All signs point to a complete recovery for the forex market in Japan. Today, DMM Securities, the worlds second largest retail forex broker by volume reported January volume figures. Like GMO Click’s results which were an all time record, DMM wasn’t far behind. For the month, DMM reported $724.34 billion in total volume, 94% month over month growth. DMM attributed the positive results to a renewed interest in forex trading in Japan as 416,000 clients traded during January, a 34% increase from December. The broker also reported a total of 8,175,000 trades placed during the month, amounting to 85% month over month growth, with a one day peak of 490,000 trades. The figures calculate to an average size trade of 88,600, which is sizeable when the Japan’s 25:1 leverage rules are considered.
In our Q4 Forex Industry Report we took a closer look at the Japanese retail forex market in an article titled Striving and Thriving in Japan. An excerpt from the article:
“Mired in a 20 year plus downtrend, the Japanese equity market has experienced plenty of false moves higher only to retreat. At around 9000, the index is currently trading at around 25% of its late 1989 highs. Seeing little value in the Japanese stocks, retail traders have moved towards forex trading and the ability to profit in both an up and down market. For a public that sees little value in local equity trading, the opportunities in forex have appealed to Japanese traders and led the retail industry to become a $2 trillion/day market. As a result, Japan is the number one market by volume and accounts for around 35% of global retail currency trading.
Trading Places: Finding The Best Jurisdiction for Your BrokerageGo to article >>
Beyond the rotation from equities, the country’s export driven economy is another catalyst for the growth in forex. With much of the general public having a grasp of currency price changes due to its effects on the economy, educating traders in forex is much easier than it other parts of the world. Also, the ability to trade with lots of leverage was an advantage that the forex market offered to risk taking traders. The popularity in forex led to an oversaturation of brokers servicing the product and seemingly new companies sprouting up every day.”
The article covers that through consolidation, emphasizing technology, marketing superior products, and decreasing spreads, Japanese brokers have been able to rebound. As mentioned above, unlike in other parts of the world, specifically the US, forex is the dominant asset class in Japan. Due to the greater than 20 year downtrend in equities, there is an entire generation of traders in Japan that have only witnessed losses taking place in stocks. Filling this gap has been forex. Therefore, even with the regulatory changes that took place, by adapting their business models brokers are able to cater to the strong demand for forex trading.
Seeing the January results, it’s safe to say that the local market has made a complete rebound in terms of volumes (although profits are probably still lower due to narrowing margins). Also, firms that were aggressive buyers in 2012 appear to have made smart purchases as the depressed valuations that existed last year may be harder to come by now.