Volatility was back in the fourth quarter of 2014 in the forex industry. With volatility come opportunities but also greater risk for losses. The latter was apparent in our Q4 US Retail Forex Profitability and Active Trader report.
During the just-ended quarter, weighted total customer averages show that 35.3% of US forex traders were in the black, compared to 37.8% in Q3 2014. On a broker weighted calculation, the average broker showed profitability of their clients at 35.6%, a 1.7% drop from Q3 2014’s 37.3% level.
The findings appear to show that despite greater opportunities for large profits, retail customers performed worse in a high volatile environment. Weighted customer profitability peaked at 39.5% during the slow Q2 period and has since fallen in back-to-back quarters as volatility has increased.
Also reported is a contraction in the US retail forex market to below 90,000 active traders, the lowest level since Forex Magnates began to track these figures in Q1 2011. Overall, during the quarter active traders declined by 6,491 to a total of 89,162. Affecting the US market has been an exodus of brokers from the country, with names such as GFT, FX Club and FX Solutions no longer in the market.
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During Q4, affecting the total active traders figure was the sale of IBFX’s retail MetaTrader 4 accounts to FXCM, the broker’s customers in the report declining by 5,345 traders to 1,801. Interestingly, those lost accounts didn’t have much impact on FXCM where active traders grew, but by only 358, for a total of 26,975 accounts. The account growth, though, was enough to keep FXCM at the top of the list of US brokers by retail traders.
It is known that FXCM was actively marketing to IBFX its positive features and even introduced lower spreads to attract those new clients. The lack of meaningful account growth may have shown that former IBFX customers decided not to continue with FXCM, or were non-US traders that were transferred to other regulated units of the broker. Hints of the answer may be revealed when FXCM releases its Q4 2014 financial results, which are now much awaited following the disclosing of Swiss franc volatility-related losses and new financing from Leucadia National Corporation.
Returning to the profitability side of the report, once again, InteractiveBrokers topped the list of having the most profitable percentage of traders in the US at 44.1%, followed by CitiFX at 43.0%. As reported in the past, InteractiveBrokers average account sizes are well above those at other retail brokers, and their customers are, as well, more risk averse.
Looking ahead, with both InteractiveBrokers and FXCM having reported large losses by their forex trading clients from last week’s move in the Swiss franc, it will be interesting to see how the volatility affects the overall Q1 2015 profitability report.