A lot has changed in the retail forex market in the last two years. While the SNB event had major consequences for retail forex brokers, there were other long term trends that also contributed to the big changes in volumes at major brokers. Some of them weathered the storm without a scratch while others lost millions of dollars.
Alpari UK was wiped by the franc movement and on January 19 applied for formal insolvency. Another big name that was affected is FXCM. The shares in FXCM plunged after the event and have not recovered since see chart below.
The bailout from Leucadia was insufficient for FXCM to avoid its downfall as the company suffered irreparable damage to its reputation. Saxo Bank is also believed to have suffered up to million in losses from the SNB move, but in the end it managed to survive the event without much damage thanks to its very strong stocks trading and CFD business.
There are also clear winners from the SNB shock. Overall, what represented the demise of Alpari UK and FXCM was a huge opportunity for other brokers, who were proven to have better hedging and protection systems in place. The forex retail market is very dynamic as hundreds of brokers compete for clients around the world. Huge competition results in technological innovation and better service for the clients.
As compared to several years ago, all major brokers feature several advanced trading platforms as well as mobile apps. Spreads went down and execution speed went up. All for the benefit of the clients. In the last two years we have identified several factors that determined the success and volumes of retail forex brokers. Tough regulation with high entry requirements and low maximum leverage has reduced competition in the United States and Japan, formerly known as the most important markets. With little competition from new entrants on their home markets, American and Japanese brokers had little incentive to innovate and adapt to global trends, and this can be seen in their very low market share in foreign markets.
American and Japanese brokers were unable to grow their business at a good rate in Europe, Asia, South America and Africa. On the other side, the low leverage enforced by the regulators has limited the upside on their home markets.
This is why we can see American and Japanese brokers no longer dominating the global forex market as they used to do a few years ago. However, the consolidation that happened in the US market because of the strict regulations resulted in Gain Capital Forex.
A segregated market with no competition from the outside world is very bad for the retail client, but it is very profitable for the big corporations that manage to be the last ones standing. They benefit from the lack of competition as they can have a large client base without innovating and improving their services. It seems that the right balance was found by Cysec The Cyprus Securities and Exchange Commission , which now regulates the fastest growing European brokers and it is the hot spot for regulation in the European Union.
Brokers under Cysec regulation are doing very well worldwide and seem to be able to grow their business at a very fast rate. This resulted in Australian brokers gaining good market share in the global forex market. Saxo Bank , XM. Leverage plays an important role in increasing the volumes of traders with less capital and it is in high demand in emerging markets like Africa and Asia. High leverage helps brokers attract more customers and allows them to lower the minimum deposit requirements.
Since US brokers are not allowed to offer leverage higher than However, the SNB shock has proven that there is no link between maximum leverage and the broker being insulated from volatile markets. FXCM has lost millions of dollars although it was limited to a maximum of Brokers will often reduce the maximum leverage allowed before events that greatly increase market volatility, as it was observed during the Greek debt crisis when most brokers reduced leverage during high volatility weekends.
This means that forex brokers with good risk-management teams can navigate market volatility on their own without the need of tougher regulation.
Spreads are also an important factor for many traders when choosing their broker. Traders who do their due diligence well are more likely to choose a broker with lower spreads. Forex brokers with lower spreads will have lower profit margins but have an advantage in client acquisition and tend to grow their client base and daily volumes faster.
They also have a better client retention rate and higher profitability among their traders. Execution is very important for scalpers and high frequency traders. Traders who use Expert Advisers to test their auto trading systems are also interested in the execution speed and quality. Slippage and re-quotes can be very harmful for scalpers and this is why they tend to look for scalper-friendly brokers.
Hot Forex , XM. Promotions can be a very good incentive for new traders to choose a certain broker. High profile brokers like Forex. This strategy offered them higher profits in the last two years but hampered their growth and resulted in a loss of market share. While such promotion might be seen as a way of attracting only low capital clients, it proved to have many positive side effects that helped fuel the amazing growth experienced by XM.
A free bankroll creates a lot of buzz in the forex online community and a lot of positive feedback from those who receive it. XM also offers deposit bonuses that can add-up to the trading capital and are an additional incentive to choose them instead of other broker.
Considering the fact that XM experienced the highest growth rate in both new customers and trading volumes in the last two years, we can conclude that their promotion was well received and may be one of the many reasons for their great success.
Hot Forex is another growth story and it also features some interesting promotions. All of them have different advantages for different types of traders, and in the end they can be a decisive factor when one chooses his forex broker. Judging by the amazing growth rate of Hot Forex we can assume that their bonus policy was at least helpful. When moving global and trying to service tens of new markets with different characteristics, it is essential to be accessible to as many customers as possible.
When it comes to localized service, multi-language support and website, the clear leaders are Saxo Bank, XM and Hot Forex. On the other hand, Japanese and US brokers are well behind when it comes to localized services and multi-language support.
Deposit and withdrawal methods are another important factor that helped fuel the growth of the most dynamic brokers, XM, IC Markets and Hot Forex. The three of them allow deposits and withdrawals through credit and debit cards as well as all the popular e-wallets, including Neteller, Skrill formerly known as Moneybookers or Webmoney. They also allow deposits through prepaid cards like the popular Paysafecard or local debit cards like the Chinese Union Pay. XM and Hot Forex are the only two brokers offering a forex debit card that allows traders to withdraw their money directly at an ATM or to make purchases with a debit card linked directly to the trading account.
The Forex Mastercard is very popular in Africa and Asia as it represents a very convenient and cheap method of withdrawing winnings from a foreign broker without local offices. Coupled with the low minimum deposit requirements of the brokers, the high number of deposit and withdrawal options is one of the main reasons why the three brokers are the only majors who increased their market share in the last two years.
Special Features can also have an important role in volume growth and customer acquisition, as they can attract new customers as well as stimulate higher frequency trading. Their PAMM accounts allow traders to be account managers or investors who automatically copy the trades of their managers.
After all the talk about the evolution of the forex market in the last two years, it is time to show the rankings of the largest forex brokers by volume as of March The average volumes are measured in billions of USD per day and are calculated for the period between 1st of February and 15th of March. Here are the rankings:. A graphical representation of the top ten forex brokers by trading volume can be seen in the chart below:.
While lacking a solid global footprint, the broker benefits from the huge US market which is closed to foreign competition. The consolidation of the US retail forex market has resulted in only two big players left to share the entire market: Gain Capital and Oanda Corporation.
This is why the two US brokers are some of the largest in the world despite of being unable to succeed in any foreign market. After large gains in trading volume thanks to the consolidation of the domestic market, the volumes of US brokers are expected to stabilize.
XM is the most successful Cypriot broker, and now it is the second largest retail forex broker in the world. Ever since, it experienced the fastest growth rate in the industry being the only forex broker with three digits growth rates for two consecutive years.
The broker is very popular among day traders and high volume traders because of its combination of low spreads, excellent execution and high leverage. Saxo Bank has been stable in the last year after recovering from the loss of volume generated by the SNB shock. The Danish broker has lost its position as the largest forex broker in the world because of the big growth in volume of Forex.
The Danish bank seems to be able to keep a stable volume but has failed to grow in the last two years, as the competition in Europe and Asia is very strong and other brokers have proven to be much more dynamic. Oanda is the most popular US broker among the US online trading community, as it is known for its lower spreads compared to its US peers. The broker had benefited from the ever decreasing competition in the domestic market and managed to grow its volumes on a steady base.
However, as the US market has consolidated there are no visible growth opportunities for Oanda in the near future. Just like Gain Capital, Oanda has been unable to expand successfully in other countries as the US regulation has led to brokers being noncompetitive in the global market, as there are much better options for non-US traders.
Its Eurpean operations are carried under a Cysec license Cyprus while in the rest of the world it operates under the St Vincent license. Hot Forex has grown very fast in the last two years and has become the fifth largest forex broker in the world. The broker experienced the second fastest growth rate after XM in terms of trading volumes thanks to its leading ECN network which connects traders with the best liquidity pool available to retail forex clients.
As the broker with the lowest spreads and best trading conditions in the world, IC Markets is very popular among high volume traders and manages to generate huge daily volumes despite the lower total number of clients. This is the preferred broker among day trading enthusiasts. It focuses primarily on the lucrative Japanese market and it has very little presence in other countries.
Because of the low leverage allowed in Japan which is limited to a maximum of Pepperstone is the second largest Australian broker and it continues to expand its business across Asia. It has kept a steady growth rate in the last two years, although not as spectacular as its other two Ausrtalian rivals IC Markets and Direct FX.
Direct FX is the third largest forex broker in Australia. The broker has seen its popularity rise a lot in the last year amid growing volumes from Chinese traders who want to benefit from the security and expertise of a well regulated Australian broker.
Direct FX is a popular choice for experienced traders because it offers a very advanced trading platform with many levels of market depth coupled with excellent execution and very low spreads. This is why it has a very high average volume per client compared to other brokers. Home About Yop Poll Archive. Hot Forex Debit Card. Related Posts Forex Brokers with Debit Cards In the recent years the forex market reached its maturity, a fact that can be….More...