Charles Schwab – one of the largest North American securities brokers – is planning to enter the retail forex market. You don’t need to be an insider to understand that securities brokers are closely monitoring this market as the extreme competition over commissions in securities and futures is taking its toll on their earnings while forex brokers seem to be making a killing.
It’s not so straightforward however as one might think. Brokers like TD, MF and thinkorswim have been offering retail fx for quite a while now without any notable traction or success. The problem seems to lie in zero forex marketing efforts and/or experience, in unattractive trading platforms and in general less appeal to the typical forex trader. Current US forex brokers (not many of them left) are fully geared towards the retail forex trader who is in essence a whole different animal than a securities trader – main difference is that that forex traders are gamblers who invest smaller amounts than their securities peers who are typically long term investors. There’s also the high leverage in forex and many more parameters which make this market highly concentrated in hands of the experienced retail fx brokers. For now, I just don’t see how brokers like Charles Schwab provide any real competition to hard-core retail forex brokers like FXCM, Oanda and Gain.
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Charles Schwab Corp. (SCHW) could be the next online brokerage to expand its foreign exchange trading capabilities to lure more active traders. Schwab, the largest online broker, disclosed in a slide presented at its recent winter business update that it was “analyzing the forex opportunity” in 2011. The comment attracted little notice at the time. Now, Sandler O’Neill + Partners analyst Richard Repetto says he believes at least one of the major online brokers — including Schwab, TD Ameritrade Holding Corp. (AMTD) and E*Trade Financial Corp. (ETFC) — is exploring this opportunity.
I expect them to keep ‘exploring’ it for some more time…