It’s been a challenging year for the retail foreign exchange and CFDs industry in so many respects, that it is probably difficult to do the subject justice in a single post. However, for almost all of the challenges that retail foreign exchange operators faced throughout the past twelve months, one event was the common denominator.
January 15th 2015 will remain in the history books as one of the darkest days for the global foreign exchange markets. The Swiss National Bank (SNB) not only removed the floor from the EUR/CHF exchange rate at 1.20, but reshaped the Forex market in at least 20 ways, and come to think of it, we might not have yet seen the full effects of this event.
the real magnitude of the event slowly unfolded, causing more damage than most had anticipated
After a set of disruptions across a number of brokerages in the immediate aftermath of the Black Swan , the real magnitude of the event slowly unfolded, causing more damage than most had anticipated. Some prime brokers lost close to eight years worth of profits from their foreign exchange businesses and pulled out in the aftermath of the event, causing a string of losses and problems for a number of brokers.
On the other hand, the event was big enough to finally serve as a catalyst for some consolidation in the industry. While the growth of the retail foreign exchange and CFDs market has been vibrant in recent years, there were few insiders that didn’t suspect that the time was ripe for some consolidation. That said, few actually expected that it would happen so abruptly.
Bankruptcies have challenged regulators, while brokers have been striving to appease new clients in the aftermath of what was a very successful year for some brokers and a make or break one for others.
M&As, regulation troubles
Looking beyond the SNB challenges, we have seen volatility spike up at the beginning of the year and flatten out towards the end. Numerous expected Federal Reserve rate hikes were postponed, and with the hike finally arriving in December, volatility has remained somewhat stagnant.
Publicly traded gaming giant Playtech has been at the forefront of the M&A deals in the industry after acquiring Markets.com in March and storming through to sign two more deals with Plus500 and AvaTrade. Little did we know that the company would face regulatory hurdles from the Bank of Ireland and that the FCA would foil its plans to diversify its business with financial products, at least for the time being.
Capital has been key for the past year, and will remain so possibly for a number of years going forward
Trading volumes at a number of venues have dropped substantially- how long will it take for the activity to pick up again and stop worries about the long term sustainability of businesses? Brokers started making efforts to diversify their exposure outside of their typical regions of operation too.
Another challenge from a business perspective had nothing to do with the markets. A couple of brokers in Cyprus have been reprimanded by the regulator and fined accordingly, however some major issues remain regarding the business prospects of companies that are regulated on the island and which are ultimately liable should a big company fail to meet its client funds obligations.
Retail foreign exchange products continued developing outside of FX, not only due to diversification of flows, but also because of the better trading opportunities that multi-asset offerings have provided to the clients of brokers worldwide. New impressive mobile trading solutions have come to the market, while brokers were striving to provide additional value to their platforms in multiple ways.
Most crucially however, the word 'capital' has been key for the past year, and will remain so possibly for a number of years going forward. Having a solid buffer to assure smooth operation is a crucial aspect of the development of the market in the coming quarters and years.
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