online magazine - financemagnates.com · tive fx/cfd traders who generate around 38 billion usd in...
TRANSCRIPT
2
FM ONLINE MAGAZINE EDITOR'S NOTE
I am more than thrilled to introduce Finance Magnate’s Intelligence brand new online maga-zine. This fresh quarterly publication will be re-leased close to the end of each quarter and will feature top researches and analyses by our staff analysts and guest contributors.
In the magazine section, our house writers and a guest contributor have focused on three extremely relevant topics. We examined the existing Cus-tom Relationship Management (CRM) solutions and tried to answer why it is a necessity for brokers and what the best ways to use this tool are. Brit-ain’s disengagement from the European Union was also covered, in an ar-ticle that examined the milestones for Brexit. And of course, we have also looked into the recent dramatic events overshadowing the global binary options industry and predicted when and how this storm will end. As always, I urge you to increase your engagement with the Finance Mag-nates Intelligence Department. We are always more than happy to hear from you and to find out how we can improve the service that we provide to our readers. If you have any ideas for issues that we can cover, or if you want to take part in the next issue, please let us know.
Michael Pearl,Head of [email protected]
3
FM ONLINE MAGAZINE
In the Spotlight
Featured Country
CONTENTS
Articles
Rules of Disengagement:
Milestones on the Road to Brexit
Black Clouds Over the Industry:
Have Binary Options Reached a
Dead End in 2017?
Forget About Excel Sheets:
CRM solutions are more
necessary than ever
4
FM ONLINE MAGAZINE IN THE SPOTLIGHT
THE EDITOR’S PICK FOR THE QUARTER OF A TRENDING COUNTRY
5
FM ONLINE MAGAZINE
The Israeli Online Trading Industry
ISRAEL
FEATURED COUNTRY
Although Israel is a world fintech powerhouse and home to many FX brokers, its local market is relatively small. According to Finance Magnates estimations this market is as large as 20,000 ac-tive FX/CFD traders who generate around 38 billion USD in average monthly volumes. There are an estimated 150,000 retail financial trad-ers in Israel, trading in stocks with investment houses, or FX and stock options with commer-cial banks in the country.
Yet it is Israel that has caught the attention of the global retail trading industry in recent months.
In March of 2016 the Israel Securities Author-ity (ISA) became the world’s first regulator to prohibit risky binary options services from be-ing offered domestically. Moreover, Israel wants to ban the advertising of binary options abroad. According to our analysis, the local binary op-tions industry contributes 1.25 billion USD to the Israeli economy and employs almost 5,000 peo-ple. Excepting Japan, the largest share of binary options trading in the world is powered by firms powered by Israeli technology. The process now taking place in Israel will not only influence the binary options industry around the world, but
will also affect FX and CFDs.
It can already be observed that several bina-ry options providers are desperately trying to enter the FX trading arena, moving away from their previous core business. Whether or not these attempts will succeed is yet to be seen. The enormous technological potential standing behind the Israeli binary options industry will have to find its niche. It could serve the global trading industry, especially now that the forex industry has opened up to new financial tech-nologies such as blockchain.
Binary OptionsForex
Technology Providers
Brokers Israeli Based Firms50
Israeli Based Firms70
Israeli Based Firms8
Israeli Based Firms2
Employees2,800
Employees4,700
Employees250
Employees250
6
FM ONLINE MAGAZINE
Source: FM Intelligence
*Data for November 2016
20000
7661 USD
Active accounts(thousand)
Average first timedeposit *
38 billion USD
Average monthly volume
4392 USD
Average Deposit*
690 USD
Average Withdrawal*
Key Trading Metrics for Israeli FX/CFD Market for Q4 2016
7
FM ONLINE MAGAZINE
RULES OF DISENGAGEMENT: MILESTONES ON THEROAD TO BREXITThe United Kingdom’s decision to leave the European Union on June 23 was a paradigm shift in the global political order. Not only did it put the British economy on the course of uncertainty, it may have sowed the seeds of further European disintegration. Nowadays, the UK’s path out of the EU appears more complicated than ever.
By: Charlotte Day
In the following article, we look back at the major events and milestones in the six months after the Brexit vote, and how it impacted the financial markets. We then turn our attention to what potentially lies ahead for Britain-EU negotiations and whether Brexit is still a vi-able option.
8
FM ONLINE MAGAZINE
The United Kingdom’s decision to leave the European Union on June 23 was a paradigm shift in the global political order. Not only did it put the British economy on the course of uncertainty, it may have sowed the seeds of further European disintegration. Nowadays, the UK’s path out of the EU appears more complicated than ever.
In the following article, we look back at the major events and milestones in the six months after the Brexit vote, and how it impacted the financial markets. We then turn our attention to what potentially lies ahead for Britain-EU negotiations and whether Brexit is still a vi-able option.
The United Kingdom defied the odds and shocked the financial markets by voting to leave the European Union in a June 23
referendum. Fifty-two percent of Britons vot-ed in favour of leaving the EU, versus 48% who wanted to stay. Roughly 72% of eligible voters turned out to vote. That amounted to more than 30 million people.
The outcome of the referendum was so shock-ing that it triggered the biggest ever sell-off in global equities. The vote also triggered a series of major events that stoked fear and uncertainty in the global financial system, with market par-ticipants asking, what’s next?
More than six months later, we still don’t have a definitive answer about what lies ahead for the United Kingdom and the rest of the Europe. In the following, we shed light on the major events and milestones concerning Brexit and how the debate could unfold in 2017.
Brexit and the Ensuing Financial Storm
Vote Leave stoked the biggest ever two-day sell-off in global equities.
The Brexit crash wiped out a record $3 trillion from global stock markets in a matter of days, including a $2.1 trillion paper loss 24 hours after the vote. That eclipsed the $1.9 trillion loss that occurred on September 29, 2008 when US Con-gress agreed to bail out Wall Street during the subprime mortgage crisis.
The CBOE VIX, a leading measure of market fear, spiked to its highest level since February when the markets were reeling from the oil-price collapse. Higher volatility is usually a sign of short-selling of US stocks.
“Brexit provoked the most volatile market con-ditions since the financial crisis,” says Evdokia Pitsillidou, Director of Risk at easyMarkets. “The sell-off occurred immediately after the results
Position in the company
Professional Experience
Personal Quote
Head of Content &Social Media Marketing at Easy Forex
British writer and digital content manager specializing in dynamic branding, social media marketing and content engagement. 17 years in digital marketing including 8 in content marketing within FX
“There are two rules for success:1. Never disclose everything you know.”
Charlotte Day | 37 | Limassol started trickling in, with the immediate impact felt in the futures and currency markets. The declines were relentless over a two-day period.” Following the two-day sell-off, the US S&P 500 Index was trading at two-and-a-half month lows. The UK’s FTSE 100 Index was hovering near its lowest level since February, while Japan’s Nik-kei 225 also traded at almost five-month lows. These lows set the stage for a quick recovery, as bargain-hunters took advantage of rock bottom prices. The post-Brexit recovery continued all summer long, with the major US stock indices reaching all-time highs. “As we saw in the weeks and months follow-ing referendum, investors changed their tune regarding Brexit as they became more skepti-cal about the UK’s chances of ever leaving the 28-member bloc,” added Evdokia “So, it wasn’t just bargain-hunting that drove the post-Brex-it rally. It was a shift in investors’ expectations about how the vote would play out.”
The British Pound Plunges to 168-Year Low
Pound sterling plumbs new lows in the months following Brexit.
While global stock markets may have recovered, the same cannot be said for the British pound. Pound sterling settled more than 10% low-
9
FM ONLINE MAGAZINE
A weaker pound may provide a further boost to tourism and even manufacturing, but will also cloud the economic outlook by making imports more expensive. Brexit is may also lead to de-clining real wages and higher unemployment.1 These negative side effects may be felt as ear-
ly as this year should the Conservative govern-ment succeed in moving forward with its Brexit plans.
The Bank of England Responds
The BOE cuts interest rates following Brexit
er against the US dollar immediately after the Brexit vote, reaching its lowest level in 31 years.
The pound’s sell-off would intensify just six weeks later after the Bank of England (BOE) slashed interest rates and expanded the size of its quantitative easing program for the first time since the 2009 financial crisis.
The sell-off didn’t end there. In October, Prime Minister Theresa May made a firm declaration about her intent for a “hard Brexit”, quelling any hopes of the Europhiles that the Tory govern-ment would forge a new EU partnership. “Let me be clear. We are not leaving the Europe-an Union only to give up control of immigration again. And we are not leaving only to return to the jurisdiction of the European court of justice,” May said in a Conservative party conference on October 2.
The British leaders also said she intends to trig-ger Article 50 – the legal mechanism to begin the Brexit process – by the end of March.2May’s remarks triggered another massive drop in the pound, including a mysterious 6% “flash crash” four days later in Asia.3
Later that month, the pound fell to a 168-year low against a basket of other major currencies.4
The following chart provides a snapshot of the British pound’s effective exchange rate index, which conveys the value of sterling against other major currencies.
Source: Bank of England.
The GBP/USD exchange rate briefly traded below 1.20 in October, the lowest level since February 1985. By December, the pair was hov-ering in the mid-1.25 region, having declined roughly 16% since the Brexit vote. “The pound’s meteoric drop has been a clas-sic combination of loose monetary policy, fear of uncertainty and expectations for a weaker domestic economy,” said Evdokia. “While the Bank of England has dropped some of its dov-ish undertones following the August rate cut, the pound continues to circle the drain as in-vestors expect a prolonged Brexit negotiation between London and the EU. The longer this drags out, the worse off sterling will be.”
The pound’s massive drop hasn’t been all bad, especially for domestic retailers. Tourist spending in the UK surged after pound’s Brex-it decline, with tax-free shopping business Global Blue reporting a 7% rise in spending in the month following the vote.
for the first time since financial crisis
On August 4, the Bank of England’s Monetary Policy Committee lowered its benchmark in-terest rate to 0.25% from 0.5%, and upped the size of its stimulus program by £170 billion.1 The move was also accompanied by the Bank’s big-gest ever downward revision to gross domestic product (GDP). The new GDP forecast issued by the BOE was 2.5% lower than the forecast it gave in its May Inflation Report.
The immediate side effect of these measures may be faster inflation. According to central bank officials, the UK’s inflation rate may “sharp-ly” overshoot the BOE’s 2% target in the medium term.
“All in all, partly due to this package, partly due to the underlying momentum in the economy, partly due to other changes in the economy, it does look like the days of inflation bouncing around zero are long gone,” BOE policymaker Kristin Forbes said in an October conference organized by the Polish central bank.
“Inflation is already picking up. It will pick up even faster and we are likely to overshoot our 2% inflation target perhaps sharply in the next two years.
10
FM ONLINE MAGAZINE
Implications on Broader Europe
Brexit and the rise of Euroscepticism are an existential threat to the EU
Brexit is not just about the United Kingdom. Its reverberations are being felt across the Europe-an Union, as member-states begin to question their future in the single market. The European migrant crisis is fanning the debate, and boost-ing support for far-right anti-establishment parties that are decidedly Eurosceptic in their politics.
Political Impact
Brexit resulted in sweeping political changes, including the appointment of a new prime minister
The impact of Brexit on the political process was immediately felt after the vote when British Prime Minister David Cameron announced his resignation. After all, it was Mr. Cameron who led the Remain camp and championed the idea of a united Europe. With his defeat, the ruling Conservative government nominated former Home Secretary Theresa May to Prime Minister on July 13.
Mrs. May reshuffled the Tory cabinet and in-troduced David Davis as the new Secretary of State for Exiting the European Union. She also appointed Philip Hammond as Chancellor and Boris Johnson as Foreign Secretary. Mr. Johnson was one of the main backers of Vote Leave, the broad coalition of British politicians seeking to part ways with the EU.
May’s cabinet has attempted to move quickly on Article 50, but faces major obstacles following a landmark court ruling.
In a surprise move, Leave supporter Nigel Farage stepped down as leader of the right-wing UKIP party in July. Farage was an essential voice in rallying Britons behind a Leave vote in the June
23 referendum.
Article 50: When Will It Be Triggered?
After UK High Court decision, the path to Brexit is up in the air.
Theresa May’s hope for a clear path to Brexit was stopped dead in its tracks in November after the British High Court ruled that Article 50 would
require parliamentary approval. In other words, the UK government cannot proceed with Brexit without a vote from parliament, which is filled with pro-EU politicians. While the Conservative government has appealed the court ruling, the decision will likely be upheld, according to gov-ernment sources. An official ruling is expected before the end of January.
The High Court ruling has been described as one of the most important constitutional cases in generations – one that could either prolong or even cancel the government’s pursuit of a hard Brexit. Analysts argue that the longer the un-certainty weighs, the more difficult it will be for the Conservatives to push Brexit through. After all, at least two years of formal negotiations with Brussels are required before a new trade deal can be signed. To begin that process, Article 50 must first be triggered by the UK government.
Even if Article 50 is passed by parliamentary ap-proval (a big if considering all those Members of Parliament who voted to remain in the EU), how long will it take? More importantly, will pro-longed negotiations undermine the political will of the pro-Brexit camp? These questions will take centre stage this year.
Brexit Vote Results
Brexit GBP/USA Movements
11
FM ONLINE MAGAZINE
Italy recently voted against Prime Minister Mat-teo Renzi’s proposed reformation of the consti-tution in a high-profile referendum. The Prime Minister immediately resigned, leading to a tran-sitional government that will attempt to steer the ship ahead of the election, which is current-ly scheduled for 2018. For many, Renzi’s defeat opens the door wide open to the far-right Five Star Movement. The party has, among other things, promised to bring a Brexit-style referen-dum to Italy should it succeed in the upcoming election. Polls show that Five Star is Italy’s most popular party.
Elsewhere in Europe, France and Germany are set to vote in national elections this year. Both countries have witnessed a surge in populist parties, with Germany’s AfD already winning re-gional elections.
In France, Eurosceptic Marie Le Pen has stormed into the lead in various public opinion polls. The head of the Front National party has vowed to lead France out of the European Union.4
Conclusion
Uncertainty may weigh on British, global finances in new year
With stock markets surging after Donald Trump’s US presidential election victory, you would hard-ly think that Brexit still poses a challenge to the global order. However, Brexit-induced volatility may return as investors await the result of the UK government’s appeal of the supreme court ruling. Regardless of the outcome, uncertainty may weigh on British consumer and business confidence. Declining confidence levels may weigh on domestic output.
Should Prime Minister May find a way to move forward with Article 50, then the rollercoaster has only just begun. The negotiations are expected to be a long, difficult ordeal with lots of nasty headlines that may impact the financial markets. Mrs. May’s cabinet has already stated its desire to maintain free-trade access with the EU, but not by giving up control of immigration. Under EU guidelines, free trade access cannot
be granted without also accepting freedom of mobility. This is just one of many important issues that could rile up the negotiation process should May’s team clear the supreme court hurdle.
Even if the Conservatives fail to overturn the High Court ruling, Brexit could still have a future. It would just need parliamentary approval first. Although this is certainly a difficult task, it isn’t impossible when over 17 million Britons gave you the biggest mandate in the country’s history.
12
FM ONLINE MAGAZINE
BLACK CLOUDS OVER THE INDUSTRY:HAVE BINARY OPTIONS REACHED A DEAD END IN 2017?
At a time when one of the most popular binary options providers has decided to leave the market, Israel is managing to almost completely kill the industry within its jurisdiction, and European regulators require that financial companies tighten their offerings even more. The binary options world anxiously observes the black clouds that are coming in 2017.
By: Damian Chmiel
In the following article, we take a multi-level look at the most prominent changes that have affected or will affect the binary options market, the latest proposals of regulatory watchdogs, and we will try to introduce some ideas that brokerages and financial companies may implement in order to come out unscathed from this increasingly difficult situation.
13
FM ONLINE MAGAZINE
The history of the binary options market began in 2008. The niche industry rapidly flourished, despite the unfavorable press
caused by dishonest brokers and regulatory turmoil increasing in each passing quarter. Very quickly, binary options found itself in the crosshairs of global market watchdogs seeking to totally ban the binary options retail trading.
The last two years, in particular 2016, have brought a number of new warnings, penalties and tighter conditions which are effectively repelling people from this extremely interesting market. According to many traders it is definitely easier than FX, not only for customers, but also for companies providing technology solutions and trading services. 2017 will undoubtedly be a turning point for many of those entities and will show how many problems have been gathering for the industry.
One thing is certain – over the next couple of months the regulators will not be making things any easier. This could lead many brokers and traders to leave the industry, changing to more exotic jurisdictions or, in the best possible scenario, to improve the service’s quality for the end consumer.
According to Evgeniya Mykulyak, B2Broker
COO: “Regulators clamp down on licensed companies, forcing some of them to lay off staff or withdraw from the market altogether, while unregulated brands thrive. Obviously, near term consequences are going to be painful for brokers, as they can no longer run their business as usual. In the long run, the stricter regulation will have a positive impact on the industry, as it will weed out scam brokers and allow for further consolidation in the industry. Changes are always painful and require lots of patience, flexibility and a balanced approach. Those who can adapt their business models and diversify geographical exposure will survive and become stronger.”
Penalties, Bans, Revoked Licenses and the Last Line of Defense: 2016 in a Nutshell
2016 brought a record number of warnings and penalties imposed on the binary options retail brokerages – the Cypriot Securities and Exchange Commission (CySEC) can boast the highest rate of activity, taking it as a point of honor to X-ray the whole industry more accurately. It must be said, however, that a huge part of the guilt lays on the providers themselves – even though much of the brokers tried to act lawfully and in compliance with the licensing requirements, a substantial part of the binary options niche
focused only on tantalizing uninformed clients with quick profits, using deceptive advertising and offering alleged unlimited profits (while at the same time failing to inform about the related risk). The regulators of the biggest binary options markets have decided apparently to use collective responsibility and punish all equally.
Already in Q1 2016, CySEC has requested payments from Banc de Binary, 24option and Anyoption
that totaled almost 750,000 euros. The penalties usually concerned the same wrongdoings – bad formulation of advertising materials, inadequate approaches to client complaints, the provision of services which went beyond the licensing agreements, etc. The highest fine last year was imposed by the US Commodity Futures Trading Commission (CFTC) on Vault Options and Global Traders 365 – the entities had to pay more than $4.5 million to cover legislative penalties and restitution for illegally offering their services to United States citizens.
Frankly speaking, this was only the tip of the iceberg. Most of the confusion within the industry was caused by the decision of the European Securities Market Authority (ESMA) and CySEC regarding a ban on deposit bonuses, and the plans of the Israeli Securities Authority (ISA) to completely kill the binary options market in its jurisdiction – a jurisdiction where the companies in question have so far generated billions of dollars in revenue for the state treasury.
The negative campaign led by the media and financial watchdogs resulted in a lively discussion between the retail binary options providers about leaving the industry. Even MasterCard has talked about the potentially harmful effects of binary options trading – allegedly, binary options is
OptionFair
Banc de Binary
Source: FM Intelligence
Largest Penalties Imposed on BO Brokers by CySEC, in 2016
24Option
Anyoption
OptionRally
IQ Option
156,000
235,000
138,000
138,000
180,000
350,000
14
FM ONLINE MAGAZINE
similar to the illegal exchange in ivory and drugs and has a negative impact on the reputation of the internationally recognized payments brand. It decided finally to prevent its own customers in selected parts of the world from depositing money in binary options brokerage accounts.
Such actions forced some of the firms to leave the industry or expand their business profiles, adding FX/CFD solutions to their baskets. Binary options trading was suspended, among others, by RoboForex, while Optec and 24Option started to offer products previously reserved for forex providers. However, still the most meaningful and symbolic decision for the industry itself was the one made by Banc de Binary – a widely recognized retail binary options brokerage – to cease all current operations, cancel its licenses and depart from the market.
Banc de Binary - What Went Wrong?
To show how harmful changes have taken place in the binary options field over the last couple of months, we can use an example of one of the largest global providers that decided to close its doors, pack up the business and say goodbye to the binary options world. I refer of course to Banc de Binary, which in January 2017 suddenly announced its decision to abandon its CySEC
license which allowed it to freely function within the framework of the European financial markets.
The first problems however, occurred much earlier. Already in January 2016, CySEC announced an agreement with Banc de Binary under which the broker had to pay 350,000 euros for breaching statutory records. The fine was imposed mainly due to the publication of misleading marketing material and the lack of sufficient information about the brokerage or its financial instruments.
A real blow was received in March 2016 when the CFTC imposed a $7.1 million penalty on the brand owner, Oren Shabat Laurent, as compensation for the American customers who were illegally offered binary options trading. In addition, the company paid $2 million in civil penalties and received a total ban on offering its services to US traders in the future.
At the same time the European media – particularly British and the French online magazines – began a hate campaign against companies offering access to binary options and Banc de Binary found itself a target. It was discovered that brokers sponsored promotional materials advertising profits of millions made by ordinary
Banc de Binary - How It All Started and Why It Ended?
source: FM Intelligence
January 2009
January 2013
January 2016
March 2016
Sept 2016October 2016
Nov 2016
January 2017
June 2011
Foundation of Banc de Binary
First binary broker regulated by CySEC
CySEC slams Banc de Binary with 350,000 euros fine
CFTC orders to pay more than $9 million in restitution
Southampton FC signs & cancels sponsorship deal after 2 weeksTBelize regulator IFSC cancels the trading licenseDecision to eliminate all bonus promotions
Giambrone explores lawsuit worth 2 million eurosRenouncement of CySEC license
More than 20,000 accounts
15
FM ONLINE MAGAZINE
people, which would encourage investments in the highly speculative instruments. The reality for many inexperienced investors turned out to be quite different, and due to the lack of proper knowledge and brazen advertising it often ended with the burial of life savings.
Just when it seemed that the crisis was finally resolved, in October 2016 the International Financial Services Commission (IFSC) of Belize canceled Banc de Binary’s license for non-compliance with conditions related to the license granted for ‘Trading in financial and commodity-based derivative instruments and other securities’.The brokerage made a last attempt to save its brand in November 2016, deciding to give up any bonus offerings, hoping at the same time to improve its own relations with the European financial regulators. Unfortunately this was not too effective, as less than two months later the market was shocked by the news of the company shutting down.
Tomasz Wiśniewski, who serves as a chief analyst at Alpari Research and Analysis, thinks that the Banc de Binary case is a normal situation in a developing market: “Binary options is a relatively new product but is already offered by many brokers. This results in a competition, where
weaker market participants have to give back their market shares. Some of them suffer because of that and other because of the strict regulations.”
Is it good that regulators are strict on this matter? It is always better to be safe than sorry. Clients safety and safety of their funds is the most important thing that one can imagine, that is why regulations have to be strict. Obviously, regulations should focus on the safety of the deposits but in the same time they should allow clients to choose what they want freely and independently. Overregulation is never good in any case. If the clients deposits are safe and they are informed about the risk associated with the binaries, they should be fine investing their money in the way which is suitable for them.”, he adds.
A few days before the announcement, the media also reported an impending lawsuit against Banc de Binary prepared by law firm Giambrone. Its representatives have contacted about 40 retail clients globally who are demanding a return of about 2 million euros. Does the fault lay only with the broker? Or maybe the unfavorable regulatory changes in the previous months had their part in the collapse?
The Regulator Revolution – Stricter Does Not Always Mean Better
The turn of 2015 and 2016 did not indicate even a small possibility of serious regulatory problems. The British government was seriously considering the classification of binary options as a financial product (as opposed to gambling), more than 2.5 million people in the world were regularly trading and in Japan alone, the number of active accounts exceeded 330,000.
The idyllic atmosphere unfortunately had to end in March 2016. That is when the ISA announced a complete ban of binary options – it had earlier stated on many occasions that the instrument is much closer to gambling than to a proper financial instrument. The regulator also explained that further activity of binary options will harm not only retail customers, but also the reputation of the entire Israeli market. Israeli legislators had no intention however of confining themselves to this. In October 2016 Finance Magnates learned that the ISA planned to not only block the access of Israeli citizens to binary options in the country itself but wanted to protect them from international firms too.
Information about very serious changes appeared also in April 2016, this time published by CySEC.
According to the new circular, binary options brokers have to comply with updated regulations – customers must receive accurate information regarding contracts traded in order to maintain transparency and the brokers themselves are required “to act in a fair manner for traders”. In addition, each customer has to be able to cancel the trades within the first three seconds after the purchase.
Moments later, a similar decision to block binary options advertising was announced by France, Belgium and the Netherlands. As binary options are most popular in Europe (see infographic), the nail in the coffin was the October decision of ESMA forcing the cessation of the practice
Tomasz WiśniewskiChief Analyst in Alpari Research
BINARY OPTIONS IS A RELATIVELY NEW PRODUCT BUT IS ALREADY OFFERED BY MANY BROKERS. THIS RESULTS IN A COMPETITION, WHERE WEAKER MARKET PARTICIPANTS HAVE TO GIVE BACK THEIR MARKET SHARES. SOME OF THEM SUFFER BECAUSE OF THAT AND OTHER BECAUSE OF THE STRICT REGULATIONS.
16
FM ONLINE MAGAZINE
of offering tasting bonuses. The directive also concerned FX/CFD, however binary options companies felt the change the most. It needs to be kept in mind that the binary options industry is heavily dependent on bonus offerings which force clients to repeatedly multiply the promotional funds before they can be withdrawn
(often 20-30 times).
Omar Arnout, the vice-chairman of X-Trade Brokers, thinks that banning binary options is not the correct solution: “I do not see the problem in the financial instrument itself but in the way it is sold and marketed and this is something
that regulators should strongly consider. On one hand the problem lies in the fact that very often binary option providers do not have a fair and transparent approach in selling binary options, not only often promising the potential of easy profits in a very short period of time but also providing bonuses incentivizing clients to open trading accounts even though they do not understand both the functioning of the instrument itself but also the market.”
“On the other hand this shows that binary option providers feel that they are allowed to do so simply because of the lack of control from the global watchdogs and even when fines are imposed they do not effectively tackle the wrong doing of the binary option providers. In conclusion I believe that regulatory changes and imposing stricter control is necessary to tackle unfair practices and unfair brokers, but this is something that should be imposed in the whole financial industry irrelevant of the offered financial instrument.”
Public opinion in the past year has been that binary options really are more a gambling product. The longest lasting brokers have another point of view, treating them as fully-fledged financial assets. The whole picture is blurred by the activity of unfair and dishonest
financial companies hoping for quick profits. So let’s analyze hard figures to see if 2016 really hustled the findustry in a blind alley.
Let the Numbers Speak – How Things Really Look
Although binary options brokerages certainly have many reasons to worry, the figures relating to the average monthly deposits – with the exception of the Japanese market – show that the situation is far from tragic. Brokers who adapt to the regulatory changes and fight for customers should be able to bite a sizeable piece of the industry cake for themselves. Within eight years the funds deposited each month increased almost six-fold – in 2016 alone the values oscillated around $180 million, with half of that sum belonging to customers from the Old Continent.
Forecasts prepared by the Finance Magnates Research Department at the same time suggest that in 2017 those values should increase by another $20 million. An interesting alternative is also the Japanese market, where the average monthly deposits for the last year totaled $50 million – and that is a guarantee of high profits for brokers and financial institutions.
Russia
Geographical Distribution of the Binary Option Traders (in %)
52
255
5
2
1 Rest of the world
United States European Union
China Japan
Source: FM Intelligence
17
FM ONLINE MAGAZINE
In Q4 2016 the list of countries with the most active traders was as follows: the United Kingdom, China, Australia, South Africa, Germany, Russia, Malaysia, Italy, Singapore, New Zealand, the UAE, Sweden, the United States,
Norway, the Netherlands, Spain, Turkey, France and Switzerland. The average value of a single customer deposit in these countries amounted to $2,359.11. At the same time the average size of the initial deposit stood at $1,180. Surprisingly, traders from the jurisdictions where the introduction of trade restrictions are discussed the loudest are more willing to deposit higher sums (France, the Netherlands, the UK, etc.).Europe’s problems seem not to apply to Japan, where according to December’s statistics published by the Financial Futures Association of Japan (FFAJ) the number of existing accounts at the end of 2016 reached a record level of 358,699. Volumes were slightly worse on a monthly basis, but were still at a healthy level in relation to previous lows.
It can be assumed that both European and Japanese trading volumes during 2016 started on a higher note, sinking slowly over the following quarters. Without the significant political events such as the British referendum and presidential elections in the USA, the FFAJ’s data chart could have looked very different. Therefore, should brokers have cause for concern? Not necessarily. Market activity is governed by many different laws – even in the years of regulatory peace and great prosperity, binary options trading results have presented differently. The aforementioned
average sums and first-time deposits suggest that we can start 2017 calmly – at least when it comes to market figures.
The widespread media hate campaign also had a positive outcome. In Q4 2016 the number of web searches for ‘binary options’ skyrocketed, reaching similar levels to those for ‘forex trading’, doubling its popularity in the last three years.
Like a Phoenix From the Ashes – 2017 Will Be a Year of Evolution
After the regulatory revolution, which was observed in 2016 and most likely will continue in 2017, the entire binary options industry awaits a tough, but necessary, evolution. Particularly in terms of approaching customers in a world where you cannot offer trading bonuses. Some companies have left or will soon leave the market, but some of them are definitely going to survive and count for great success.
In the past, bonuses brought in high revenues and allowed for a competitive fight. In the current regulatory environment however brokers are forced to look for other ways to stand out from the binary options crowd. There are signs that the industry will go in the direction that was necessary for the FX market – trying to build a
trusted brand, offering added value to customers and creating strong partnerships primarily in those markets where the average value of deposit is the greatest.
2009
5
* Excluding Japan
2010
2011
2012
2013
2014
2015
2016e
2017e
Global Average Deposit per BO Trader per Month, in $mn*
Source: FM Intelligence
517.5 17.5
35
75
127.5
180
200
Jul 16
FFAJ OTC Binary Options Volume (in billion JPY)
Jan16
Feb16
Mar16
Apr16
May 16
Jun 16
Aug 16
Sep16
Oct16
Nov16
Dec16
Source: FM Intelligence
18
FM ONLINE MAGAZINE
One idea to maintain the current flow of client money is to transfer the main focus from high-income customers to a greater number of retail traders with less substantial portfolios. But while the marketing possibilities are increasingly limited, how can a company reach customers and lead them to open accounts? The answer is greater transparency and fewer misleading statements. Increasing numbers of brokerages also use indirect forms of advertising and build brand awareness among a wider audience through sponsorship agreements with sport clubs and individual athletes.
The next step is to increase the emphasis on free demo accounts and trading competitions. Even though they do not translate directly and immediately to the generation of profit and only a small percentage of users may choose to deposit real funds, the example of the retail contracts for difference (CFD) market shows that this is a very good angle of development. Consolidation of trading offerings is the future – brokers that try to integrate their services with popular trading platforms (e.g. Meta Trader) may gain the most. There is no denying that the basic web-based software to trade binary options is heavily curtailed and for more experienced traders may be simply insufficient.
The experience of the biggest industry players shows that it is advisable to expand existing product ranges. Companies like Optec and 24Option back in November 2016 decided to add FX/CFDs to their offerings. The automatization of customer retention also looks like a hot
topic and a good place to start – letting go of the old-fashioned call centers while developing artificial intelligence based solutions may help to significantly reduce operating costs. Technology in the face of new regulatory measures in 2017 will be the main driving force of the industry.The final alternative is to register and obtain a trading license in more exotic regulatory environments, where the price of authorization and control requirements are generally much lower (e.g. Vanuatu, the Marshall Islands). However, when the industry starts to put quality first, and retail customers start to pay more attention to licenses and where they come from, such a step in 2017 may become too risky.
Conclusion
Recent developments and dynamic changes in the binary options market make it clear that staying in the industry is becoming more and more difficult, as I have discussed in this article. Trading volumes and average deposits forecasts for 2017 should however give rise to optimism that the binary options world will come out unscathed, and the most flexible market participants will quickly take over the customer base of other brokerages.
Regulations are usually behind the real market.
Average Deposit per BO Trader per Month, in $mn*
*Per Q4 2016
Kuwait
United States
Australia
Portugal
Malta
New Zealand
United Kingdom
Ireland
Croatia
Hong Kong
Source: FM Intelligence; Powered by Cpattern
As long as the European regulatory watchdogs completely prohibit binary options trading – as is the case in Israel –brokers will find ways to keep their operations going. The main motto for the coming quarters should be transparency, building trust and diversification both in terms of technology and products.
If brokers manage to convince the public that binary options are closer to investment than gambling, then we should not be too worried about the future. Not so long ago, the FX market faced similar turmoil, but stronger regulation separated the wheat from the chaff and allowed growth. Let’s hope that a similar evolution is to come for the binary options industry.
Omar Arnoutthe vice-chairman of X-Trade Brokers
I BELIEVE THAT REGULATORY CHANGES AND IMPOSING STRICTER CONTROL IS NECESSARY TO TACKLE UNFAIR PRACTICES AND UNFAIR BROKERS, BUT THIS IS SOMETHING THAT SHOULD BE IMPOSED IN THE WHOLE FINANCIAL INDUSTRY IRRELEVANT OF THE OFFERED FINANCIAL INSTRUMENT.
19
FM ONLINE MAGAZINE
FORGET ABOUT EXCELSHEETS: CRM SOLUTIONS ARE MORENECESSARY THAN EVERTime is money and the customer is every-thing. Finance Magnates takes a look at how customer relationship management solu-tions help in business as tools that improve the lifetime value of traders in a highly com-petitive environment.
By: Sylwester Majewski
20
FM ONLINE MAGAZINE
One of the most crucial factors to success is time. Actually it is the only factor that cannot be controlled. Therefore, all other
activities need to be properly managed around it so that it can be used efficiently. It is especially important in business. Highly competitive environments require solutions that allow firms to serve more customers in a less time. This is notably important in the forex and binary options industries where the customer base is supposed to constantly expand in order to bring new revenues.
In the trading industry time also has another value. We want to make sure that time spent trading by customers with our company is as long as possible. The longer a customer stays with us the more revenue he or she can generate. The industry has a definition for this - lifetime value (LTV). Therefore on the one hand a company wants to spend less time on customers and on the other it wants customers to stay as long as possible. Sounds like a contradiction and a task impossible to achieve.
However, this is where the customer relationship management idea comes in.
Before moving into details, a short introduction should be presented first. Gartner, the world’s
leading information technology research and advisory company, reported in 2016 that customer relationship management (CRM) software totaled $26.3 billion in 2015, a 12.3% increase from $23.4 billion in 2014. According to the latest enterprise software forecast from Gartner, the CRM sector should expand to become a market worth $36.5 billion by 2017.
It All Started Two Decades Ago and Keeps Evolving
The origins of CRM software solutions can be traced back to the 1980s when the first contact management software was introduced. The next decade brought the first attempts to push the software closer to sales force automation (SFA). The real breakthrough took place in 1995 when the first popular SFA system of Siebel Systems began to resemble modern CRM software.
What is CRM essentially? The encyclopaedia Britannica provides following definition: “(CRM) …supports dealing with the company’s customers in marketing, sales, service, and new product development. A CRM system gives a business a unified view of each customer and its dealings with that customer, enabling a consistent and proactive relationship. In cocreation initiatives, the customers may be involved in the development
of the company’s new products.” Maybe an even better explanation is provided by Salesforce, a leading CRM solutions provider: “Customer Relationship Management (CRM) is a strategy for managing all your company’s relationships and interactions with your customers and potential customers. It helps you improve your profitability.”
According to Gartner, Salesforce is the biggest market player in the CRM industry. The most recent data from 2016 reveals that in 2015 Salesforce had 19.7% of market share with total revenue of 5,170.9 million USD. The second in the rankings, SAP, had to be satisfied with 2,684.4 million USD of revenue and 10.2% market share. Third place was held by Oracle with 7.8% market share and revenue of 2,046.5 million USD. The remaining CRM solutions providers in the rankings were Microsoft and Adobe.
The forex and binary options industries usually do not use the aforementioned solutions in the raw versions that are first offered to regular business providers. The financial industry uses CRM solutions dedicated to FX and BO services, or a general one that is tailored to specific requirements. For instance, due to the sensitive nature of financial information, FX/BO brokers may need tight control over security permissions
and functional privileges or simply the ability to see the trading activity of customers. However the philosophy and core elements of the typical CRM packages are the same in all cases. Their bottom line is the assumption that successful customer engagement, and in consequence successful business, is based on the ability to build meaningful relationships with customers.
Their main target is to collect the data and to make it available to companies, thus helping in three key segments of business activity- support, sales and marketing.
Evgeniya MykulyakCEO of B2Broker
OUR CLOUD CRM SYSTEM IS A TURNKEY SOLUTION BASED ON MICROSOFT DYNAMICS CRM AND TAILORED TO THE NEEDS OF THE BROKERAGE BUSINESS. THE SYSTEM AUTOMATICALLY GATHERS ALL THE CONTACT DETAILS AND REQUESTS FROM WEBSITE FORMS AND LANDINGS IN A CENTRALIZED POOL SO THAT THE SALES MANAGERS CAN HAVE ALL THE REQUIRED CUSTOMER INFORMATION.
21
FM ONLINE MAGAZINE
* Support- awareness and understanding of customer needs and complaints is crucial as it leads to customer satisfaction, or lack of it. CRM holds information about each customer and contacts, allowing to avoid duplications and different views of the same contact/account. It also monitors all activities and interactions with each customer.
* Sales – due to better understanding of the cus-tomer, the company can not only serve him bet-ter but also create for him or her better prod-ucts and selling opportunities for the company.
* Marketing – it involves implementation of strategies in order to sell the product. This process is being assisted by CRM software which based on the collected data and behavioral patterns helps approaching customers in more effective way.
To understand how important CRM software is, it would be wise to introduce part of a real case study related to currently the biggest non-Japanese retail forex broker, FXCM. The following case study was published in “Management Information Systems” (2010) by James O’Brien and George Marakas. In the early days of its activity (the firm was established in 1999), FXCM was using Excel spreadsheets. The company
decided to test drive Salesforce CRM solution. In the first two months alone, 50 sales staff successfully tracked and managed more than 15,000 leads. According to FXCM’s estimations, their productivity was up by 25 percent. Today the benefits of CRM usage is estimated by users to be much higher. According to a survey conducted for Salesforce by an independent third-party, Confirmit, it was reported that increases in sales productivity amounted to 40%
and sales alone to 35%. Even more impressive results were achieved by forex broker IronFX. In 2015, SugarCRM, a CRM solutions provider, published a case study which revealed some interesting data about its solution:
* Increased new account signups from 250 to 4,000 per day by compressing screening and processing time from 30 minutes to less than one minute. Increased trading volume from 4,000 trades per day to more than 100,000.
* Created 360 degree customer view, with country specific information regarding trading regulations and regulatory compliance.
* Implemented advanced automated leads routing based on geography, language and nature of campaign.
* Realized $100,000 annualized savings by eliminating paper and copier costs through digital documentation.
* Enhanced safeguards against money laundering.
* Managed 1,300 percent employee growth over two years without losing focus.
As can be seen in this case study, modern CRM
systems dedicated to the forex and binary options industries are not limited to typical sales/marketing tasks. One of the most important metrics in this industry is customer lifetime value (CLV). It is a financial metric that is used to explain customer profitability over the duration of his relationship with the company. Brokers try to leverage this measure and to segment customers, offering different treatment and by that improving their loyalty. In order to extend CLV companies need to focus on retention.
In the case of binary options brokers, retention is much more important than in the case of forex brokers. Binary options force customers to keep open positions for shorter times and to trade more, thus making them prone to lose capital much faster. Forex trading leaves much more space for the customer extending his or her relationship time with the broker. Therefore it is important to understand the difference between the two sectors and to apply tools and techniques accordingly.
Life Stages of the Customer
Source: Finance Magnates
Retention is the single most important thing for growth.Alex Schulz, VP Growth Facebook
22
FM ONLINE MAGAZINE
Modern CRM Solutions and How They Can Help Your Company
One of the most popular CRM solutions in the forex industry is Microsoft Dynamics CRM. It is offered as a base for CMR packages among others by B2Broker Cloud CRM. Finance Magnates asked the CEO of B2Broker, Evgeniya Mykulyak, to reveal more details about its CRM package:
“B2Broker Cloud CRM system is a turnkey solution based on Microsoft Dynamics CRM and tailored to the needs of the brokerage business. It represents an innovative approach to sales funnels, task work, efficiency analysis, calls notifications and other vital functions that will take the sales of a forex broker to a completely new level. The system automatically gathers all the contact details and requests from website forms and landings in a centralized pool so that the sales managers can have all the required customer information at their fingertips.”
Microsoft’s software is also used by Leverate (LXCRM). According to the company, it is the best choice on the market, as it is a xRM (Extended Relationship Management) solution based on the Microsoft .net Framework. Among the many advantages of using Microsoft’s software are enhanced automation, quick deployment, multi-
system integration, security, and last but not least, usability.
The user interface of Microsoft Dynamics CRM is familiar to anyone who has used Microsoft Office applications. XRM is simply CRM tailored to suit specific organizations. In the case of forex brokers, this term should be seen as ‘Trading Platform Integration’.
The latest version of Microsoft’s solution itself is called ‘Microsoft Dynamics CRM 2016’. The developer says that it covers four major themes: productivity, intelligence, mobility and unified service. The features and functions that it offers are as follows:
* Marketing – this is built around SMS marketing and email marketing. The latter allows the creation of powerful SMS campaigns as well as the integration of SMS marketing in traditional multi-channel campaigns. This feature includes support for both outbound and inbound SMS marketing, maintaining databases and tracking the performance of SMS campaigns.
* Sales – the most important features of this sec-tion include the CRM App for Outlook, Excel In-tegration, Information Discovery, OneDrive for Business, Cortana Integration and Document
CRM Software Industry Rank
Revenue ($M) - 26,287.8Market Share (%) - 100.0
Revenue ($M) - 23,404.0Market Share (%) - 100.0
Total 2015
Total 2014
2014 2015
Source: Gartner (May 2016)
Revenue ($M) Share (%)
23
FM ONLINE MAGAZINE
CRM, and works with all popular binary options trading platforms. What is interesting is that PROFTIF offers its software to both the finance and gaming industries. This fact alone reveals that the forex and binary industries may require a slightly different approach.
Optimove adds another layer to CRM solutions – predictive customer modeling. Optimove’s predictive marketing software applies both mathematical and statistical models to data on the transactions, behavior and demographics of customers in order to predict his or her future behavior and value. Customers with similar
Generation. This last feature allows the creation of rich documents based on CRM data. Presen-tations are saved as Excel or Word documents.
* Customer service – this includes Voice of the Customer survey designer, Interactive Service Hub (single or multi-stream dashboards), Knowledge Management and Unified Service Desk. Knowledge Management allows the creation of a single source of knowledge for the whole organization. Equipped with the new content editor, it helps teams keep knowledge articles approved and up to date.
* Social – that is probably the most interesting part of the system as it exploits the latest technological trends in social interactions which more are often are build into social networks. This feature features Twitter, Facebook, blogs (WordPress/Tumblr), videos (YouTube) and news but also searchboards, forums and custom sources via RSS. The ‘Intelligent Social’ automatically detects potential leads vs cases thus increasing sales performance through suggestions. Furthermore, it is possible to create CRM actions like cases and opportunities from social posts. These records may be created from the post view.
As we can see, CRM solutions evolved dramatically
from the point when they served only an expanded role of contact management software. However even such rich solutions as ‘Microsoft Dynamics CRM 2016’ may not be enough for highly competitive forex and binary options
environments. While binary options technology providers allow integration with external CRM software (such as Tradologic), others like Spotoption offer their own CRM solutions. The SpotOption CRM solution introduced features such as QCenter, Communicator, Autodialer,
Mailer Database, and Refer a Friend. The binary options industry is specific in itself as often binary options brands are left with little room on what they can do on their own when it comes to the technological aspect of their activity - much less than in the case of forex brokers.
From Traditional CRM Solution to Automated Behavioral Pattern Recognition
As I stated earlier, forex and binary options mar-kets require something more than traditional CRM solutions. The trading activity of custom-ers may provide very important information to the broker and it is easily available. So why not use it?
The industry keeps evolving so that new solutions are constantly emerging in the market. There are already firms specializing in solutions for FX or binary options-only segments, where the rules of business are slightly different. For instance, it may be that one firm is operating several binary options brands. Such a situation requires special tools to cover all the specific issues. PROFTIT for example offers a solution that allows the operation of multiple trading platforms under one brand through a single interface. It also allows for the integration and running of various call centers with a single
Evgeniya MykulyakCEO of B2Broker
„A sales manager has to do a lot of homework before approaching the potential customer. Considering that an average forex broker handles hundreds of requests on a daily basis, it is next to impossible to do that effectively in an old-fashioned way, that is without a specialized software Customer Relationship Management (CRM) system”.
Expected Benefits of CRM Usage
Source: Salesforce.com Customer Relationship Survey conducted March 2014 - May 2014
24
FM ONLINE MAGAZINE
characteristics and preferences are grouped into further micro-segments. Predictive micro-segmentation allows brokers to discover the present characteristics of traders and to predict their future behavior, including conversion rates, churn propensity, reactivation rates and future value. Optimove’s product also offers built-in CLV forecasting technology.
The study of behavioral patterns and their exploitation are also key elements of cPattern’s solution.
The firm claims to have developed a set of behavioral models that help brokers closely monitor trader behavior and respond to it at the right time. According to a published case study, its AMC (Account Monitoring & Control System)
solution was deployed at a large international forex broker in 2014. A test was conducted in which live accounts that were handled in real time according to AMC suggestions were compared with a control group to see if they shared trading parameters. It was discovered
that the average re-deposit value increased by 14%. At the same time, share of accounts making deposit grew from 17.5% to 26.6%.
cPattern also offers solutions specific to the forex industry. The flagship product in this case is called ‘Guardian Angel’. It is an MT4 and Sirix plug which analyses traders’ activity in real time in relation to market behavior. Guardian Angel was created to provide traders with personalized feedback on how they trade without providing any financial advice. According to cPatter, it offers to traders an objective view of their own performance, strengthening their understanding and awareness of the market as well as their own trading patterns.
Evolution of CRM
source: www.crmswitch.com
Conclusion
The evolution of customer relationship philosophy over the last two decades has been immense, from simple contact management software to almost fully automatic solutions that can read customer behavioral patterns. Evgeniya Mykulyak, CEO of B2Broker, acknowledges: “Nowadays there is hardly any customer-focused company that can safely skip business process automation without hurting the bottom line. But for brokerage business it is a vital necessity as they sell their services online and over the phone. It means that thorough preapproach is fundamental for a successful deal. Basically, a sales manager has to do a lot of homework before approaching the potential customer. Considering that an average forex broker handles hundreds of requests on a daily basis, it is next to impossible to do that effectively in an old-fashioned way, that is without a specialized software Customer Relationship Management (CRM) system.”
Is CRM software something that is necessary? Obviously yes. And regarding forex and binary options, it is simply inevitable. There is no question that we need CRM. Growing competition, market saturation as well as increasingly demanding regulatory environments are highlighting the
Main fields of activity
CEO / President
Founded
Headquarters
Background
Products and solutions for forex brokers
Evgeniya Mykulyak
2014
Russia
Founded by group of IT professionals in the Forex industry.
Firm in Focus | B2Broker
25
FM ONLINE MAGAZINE
importance of customer retention to brokers. A better question to ask would be ‘what kind of CRM system do we need?’ The answer should be –flexible. It should allow brokers to add new components and should allow the application of the newest concepts in CRM and marketing fields. The good thing is that the CRM industry is very competitive and the best ideas spread quickly among all solutions.
Key Results of Customer Experience Survey
66% of consumers who switched brands did so because of poor service
91% of unhappy customers who are non-complainers simply leave
Only 1 out of 26 unhappy customers complain.The rest churn.
this applesucks!
It is 6-7X more expensive for companies to attract new customers than to keep existing customers
50% of customer experience natural occurring churn every 5 years
Source: estebankolsky.com, annual survey
25
26
FM ONLINE MAGAZINE
financemagnates.com/intelligence
KEEP INTOUCH