FX/CFDs Industry 2022 Roundup: Volatility, MetaTrader Ban and More

It is the last week of 2022 and time to look back at the developments in the forex and contracts for differences (CFDs) industry from the past year. The industry has seen many ups and downs in the past 12 months. It ranges from war-led market volatility to a ban of a popular trading platform on a mobile phone marketplace controlled by a technology giant, but the industry, as always, has adapted.

Finance Magnates talked with executives from several brokers and other trading industry service providers to know what the industry players think about the closing year.

"There have been several significant developments in the FX/CFDs industry this year," said Marc Despallieres, the Chief Strategy and Trading Officer at Vantage. "The rise of online trading platforms and mobile apps has made it easier for traders to access the market and make trades from anywhere. This has led to an increase in the number of people trading FX and CFDs, as well as a shift towards more automated and algorithmic trading."

"Artificial intelligence and machine learning are being used increasingly in the industry to analyze market data and make trading decisions. These technologies can help traders make more informed decisions and improve the efficiency of their trading activities. Cryptocurrency trading has also become increasingly popular in recent years, with many traders seeing it as a potentially lucrative market."

Volatility in the Market

Additionally, the trading markets remained susceptible to several macroeconomic events, let it be the Russian aggression on Ukraine that led to the ongoing war and the global woes of rising inflation. These events have brought unexpected volatility to the markets.

"The most significant change to affect the FX/CFD market in 2022 was the increase in volatility due to Russia invading Ukraine," said Tom Higgins, the Founder & CEO at Gold-i, told Finance Magnates.

"Volatility has been down in the doldrums for a few years, with quite a few brokers throwing the towel in. This volatility has created a surge in retail trading that has greatly increased the profitability of many FX/CFD brokers. Volatility is a fickle partner, and too much or too little is bad for business, but a medium amount hits the spot. This is currently still benefiting the markets, but it will settle down in 2023, in my view."

He further elaborated that the brokers have increased the B book trading they did to benefit from the larger price swings. "We have seen a surge in interest in risk management systems to manage this increase in trading and the increased levels of risk the brokers are facing. Brokers that were looking at reducing staff have employed even more people this year, so they may be over-staffed going forward," Higgins added.

The volatility of 2022 came after a clampdown in the markets from the Covid-induced volatility that started in March 2020. Though swings this year were not so extreme, they had a far-reaching impact on the market.

Capital.com's Head of Europe, Alessandro Capuano, believes that the markets returned to normal levels of volatility in 2022. However, it still remains higher on average than the pre-pandemic levels. "This will invariably influence acquisition marketing and clients' trading decisions," he said.

Check out the recent London Summit session on the question "What CFDs Traders Value Most & How They Choose Their Brokers?"

The MetaTrader Ban

This year, perhaps the most notable impact on the FX/CFDs industry was caused by Apple's ban on two MetaQuotes apps, MetaTrader 4 and MetaTrader 5, from the App Store. The technology giant did not explain its move, but reports suggested that it came as fraudsters licensed the MT4 and MT5 apps and offered fraudulent financial services, siphoning millions.

Apart from MetaQuotes, the brokers offering services with these two trading platforms faced significant challenges. MetaQuotes dominates the market when it comes to trading platforms.

"The impact of this decision on the industry has likely been significant, as many traders and brokers relied on the MetaTrader app for access to the market. It is unclear how the ban has specifically affected brokers, as there are many other platforms available for traders to use," said Despallieres.

Indeed, the demand for the products of MetaQuotes' competitors jumped significantly after the Apple ban. Also, brokers with proprietary trading technologies are focusing more on in-house services.

"No doubt the fact that the app was removed from the App Store, and iOS users were no longer able to install and use the industry's most popular product despite the fact that the mobile version remained available undoubtedly, affected the entire industry. However, if we look at separate companies, we'll see that the event made a different impact on them. Brokers that are relying on third-party trading technology got compromised more seriously than those who are using proprietary mobile apps. Those with their own platforms have more wiggle room," said Denis Golomedov, the Chief Marketing Officer at RoboMarkets, a broker that offers both MetaTrader and proprietary trading platforms.

However, IS Risk's Managing Director, Jeff Wilkins, thinks the MetaTrader ban had little impact on the market as alternatives will fill the market vacuum. "Traders are going to trade, and brokers are going to continue to expand and diversify their platform offerings," he said.

Swissquote's Product Manager, Juan Lemoine said: "I believe a third-party platform can speed up the “time to market” of a new broker. Still, existing brokers should also look at building and improving their proprietary platforms because this will allow them to compete in other areas than just price. Unique customer experiences and building dedicated tools that will give the broker a unique competitive advantage can more easily be developed on a proprietary platform than on a third-party platform."

The Next Big Market

FX and CFDs trading is big in the developed markets where they are allowed. However, the retail markets in the United Kingdom, Europe, and Australia are almost saturated. Big brands have captured the market, and it is challenging for new players to enter these markets. It prompted brokers to look for new markets.

In 2022, several big and small brokers expanded their geographical reach. Some have acquired licenses for specific markets, while most acquired offshore licenses to strengthen their global services.

"The financial markets have positively exploded in recent years, with growth seen worldwide [and] nowhere has growth occurred faster than in developing markets," said Marios Chailis, the CMO of Libertex Group.

Emerging markets on the rise are the ones in Africa, Asia, and Latin America. Moreover, brokers are expanding aggressively in the muti-lingual Southeast Asian countries and in the Arab-speaking Middle East and North Africa (MENA) region.

However, the opinion of industry experts varies when it comes to betting on the next big market. Higgins believes that Latin America, with a large population and a reading mindset, is the next market where FX/CFDs brokers will grow in 2023. However, Chailis believes Africa will see the boom.

"If I had to pick one hot growth region for the next five years, however, it would have to be Africa. This huge untapped market of almost 1.3 billion people — four times the size of the US — is finally beginning to mature," Chailis said.

Capuano thinks "Asia is better placed than Africa and South America as potential areas for new broker penetration."

However, geographical expansion is not the only strategy for ensuring double-digit growth. Swissquote's Lemoine, pointed out that brokers can "expand the reach to new markets, such as Latin America or Asia, and to use new technologies to attract a younger generation of forex traders" for maintaining their growth.

The Expected Trend in 2023

Trends dominate activities in every market, and FX/CFDs are no exception. 2022 is almost over, so the trading market players are now predicting the trends of 2023 and adapting accordingly. While there will always be some unexpected events that can shake the market, brokers and other market participants always prepare for some expected trends.

"Trends play a massive role in our industry in a variety of different forms, but it is often hard to predict their emergence and overall significance with any level of accuracy," said Chailis.

One of the key areas where there were no major reforms in 2022 was regulations, which might change in the coming year. "Regulators are sending a very clear message about increasing protection of clients, and I think this is a good thing as it will help build greater credibility and confidence in the industry," said Capuano. And, this might drive up the demand for automotive regtech solutions as brokers will want to make sure they really know their clients and can avoid fines for operating in a loose and carefree manner.

Further, in Europe, ESMA has already shown its plans to close lapses of regulatory supervisory when it comes to the passporting of licenses. It even pointed the finger at the enforcement practices of the Cypriot regulator, which oversees a large number of FX/CFDs brokers.

"I think regulation will have a powerful impact in 2023, particularly on the European landscape," Chailis added. "EU regulators are making preparations to stamp out the misleading and amoral practices undertaken by a small but very vocal segment of the CFD trading market, and this will certainly shake up the industry next year."

Big changes are also expected on the technological front, specifically in using Artificial Intelligence (AI) in the trading space. The use of such advanced technology will be seen not only in automated trading but also in analysis and risk management by brokers.

Another big area already trending and might explode next year is the adaptation of environmental, social, and governance (ESG) factors in investing. Customer demand for such investments is going through the roof, and several brokerages are making the ESG data accessible to retail traders. Most recently, Swissquote and CMC Invest started to offer ESG data for stocks and a few other investment products offered by them.

"In the FX/CFDs industry, ESG factors may include the environmental impact of a company's operations, the social responsibility of a company, and the governance practices of a company," said Despallieres. "As awareness of ESG issues grows, it is likely that these factors will become increasingly important in the FX/CFDs industry. For example, investors may choose to focus more on companies that have a strong track record of environmental stewardship or social responsibility. Similarly, financial institutions may consider incorporating ESG criteria into their risk management policies, to better understand and mitigate potential risks associated with their investments."

"Overall, the importance of ESG factors in the FX/CFDs industry is likely to continue to grow in the coming years, as investors and financial institutions increasingly recognize the importance of considering these factors in their decision-making process."