September Forex Industry Review – Draghi Picks up New Fans While FXCM and Monex Deal

In this month's industry review we take a look at September's major headlines and some lesser known but important news

The forex industry either has its share of prophets, or if you say something long enough eventually you get it right once in a while.

Like retail stores blaming weather for poor financial results, the financial industry’s chorus line this year has been a lack of volatility. This was especially seen among forex brokers where 25-year lows in currency volatility was blamed for causing weak H1 results this year. But, nearly every CEO also added a message to shareholders that they didn’t believe the subdued activity would continue due to global interest rates ultimately rising again. Answering their prayers was Mario Draghi and the ECB who triggered year highs in volumes following policy changes at their monthly meeting in early September. But, volumes weren’t the only story of the month.

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Mario Draghi, President of the ECB
Mario Draghi, President of the ECB

Thank You Draghi – Passing the baton from the Fed of its bond purchases which are being phased out, the ECB and its President Mario Draghi picked up from the US and launched its own expanded initiatives during its September 4th meeting. Also enacted were across the board interest rate cuts by ten basis points to help stimulate the EU economy. Affected by the results was the euro which has taken a nose dive with the EUR/USD falling from above 1.3900 in May to a current 1.2600. Not complaining though, were traders and brokers who welcomed the new found volatility and opportunities it presented in trading the currency. For brokers, the spiking speculative interest led to various firms and trading venues achieving year highs in trading and overall September results are expected to be the year’s most active month.

Is Hotspot QT the First of Many FX Dark Pool Offerings? – You can file this one under the ‘keep your eyes on’ stories. During the month, KCG announced the forming of a new FX dark pool platform called Hotspot QT. Dark pools became popular in equity trading as it availed large sellers and buyers to post their transaction intentions without them being broadcasted to the greater market. So if a mutual fund wanted to dump 10 million shares of a mid-cap, a dark pool would provide more anonymity (but not always pure anonymity) than entering large orders onto the Nasadaq or NYSE. Due to the large transaction sizes involved with the interbank FX bank and deep market depth typically available, dark pools are less of an issue with currency trading. However, over the past two years due to an increasing percentage of automation and alternative market makers debuting on ECNs, average transactions sizes and market depth have decreased with many trades now being ‘front run’ when they hit the market. Hotspot QT’s goal is to provide a venue to allow for trading of large block trades without them affecting the overall market. The reason why the venue is worth paying attention to is that other ECNs such as EBS, ParFX and Reuters, have aimed at providing a solution for their large trading customers using randomized fills and wider minimum tick sizes. However, the jury is still out as to whether these protocols have provided customer a workable solution. If Hotspot QT takes off and draws interest, you can bet we’ll be seeing their competitors launch similar offerings in the future.

FXCM Goes Shopping and Lowers Fees to US Customers – FXCM has been quite vocal about their acquisition intentions as the broker has related to shareholders that they have been in active discussions with several large competitors. However, since attempting a failed hostile takeover of GAIN Capital last year, their efforts have resulted in only an assortment of smaller deals. The latest was the acquisition of IBFX’s MT4 accounts from Monex Group. While financials have yet to be disclosed, according to FXCM the deal amounted to 13,000 accounts which probably puts the dollar amount between $5-$8 million. The deal was notable in that it led FXCM to announce a new commission model for US account holders, of which a large percentage were former IBFX customer. Under the new terms, FXCM is scraping its spread markup and will show customers raw spreads with per lot commissions of $4 to $6 charged. According to the broker, it will result in customers experiencing around a 50% reduction in trading fees.

Monex Makes Exit from MT4 as They Ditch IBFX – While the cost reduction was notable for FXCM as it shows their intentions to now compete on cost against smaller, but more aggressively priced brokers, Monex is moving towards focusing on product type. Dumping the commoditized MT4, Monex will now be counting on marketing TradeStation and Tradable to customers to position themselves as a unique platform provider. Consensus within the forex industry is that MT4 is the easiest platform to market to new traders, but is more difficult to retain customers with due to its availability at nearly every other broker. As such, while larger brokers like IG and FXCM have been increasing their involvement with MT4, some firms have been moving away from the platform in favor of more unique offerings that can generate higher lifetime values.

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Also of Note:

ParFX Prime: Speaking of ParFX, the FX trading unit of Tradition launched a new Prime Service to provide wider services to buy-side traders.

LMAX Launches PoP: Similar to ParFX, LMAX launched its own Prime of Prime service to offer customers credit to trading with other venues.

Estonian Brokers in the Headlines – Having a large presence in Central and Eastern Europe, Admiral Markets suffered a H1 net loss on declining revenues. Also, Armada Markets made its exit from Poland, alerting customers after receiving a warning from local regulators.

FXStreet Closes FXBeat – A year after launching FXBeat, which became a premium subscription service in May, the project was closed by FXStreet reflecting the difficulty in operating a paid content business in the world of free forex research.

Regulators Nearing Fines and Settlements in FX Fix Investigations – Nearly a year after global regulators initiated investigations on price collusion of interbank FX prices, reports are that we should soon start seeing the results of studies in the form of fines, settlements and increased supervision.

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