North America’s retail FX industry has been experiencing an exodus of companies for some considerable time now, calling into question the viability of the current business model, and whether it may be heading toward obsolescence in America.
Today, Canadian FX company OANDA Corporation, which has the majority of its core business concentrated within the United States, announced that it is to acquire the social trading network, Currensee, thus further alluding to the willingness of America’s remaining retail FX firms’ propensity toward diversification into other areas via mergers and acquistions.
In this particular case, a point of interest is that it is purchasing an external social trading network having launched its own in-house, community-based social trading platform under the designation of fxUnity in April 2012, which it subsequently discontinued in March this year, citing adverse criticism from users as the reason.
Social Trading Moves Up A Gear
Expansion into the arena of social trading has become a great matter of importance for retail firms wishing to increase volumes of novice traders, and to use as a tool to acquire clients with little or no trading experience. The established social trading networks are now seeking further development opportunities, and have widened their scope of late.
Whereas the business model employed a year ago, centered on providing such services to MetaTrader 4 retail FX brokers, the entire sector is now broadening its horizons by fostering partnerships with new platforms and seeking distribution channels via institutional service providers, particularly, subsequent to MetaQuotes having issued a warning to brokers alleging that four social trading providers had contravened a MetaQuotes protocol.
According to Forex Magnates’ research, the entire social trading industry hosts 235,000 users and is responsible for $240 million of customer funds. The most notable players in that field alongside Currensee, are ZuluTrade, Tradency, Myfxbook and eToro.
Over a five year period, 600,000 clients used social trading, and the largest markets are Japan, which accounts for 30% of the entire social trading market, followed by Europe and Russia representing 15% each, further showing the possible attraction of an existing social trading company to American retail FX firms, as a means of tapping into this activity overseas (the full research can be purchased separately).
Beyond America’s Horizons
The United States government has been engaged in rolling out extensive and finely detailed market reform criteria post financial crisis, intended to completely restructure the method by which all financial products are sold, and critically, how FX firms provide OTC trading services to their clients, which not only has resulted in a depletion of retail FX trading in the domestic market, but has also stood social trading in a similarly stagnant position, as depicted by this graph.
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In this case, with OANDA electing to purchase an external social trading network, which in the case of Currensee, has its clients based internationally, it could be that OANDA is looking to expand its service not only beyond America’s horizons, but also beyond the borders of purely gaining revenue from the ever decreasing circles of the domestic FX market.
OANDA views copy trading, a method by which traders can mirror the trading behavior of experienced FX traders from around the world, referred to by Currensee as ‘Trade Leaders’, as an area which has realized tremendous growth in recent years. In addition, copy trading makes it possible for individual traders to share research data and collaborate with other traders.
A similar view could be taken with regard to FXCM’s recent acquisition. Although, OANDA does not publish its results, FXCM’s trading activity during the second quarter of 2013, consisted of multiple record months. The firm announced $140.1 million in revenues, an all-time high, and 53% above the same period last year, showing that for certain firms, there is still a good profit to be made on home territory. On the other hand, how long will this last as the authorities make it less viable to operate is uncertain, therefore, demonstrating that these profits are being channeled into diversifying the service offering via such acquisitions.
OANDA Corporation’s CEO, K. Duker made a corporate statement today regarding the acquisition ,”From the collective experience of Currensee’s extensive community of traders,” he said.
Mr. Duker continued by explaining what he considers to be the main virtues of the acquisition, “Like OANDA, Currensee has a strong business vision coupled with an expert engineering pedigree. We are committed to continue serving the needs of all Currensee customers, Trade Leaders and partners, and look forward to making OANDA’s competitive spreads and superior execution available to this new group of traders.”
Technical teams are scheduled to begin the work to make the Currensee platform available to OANDA clients, and a notice will be issued once this work is completed.
“We are excited to be a part of this larger venture, and believe that our customers will find dealing with an established broker like OANDA most beneficial,” stated Dave Lemont, CEO of Currensee.
“Our clients can expect the continued excellence of our offering, and we look forward to introducing OANDA’s established global customer base to our Trade Leaders’ program.”
With a flourishing institutional FX sector and world-leading trading technology and infrastructure, America continues to mark itself as a homestead for the large, business to business and interbank segments, as well as a leader in instigating modernized regulatory structures for world markets.