forex magnates q4 2014 industry report preview
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Contributing AuthorsEditor's Note
Section 1 | Q4 2014 Forex Market OverviewForex Market Quarterly OverviewInstitutional FX Volumes ReviewRetail Forex Volumes
Retail Forex Volumes by AccountRetail Forex Volumes by MT4 UsageExchanges UpdateBinary Options UpdateRegulations Update
Section 2 | Articles
The Bitcoin Exchange: Volatility Breeds Opportunity but Challenges AboundThe Inherent Dependence of Global Businesses on the FX marketThe Impact of Web Analytics: Asset or Aberration?How the West was Won: FX Brokers Eyeing Latin AmericaFX Trading on the Move in Africa's Heart of Gold
Analyzing Volatility: a Bright Future Ahead?Rising Emerging Markets and their Effect on BrokeragesTech Roundtable: The Challenges of Operating an Online BrokerageForex Magnates London Summit: A Showcase of New Products & NetworkingThe City, More than just a Square MileMobile Advertising: The Next BattlegroundBroker Risk Management ChallengesGamification, the Game ChangerCommodities vs. Forex: The Correlationship AgendaExotic Currencies: Sorting Out Fact from Fiction
Section 3 | Detailed Broker Information
Largest Brokers in Terms of VolumeLargest Industry Mergers, Acquisitions and IPOs
Section 4 | Major News For Q4 2014
Top Q4 NewsOur Editors' Favorite QuotesForex Magnates Top 12 For 2014
Infographics Index
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Is the Cup Half Full, or Half
Empty?
That is the question forex brokers
will be answering when they lookback at the year that was in 2014.
Whatever the reason, whether the
World Cup, market complacency
with rising stock prices, or just the
result of an ongoing long term shift
in trading conditions, volatility
was at a standstill for the first eight
months of the year.
The result was that after seeing vol-
umes rebound nicely in 2013 from
their collapse in 2012, the forex
market look primed to achieve new
lows in inactivity. Truth be told, the
March to August period was just as
bad as 2012 if not worse for many
trading venues and brokers.
But, in a blink of an eye, market
conditions made a 180, with Sep-
tember through Decembers trad-
ing saving the year and then some
for the industry. During that pe-
riod, forex trading volatility was
pumped via a slew of events affect-
ing nearly every major currency.
Headline events included the Scot-
tish Referendum (British pound),
ECB announces negative interest
rates (Euro), Japans government
coalition falls with forecasts for
further stimulus (Japanese yen),
FOMC ends quantitative easing (US
dollar) and the SNB keeping the
EURCHF price floor (Swiss franc).
Are Volumes here to Stay?
For brokers and trading venues,
the flood of simultaneous market
moving events led to many firms
reporting both daily and monthly
volume records being broken. The
question now is whether the sec-
ond half of 2014 is merely an aber-
ration, or the return of volatility to
the forex market?
That answer may be tied in how
currencies are viewed as an asset
class. The truth is, that compared
to other asset classes, the foreign
exchange market is historically the
least volatile when compared to
other products such as commodi-
ties, stocks, and bonds. However, it
is the leveraged trading associatedwith forex that creates all the risk
we often hear about that is related
to the market. As such, strategies
that work in other, more active as-
set classes can fail miserably in
forex trading.
What was noticeable during the
Q4 period was that more impor-
tantly than the onslaught on global
news triggering volumes, volatil-
ity seemed to reenergize curren-
cies as an asset class. Multi-asset
strategy traders that had been ig-
noring currencies, once again be-
gan to see the potential in tradingthe product.
Throughout the second half of
2014, the forex market can be
viewed as a cyclical, sleeping gi-
ant. It may have looked dead
during its quiet periods, but the
existence of leveraged trading is
a cant miss opportunity that will
always attract traders as soon an
volatility picks up. This patternis best illustrated in the current
QIR article: Analyzing Volatility:A
Bright Future Ahead where Forex
Magnates studies the relationship
between volatility and volumes.
So are volumes here to stay? They
will always be a volatility deriva-
tive, but despite what the first half
of 2014 indicated, forex as an asset
class is here to stay which bodeswell for the industry.
Lessons from Russia
In terms of volatility, taking the
award for the most active currency
of the year is the Russian ruble. Af-
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ter trading steadily in the low 30s
for most of the year, the USDRUB
began its ascent higher in Sep-tember. The combination of po-
tential economic sanctions due to
Russias conflict with Ukraine and
negative effects of falling crude oil
prices triggered consistent weak-
ness in the currency. Aiming to re-
store demand, the rubles troubles
culminated in a mid-December in-
terest rate hike to 17% from 10.5% by
the Central Bank of Russia. How-
ever, emergency actions also cre-
ated panic in the industry, drivingthe USDRUB to a record high of 77,
before intervention brought the
currency pair below 60 once again.
The volatility was a boon for cus-
tomers, but a headache for forex
brokers. Without much clarity on
the direction of the market and
losses from trading desks, banks
closed trading en masse in the ru-
ble or raised margin rates. Also, andmore impactful was the lack of set-
tlement options available as prime
brokers suspended trades in the ru-
ble, which resulted in a suspension
of ruble trading within the inter-
bank market. For brokers that were
not maintaining a direct relation-
ship with a bank, hedging risk or re-
ceiving market data for consistent
pricing became nearly impossible.
A few lessons learned from the ru-
ble troubles. First, market data and
liquidity for minor currencies that
is distributed from exchanges and
ECNs can become choppy or use-
less in times of severe volatility. A
solution to this problem is to ac-
cess direct streams with banks with
a direct margin account. Secondly,
customers of brokers with floating
spreads reported fewer execution
problems than clients trading the
ruble with fixed spreads. Due to the
volatility and lack of liquidity dur-
ing mid-December, spreads oftenreached over 1%, which resulted in
fixed spread brokers rejecting cus-
tomer trades. Even if a broker fa-
vors the use of a fixed spread model
for minor currencies, there is an
advantage to floating spreads.
The Lean Mean Forex
Broker Machine
During the first half of 2014, there
were several comparisons made
to 2012s poor performance. In
contrast though, was that the pes-
simism that existed at that time
was much less apparent in 2014.
Forex Magnates considers 2012 as a
learning period for brokers, and therealization that the volatile and free
money days of the previous decade
are over. In their place, nearly every
major broker enacted on expense
cuts and refocused their activities
on profitable and growing markets,
or simply exited the market.
The lean attitude was apparent
during the beginning of 2014, as
brokers were optimistic about thefuture despite falling volatility, re-
porting that if the weak environ-
ment would continue they would
simply initiate more cost cutting.
As a result of brokers operating
with greater efficiency in 2014,
market conditions improved they
were in better position to scale
their marketing and products. This
was witnessed in the enthusiastic
interest in the new technologies
and proucts that took centre stage
the the Forex Magnates London
Summit in November.
The Year of CFDs
Many brokers hedged the fall-
ing volumes in forex trading with
CFDs: while nearly every broker
had a fair share of CFD offerings
prior to the beginning of 2014, theyear saw numerous brokers report
record volumes of non-forex in-
struments being traded, as well as
the launch of new products. Gold
and Crude Oil were spotlit by bro-
kers in 2014, but one area that ex-
perienced precedence were single
stock CFDs. Whether the result of
a booming stock market, customer
interest in equities following the
IPOs of companies such as Twit-ter and Alibaba, or the delay of po-
tential taxes in Europe, single stock
CFDs were among the most bro-
ker-marketed products.
One of the problems for brokers
that inhibits CFDs is a lack of li-
quidity to hedge customer order
flow. While brokers can hedge
with a CFDs underlying stock or
future, this isnt always an applesto apples fit due to different mar-
gin requirements or trading sizes
between the two products. As a so-
lution, the second half of 2014 saw
an increase of CFD liquidity being
offered by Prime of Prime brokers.
Consequentially, brokers now have
many more hedging solutions to
their CFD products than in previ-
ous years which should eventually
provide them greater flexibility in
their offerings.
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Latin America has long been
an enticing region for for-
eign investment and FX.
Until recently, many FX brokers
were unsuccessful in overcom-
ing a litany of regulatory barri-
ers, seemingly unable to establish
a foothold in markets. This trend
has changed in recent years, with
many international brokers eye-
ing offices and prospects in sev-
eral countries, coupled with a
blossoming domestic FX market.
Latin America, or LATAM, com-
prises twenty sovereign countries
collectively boasting a population
of more than 600 million people,
rivaling that of Europe. Like many
other regions around the world, the
continent is home to a unique dis-
persal of cultures and populations,
most of whom utilize Spanish astheir primary language for busi-
ness with Brazil being the only
country relying on Portuguese.
Despite a highly developed and
diversified market, several factors
have collectively handicapped Lat-
in Americas development in the fi-
nancial world relative to other hubs
such as the United Kingdom, Unit-
ed States and the antipodes, among
others. These include a specter of
insolvent markets, uneven compli-
ance measures, political instability
and a lack of exposure to interna-
tional financial markets. With these
forces largely mitigated over the
past decade however, several
countries have begun to cultivate a
bourgeoning FX market.
Domestic FX Hotspots and
Barriers to Entry
Much like its continental Euro-
pean counterpart, Latin America
is merely the sum of a number of
countries, each with different ad-
vantages and disadvantages to FX
trading and brokers. Out of this
mix, two in particular have cultured
a functioning domestic FX market
insulated by regulatory oversight -Chile and Peru.
Regulation in particular has long
been an area of contention for FX
market participants, capable of
pushing or pulling brokers to spe-
cific regions or countries, with the
United States and New Zealand be-
ing two recent examples. A num-
ber of Latin American countries
have made major gains on the
Latin America is an
emergent, untapped
resource with countries
such as Chile and Peru
becoming increasingly
developed in terms of FX
infrastructure.
In this article, Forex Mag-nates will investigate the
present state of entry into
Latin Americas FX mar-
kets with an emphasis on
Chile and Peru.
By Jeffery Patterson
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As volatility increases, so do
the dynamic moves that
can be observed on the
market. This attracts further market
participants, and consequentially, a
larger turnover. But what exactly is
volatility? A standard encyclopedia
entry describes it as: a measure for
variation of price of a financial in-
strument over time. Historic vola-
tility is derived from time series of
past market prices.
Can Volatility Be Forecast?
In practical financial terms, vola-
tility provides an explanation just
how much the price of an underly-
ing instrument changes in a given
time frame. Periods of increased
volatility attract market participants
as it creates the opportunities toexploit sudden price fluctuations.
Periods of lower volatility keep
traders at bay, as there isnt enough
of a price change that could be
taken advantage of to make a
profit. Finally, the higher volatil-
ity is, the bigger the uncertainty
is as to how price will change.
Nevertheless, from the perspec-
tive of a broker-dealer, increasedvolatility is a positive which leads
to higher revenues. Sren Ned-
ergaard, Head of CFDs and Listed
Products at Saxo Bank explained
how volatility interacts with oth-
er elements of the brokerage: In
short, volatility create opportuni-
ties. Many of our clients are active
traders and with price volatility
comes opportunities for our clients
to enter and exit positions.
This means that more clients will
find the entry and exit levels they
are looking for, and therefore vola-
tility is correlated positively with
income for firms like ours due
to the higher trading activity, he
told Forex Magnates.
Positive correlation between high-
er volatility and growing turnover
is a well observed fact. It can be
presented in a graphic form basedon publicly available data. Forex
Magnates conducted statistical
measurements using turnover
metrics for two leading retail bro-
kers FXCM and Saxo.
The collected data was compared
to volatility in a corresponding
period of time: volatility was mea-
sured using the popular (Average
True Range (ATR) indicator, whichwas first introduced in J. Welles
Of all the terms listed in
Forexs unique vocabu-
lary, volatility is the one
with near-celebrity sta-
tus due to its standard
association with profit
and a welcome increase
in volumes.
But is it possible to fore-
cast the duration of in-
creased volatility? To
answer this question,
Forex Magnates lined
up and applied specific
technical analysis tools
to identify the tracks ofthe engine that keeps
brokers running.
By Sylwester Majewski
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It's called online trading for a
reason ,and despite the mul-
titude of financial products,
online brokers are genuine inter-
net businesses. The result is that if
technology fails, brokers risk see-
ing clients leave or even worse,never bothering to sign up in the
first place.
Answering our questions are An-
drew Budzinski, Director of IC Mar-
kets, Adam Narczewski, Regional
Deputy Director at XTB. Tom Hig-
gins, CEO of Gold-i, and Andrew
Ralich, CEO of oneZero Financial
Systems.
What would you consider as your
biggest, daily IT issues?
Andrew Budzinski: The primary
issues we face on a daily basis are
platform connectivity problems.
Typically, such problems occur
due to poor internet connectiv-
ity or router packet loss. Connec-
tion problems are more prevalent
in remote areas and in places such
as China, where there are other
factors in place. For the most part,
we are able to solve platform con-
nectivity issues through the use of
data centers spread over the world
in major cities, however, for clients
in remote locations, connection is-
sues can still be a problem. As such,we recommend clients in remote
regions use a VPS located in Equi-
nix NY4 (the same data center our
servers are hosted in).
Adam Narczewski: Most of the IT
issues are solved directly by our
systems provider - X Open Hub.
They manage both our xStation
and Metatrader 4 infrastructure.
Thanks to them, we do not en-counter major problems during
high volatility or silent days. This
way we can fully concentrate on
better service to our clients. The
current market is very competitive,
and to stay on top you can never
stop striving for excellence. This is
where our daily focus on IT comes
- mainly on development of new
functionalities, apps and tweaks to
improve customer experience.
From the front-end so-
lutions, customers trad-
ing with integrating
market data to payment
gateways and CRM sys-tems, the foundations of
online brokers are built
on technology.
In this article, Forex Mag-
nates interviewed leading
brokers and technology
providers for their input
on the challenges andsolutions for operating an
online broker.
By Ron Finberg
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Throughout the Forex land-
scape, extraordinary amounts
of liquidity circulate on a
daily basis, so things have been
known to get quite intense, al-
beit on an infrequent basis. But
throughout 2014, there were plenty
of examples to that effect - from
the dramatic daily moves of the
Russian ruble of 5% to 20% north
and south round trips within a sin-
gle trading day, to sharp Japaneseyen moves associated with the
new round of extra loose monetary
policy introduced by the Bank of
Japan, the Scottish Independence
and the Swiss Gold Initiative refer-
endums, both which proved to be
non-events, this time around.
While a number of brokerages
are fully outsourcing their risk by
sending all trades to their liquid-ity providers, and some major
firms have fully transferred their
business to an agency commis-
sion based model, this is hardly the
standard practice employed across
the industry. There are a number
of brokers that choose to go the
way of the B book, and depend on
the high failure rate of traders los-
ing their deposits to balance their
dealing desks, while others even
rely on a large portion of their cli-
ents losing all of their deposits to
achieve that balance.
But lets not jump ahead of our-
selves: there is nothing that wrong
with B booking as long as it is done
fairly and clients are not directly
targeted with bad spreads, slip-
page or the like. The return on the
flow of such brokerages can be
much higher than a simple Straight
Through Processing (STP) model,but only if it is buffered by an ap-
propriate risk management tactic.
So how can risk be managed prop-
erly on the marketplace and what
challenges are facing brokerages
that run their own desks?
Forex Magnates contacted two
industry risk management spe-
cialists with proven track records
- Carl Elsammak CEO and Head ofTrading at Kammas Trading and
Jeff Wilkins, Managing Director of
ThinkLiquidity, to hear their take
on why they started to provide risk
management services to brokers -
and on the other hand, what perils
lie in store for brokers attempting
their own risk management.
The first challenge they need to
accept is to choose to run their
own book. The prevailing opinion
Just what are those
Black Swans that can
crush a brokers book
- and what poses the
greater challenge to bro-
kers - extreme volatility
or no volatility at all?
While FX is perceived asvolatile per se, there are
exceptions to the rule.
Forex Magnates presents
the setbacks and solutions
associated with unexpect-
ed event management.
By Victor Golovtchenko
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Shareholders and Funding:Public
Investments and M&As: Data at the end of the report
2013 Profit Before Taxes:194.7 million
2013 Profit Before Taxes: 192.2 million
Q1 2015 Global Revenue:86.6 million
Market Cap: $2.25 billion (as of Sept 23, 2014)
Estimated monthly Retail Volume: $180 billion
Number of Clients: 126,100 financial clients (CFDs, Indices, etc)
Regulation: UK FSA, ASIC, NADEX (daughter subsidiary) - CFTC
Company Name:
Status:
Public (LSE:IGG.L)
News for the Past Quarter:
Year Established:
1974
You Can Now Buy IG Group Shares in the US on the OTC Markets Group Platform
Bitcoin Is Back at IG Markets Ladder and Sprint Binary Options Launched
IG Group Holdings Plc on Track for Record Quarter, Shares Hit Record Highs
IG Group Holdings PLC Details FINMA License, Swiss Bank and Securities Dealer Now Official
IG Group Announces 9% Decline in Global Revenues, Obtains Swiss Regulation
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IG Groups Share Price in the Past Three Months (p)
IG Groups Financial Performance in the Past Five Years:
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Set to launch in 2015 is Invest.com, a new investing related site. With stillundisclosed plans of their operations, the startup made headlines with
release that the invest.com domain had been purchased for $5 million,
making it the richest domain deal in the industry. Invest.com is backed
by Singulariteam, an Israeli based VC Fund with investments in digital
startups including Yo! And Mobli. Also part of Singularteams portfolio is
Stox.com, which is believed to be related to the Invest.com initiative. In
advance of the launch, Invest.com has been forming its executive team
which includes long term members of the retail forex industry.
Industry Domain SaleRecord as Invest.com
Goes for $5 Million
FXCM is always on the lookout for a Groyse Metsia (for non-New York-
ers that means hug bargain). On their most recent earnings conference
call discussing Q3 2014 financials though, CEO Drew Niv commented that
although the broker was in discussions with several parties about a major
acquisition, a return of forex market volatility had pushed industry valua-tions above offers from FXCM. In replace of a major deal, an announce-
ment was made of a $50Mln share buyback, which they believe is the best
use of their cash hoard to improve shareholder value.
FXCM Shelving M&A
Plans as Volume In-
creases Bolster Industry
Valuations
A year-plus long investigation by global regulators into the business prac-
tices of major FX bank dealers has resulted in billions of dollars of fines
being levied. In total, the US CFTC, UK FCA, and Swiss FINAM issued $3.38
billion of payments against UBS, HSBC, Citibank, RBS, and JP Morgan.
The penalties were in response to evidence of price collusion of FX trading
taking place among traders at major banks. Further penalties are expected
to be issued when investigations concerning other major dealers such as
Deutsche Bank and Barclays take place. Banks have also become vulner-
able to litigation from clients who have begun to form class action lawsuits
in regards to orders transacted by guilty traders. For an industry where
margins have contracted over the last three years, the fines add another
layer of net income reductions which are expected to impact the workforce.
$3.38 Billion in Fines
Handed Down By FCA,
CFTC, and FINMA in FX
Fix Scandal
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The Forex Magnates London Summit started off with a bang with thelaunch of ten new products at the Innovation Stage session. Among thepresenters were five startups that introduced their products publicly forthe first time. Starting the presentations was Centroid Solutions, whodemoed their new risk management solution aimed at small to mediumsized MetaTrader 4 brokers as an advanced monitoring system to theMetaTrader 4 Manager. Next was Normann, a social behavior trading plat-form interface where traders enter orders but dont control size of tradesto limit negative emotional behaviors. Following was Qubitia, with a cloudbased strategy development and deployment system for non-program-mers. Winners were Tradimo Play for its upcoming Trade Hero gameapp, which is designed to educate new investors. They were followed byExgate, who launched an end-to-end bitcoin trading offering includingliquidity, integrated bitcoin wallets, risk management and a MetaTrader 4white label.
Trade Game and Bit-
coin/MT4 White Label
Lead List of London
Summit ProductLaunches
During November, Saxo Bank announced that it will finally be offering a
No Dealing Desk (NDD) account execution for FX, as well as a more in-
tegrated MetraTrader4 (MT4) solution which will provide clients with a
choice of pricing structures and access to non-FX instruments. The twin
releases are part of expansion of execution services and products initi-
ated by Saxo Bank which began with the launch of their social trading
platform, TradingFloor in January this year. Commenting on the launch,
Neil Browning, Senior Director of FX Sales, said: As Saxo experiences an
increased demand for flexible solutions, we are presenting these new ac-
counts for our clients to empower them with the opportunity to choose
the combination of platform, pricing and market access they believe best
suits their own trading style and needs. Being a trusted service provider,
we continue to provide new opportunities for our clients, as we strive to be
the facilitator of choice.
No Dealing Desk Trad-
ing Comes to Saxo Bank
Hello Markets gains CySEC regulation as it aims toprovide a licensed platform for its binary options
brokers partners Integral launches FX Yield risk
management platform as they bolster tools for mar-
ket-making, redistributing liquidity and monitor-
ing client order flow Software AG and Fluent Trade
Technologies partner to roll out a new FX surveillance
software and feed handler targeted to prime brokers
and buy-side funds
Catch up on our othermajor articles from
November: