FOREX MAGNATES QUARTERLY MARKET REPORT FOR Q1 2013 This publication is the sole property of Forex Magnates. It has been provided to you based on your statement and agreement that it will be viewed by your eyes only and will not be distributed and/or reproduced in any way. Each publication has been uniquely marked and any person whose publication is found distributed will be traced and charged with copyright infringement. All materials contained in this publication are protected by United States and international copyright laws and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of Forex Magnates. You may not alter or remove any trademark, copyright or other notice from copies of the content. All information in this publication is subject to change. Information presented in this publication is of Forex Magnates only and does not necessarily represent the opinion of any Forex broker and/or any other company mentioned in this publication and/or its management. Forex Magnates does its best to verify the accuracy or basis-in-fact of any claim or statement made in this publication, however errors and omissions may occur. Any opinions, news, research, analyses, prices or other information contained in this publication or on the Forex Magnates website, by Forex Magnates, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. Forex Magnates will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information or of its accuracy.
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Content Index 1. Q1 2013 Forex Market Overview page 7 2. Institutional and Retail Forex Volumes page 10 3.Exchanges Update Q1 2013 page 23 4.Binary Options Update Glass Ceiling and Regulation page 24 5. Media Forex Websites Traffic Survey: Q1 2013 page 25 6. Articles: page 31 Management page 33 Liquidity - page 39 - page 43 tors page 46 Stability Evolving Every Step of the Way page 51 page 56 page 61 page 62 page 63 page 64 Ahead page 67 page 74 page 78 page 81 page 87 page 95 page 101 page 106 page 112 7. page 114 8. of volume page 151 9. page 169 10. Forex Industry Biggest M&As and Investments page 177 4 www.forexmagnates.com
Q1 2013 Forex Market Overview Starting the year on a fresh page, after a weak 2012 for the industry, 2013 began with a bang. The combination of a spike in currency volatility along with increases in client assets that took place during 2012 led to record volumes occurring in the retail space. While last year was known for consolidation, 2013 could see a return to aggressive expansion take place. While the euphoria was appreciated across the globe, one region that suffered during the quarter was Cyprus and its forex sector.with the country in the midst of a financial crisis, a haircut on bank deposits was proposed by the government. The events caused a decline in confidence to local firms. The result of this loss of confidence will take some time to propagate but what appears to be an interim solution going forward is that most local brokers will stay regulated in Cyprus due to easygoing local regulation but will keep corporate and client bank accounts offshore. Other key events during the quarter included further encroachment by MetaQuotes with its 3rd party providers and changes in regulation. Spiking Volume The Japanese yen began to heat up at the end of 2012, and then really got going during 2013 as the Bank of Japan is presently involved with an aggressive stimulus policy to invigorate the local economy. The result was a much weaker Yen. In addition, fellow currencies also joined the party as large moves in the euro triggered an increase of overall currency activity to start the year. For brokers, the return of volatility not only drove volumes well above 2012 levels, but led to multiple records to be broken. Most notable were volume figures in Japan, where the world s largest retail broker by volume, GMO Click Securities achieved a global record for monthly trading of $861.7 billion in February. Similarly, fel- 7 www.forexmagnates.com
Monthly Totals (in Billions) 25.000,0 20.000,0 EBS FXall*** 15.000,0 Hotspot Reuters 10.000,0 FXCM CLS Bank**** 5.000,0 CME* - Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 TFX (Click 365)* GTX ** Average Daily Volumes (in Billions) 1.200,0 1.000,0 EBS 800,0 FXall*** Hotspot 600,0 Reuters 400,0 FXCM CLS Bank**** 200,0 CME* - Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 TFX (Click 365)* GTX** If you have any questions or comments please contact us at report@forexmagnates.com 14
IG Group 3% Gaitame.com 3% Q1 2013 Traders Securities Oanda 3% 3% GMO Click 20% Alpari 5% 6% Saxo Bank 6% Gaitame Online 7% 8% Cyber 9% 15% Performance of the top 6 global forex brokers in past 12 months Top 6 Largest Global Brokers 900 800 700 600 500 400 300 200 100 0 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 GMO FXCM Saxo Bank DMM.com Gaitame Online Cyber Agent FX If you have any questions or comments please contact us at report@forexmagnates.com 21
IFXEXPO Macau B2B Forex Conference Review The first day event opened with a traditional awakening of the dragon ceremony The event was the largest Asian B2B forex conference ever to have taken place. Joining 60 sponsors were over 1,200 attendees from the entire Asian region encompassing key countries such as Japan, India, Indonesia, Singapore and China. The two day event provided a combination of networking and educational opportunities for attendees. Exhibiting western firms gained exposure to what was for many an entirely new audience. It also allowed companies to learn about the current demands and interests within the region. Many exhibitors made their first trips to this part of the world culminating in one particular common positive feedback received by Forex Magnates being the strong interest in forex and trading opportunities in Asia. With much of the industry seeing contraction take place over 2012, the strong demand in Asia contrasted with the overall global scene. The contrast and importance of Asia was highlighted during January, as major Japanese forex brokers had all reported record volumes on the heels of surging trading in the Yen. In addition to the vast networking opportunities, the event featured numerous expert panels for attendees to learn more dia, execution, social trading, commodities and binary options. Review of Key Panels: Mobile Trading Panel awaited discussion as it was moderated by our very own Adil Siddiqui and covered a topic that is one of the most important trends taking place in forex trading. Over 2012 we saw lead- all post high penetration of their mobile trading platform and announce that mobile is a key focus of their business. Whilst panelists were equally excited about the prospects of mobile, leading the discussion was Vinod Muthukrishnan from Market Simplified whose company provides mobile solutions If you have any questions or comments please contact us at report@forexmagnates.com 31
Point to Point Private Networks Connecting Traders To Liquidity dollars on colocating its servers near exchanges and liquidity providers, buying the fastest servers, and developing flexible front-end trading platforms, all to ensure their clients have access to low latency pricing. But despite this, clients from around the world still cannot take advantage of the low latency solution due to network bottlenecks between themselves and the broker. This can happen whether it is a trader accessing the network from an emerging market or even from a neighboring country. With the maze of telecom companies, fiber optic cables, and jumps needed to connect between two parties, latency through public networks is a given and often hard to forecast. Even when a trader does have a smooth connection, continued telecom consolidation and the buildup of new networks can create changes overnight that can hamper the broker/client link. consist of point to point connections where a trader connects to a local high-speed network, which is linked to the international broker. The result is that rather than depending on public networks to reach the foreign broker, all they have to worry about is connecting with a local destination. Using point to point connections, brokers can establish local access points where their clients can leverage the high speed network to take advantage of firms low latency solutions on which they spent large sums of money to create. This can become especially useful in attracting clients in foreign countries where firms can boast that their clients will be on pretty much the same playing field as those next door to the broker. Milliseconds Count When speaking to traders and network vendors, the need for speed is an overall theme. With billions of dollars on the line, having the fastest execution often means getting filled before the competition. This has become increasingly the case in recent times with much of the world s trading being executed electronically, and automated strategies that hone in on market inefficiencies that may only exist for mere seconds. Even among traditional over the phone and point and click trading, the bottom line is that there is another trader on the phone or with a computer in a building next door that is competing for the same trade. Specifically, when trading across different countries, having access to a faster connection is a vital factor when competing against local traders. As such, point to point connections along with colocation of hosting solutions have become a staple of every advanced financial firm around the world. Opening Up New Markets With Europe being in the midst of a financial credit crisis, the seeing itself make a reversal from the 2008-9 economic collapse, brokers and banks have been looking beyond the established financial centers for new clients. Increasingly, industry focus has moved towards emerging markets, specifically, China, Brazil, Russia, and South East Asia. Competing against domestic players, foreign firms have targeted these new regions with the establishment of local offices. While entering a foreign country is tricky and requires an eye of local customs and interests, western firms have seen success in emerging markets. Explaining the added value that western firms provide, Fraser low latency global infrastructure specialist said Talented people are among the biggest thing that global financial firms bring when they enter new markets. They have people who have experience, knowledge and understanding in the industry and can provide these skills to clients in new regions. Also, western Fraser Bell, Managing Director as BSO Network Solutions firms bring the brand, and access of capital. As such, Bell, overseas offices, believes that due to the advantages western companies provide, there are favorable opportunities when expanding into emerging markets. Also, while in the past firms may have needed to build out much of their own infrastructure to operate a point to point network, companies can nowadays take advantage of existing infrastructure, including fiber routes and hosting facilities at financial hubs. Bell explained that they take advantage of fiber existing routes that can add value for customers, such If you have any questions or comments please contact us at report@forexmagnates.com 39
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Hong Kong - The Big Apple of The Far East The ex-british territory in the Far East has been striving to maintain its golden historic reputation as a leader in finance and economy within the British Empire. Conveniently located strategic place for trade and commerce. It still enjoys semi independence but since Britain handed control of the territory back to China in 1997, it now lives in the lengthy shadow cast by mainland China. It has positioned itself as the visa office for doing business in China and subsequent to the Chinese economic revolution the crossing station for Chinese firms looking to go global. It is regarded as the 6th largest foreign exchange market, and on and investigate as to whether it lives up to its overall reputation as Asia s financial capital. The Economy in the world. The island nation is regarded as being home to the world s freest economy, according to Index of Economic Freedom since the inception of the index in 1995. highly dependent on international trade and finance and in 2009 the real economic growth fell by 2.8% as a result of the global financial turmoil. central bank, therefore banking is free and market driven. The 211 authorised financial institutions including giants such as Stability Report, the consolidated capital adequacy ratio of locally incorporated authorized institutions edged up to 15.9% at the end of June 2011, from 15.8% at the end of 2010. The - comprehensive network of 1,300 local branches. In addition, there were 65 local representative offices of overseas Total Employment in the sector is around 80,000. Banking as- The country has experienced substantial economic devel- Rate averaged 0.98%, reaching an all-time high of 6.30% in September of 2003 and a record low of -3.50% in March Taiwan is one of the Four Asian Tigers. Being conveniently located adjacent to southern China, with some of the country actually situated on the mainland, - throughput. The Banking Sector Stock Markets HSBC s Hong Kong Office equity markets, and the first formal securities market place If you have any questions or comments please contact us at report@forexmagnates.com 56
Regional Overview Greece KEY FACTS: Population: Currency: Membership: EU, Eurozone Regulator: Economic Overview: With the exception of the Greek economic miracle period of consistently suffered many economic peaks and valleys. Recently, since inclusion in the Eurozone, the country underwent another period of prosperity as the standard of living rose to near parity with Western neighbors such as France, and the relatively high unemployment levels became manageable. ernment budgets, the country has been hit by a severe credit crunch. The crisis led Greece to enact austerity budgets, collect bailout funds from the EU and IMF, as well as restructure its debt. The problems led to riots and speculation of whether the country being booted out of the Eurozone. Economically, tourism, the country s most important industry has been hit hard as tourists have worried about violence taking place. Forex Landscape Although the country is home to a sizable population, the forex does have an active trading population as witnessed by its well-developed capital markets structure which includes regional equity and derivatives exchanges. Another factor that has led to the slow adoption of forex trading is the Greek language. With a small global population of speakers, foreign brokers have been slow to rollout Greek language sites and been changing as Cyprus has become a growing international center for forex brokers. As such, with an established base of traders, and growing Greek language forex sites, there is potential for faster growth to take place as the country rights itself following the current economic crisis. With a small contingent of traders, the majority of local presence is through foreign brokers with offices in the country; 5,0% 4,5% 4,0% 3,5% 3,0% 2,5% 2,0% 1,5% 1,0% 0,5% 0,0% Being included in the Eurozone has kept Greece s inflation in check. However, it has also limited the country s ability to devalue its currency to stimulate trade growth. This led Greece s main export and tourism industry to be less attractive to foreign buyers and has contributed to continued high unemployment. As seen below, even before the country s current credit crisis, jobless rates have been an ongoing problem since 2000. 16,00% 14,00% 12,00% 10,00% 8,00% 6,00% 4,00% 2,00% Average inflation rate in 2000-2011 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Unemployment rate in 2000-2011 0,00% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 alongside local firms who are IBs are larger brokers. The only notable Greek broker is AAAFx, which is closely aligned with the broker has very few Greek clients with the majority being est client base in the country. More prevalent in Greece are Cyprus based brokers which compose the largest group of foreign companies marketing in Greece. As the forex industry is not very developed in Greece, brokers marketing their services in the country are advised to use general media portals to reach potential clients. Major portals that contain finance sections include http://www.newsit.gr, http:// finance.in.gr, and http://www.protothema.gr/economy. Finance specific sites include http://www.greekmoney.gr, http://www.imerisia.gr, http://www.express.gr Expanded Report is available in Forex Magnates website s Research section. If you have any questions or comments please contact us at report@forexmagnates.com 61
At The Sharp End Multi-Bank Portals Vie For Supremacy The decade long battle between single bank and multi bank platforms has taken an interesting turn during the last 12 - mammoth banks during the course of the 1990s, and with the trading. The multi bank players performed a key role in the overall sophistication of the market as flexible and innovative ideas came into being, resulting in the waking up of the devel- ers dried up in the latter part of the last decade but significant changes in the operations of the market and new entrants in Background of the ECN Market be considered to be the first company providing an online electronic trading. The firm was closed in 2002 after its parent group suffered losses in the dot.com bubble. match two way prices in a cross network, connecting buyers and sellers to multiple liquidity providers. Technological enhancements have been driving volumes in the multi bank direction as new trading styles such as high frequency trading have created an environment where orders are stripped and chopped and aligned to several counterparties, an area in which the single banks were less welcoming. to attract direct corporate customers and institutional traders - expand their customer base into other sectors, increasing competition between the portals. The daily volumes through these portals were a positive sign in the transition from voice to electronic trading. Volume estimates suggested $7bn per - - Around the same time Atriax, a bank lead initiative to launch the first multi-asset trading platform went live with the leading Integral and aimed to be the preferred venue for e-trading. the back of the AIG and Lehman downfall. has its own charm. John Owens, Vice - think that we are in a period of realignment currently and although there is competition, both types of platform can tate towards the multi bank platforms while the single bank platforms will maintain a presence to provide the added level of customer service and care required for John Owens, Vice President, Exchanges and ECNs at TNS dealing with larger more complex trades. We must also remember there is a cultural issue to address, where relationships are crucial, so maintaining that one-to-one relationship with a single platform enhanced by electronics will add value. has been driving innovation in the market. Both segments complement each other and in essence have their own posi- access to their network. because banks want to offer their unique value directly to clients and lock in their business. Multi-bank portals will continue to compete as they gradually merge into the greater accessible easily by traders over the same widely recognized If you have any questions or comments please contact us at report@forexmagnates.com 81
FX Settlement Getting You Your Money If you ve spent any time watching the chaos of the live trading pits at leading exchanges such as the CME, CBOT, or executed and reported. Within the maze of specialist booths and flying paper, trades are being crossed and buyers and sellers are recognized. While the occasional errors occur, this wild system is highly efficient at reporting and settling trades. In the world of OTC, settlement represents a larger factor, as participants are not bound by a central exchange system that insures against counterparty risk. As such, companies are on their own to ensure that trades are settled correctly with their counterparties and an exchange of funds takes place. In this report, we take a look at the operations of the CLS dle their settlement needs, create efficient markets, and lower overall transaction costs. CLS Bank Launched in 2002, CLS Bank was created as a private sector initiative to deliver and operate services to mitigate settle- institutions and working alongside central banks, CLS offers members the ability to settle trades within a central location, To understand what CLS does, it is first important to know how settlement works. Settlement is the process in which the payment and securities of a transaction are delivered. Within the securities world, this occurs in a three day window. For example, if a trader buys 100 shares of IBM stock at $100/ share, the broker has three days to collect the $10,000 from the client, transfer it to the seller, and collect the shares back for the client. sends dollars while receiving euros. For OTC participants, one of the greatest worries is settlement risk, which occurs when a counterparty is unable or unwilling to provide either the payment or transfer of securities. While a deal between two parties can easily be voided, thus limiting impact of a problematic counterparty, the greater concern is the systemic risk. As traders are simultaneously trading with multiple parties, if one party fails to honor a transaction, it can affect counterparties and could prevent them from having the funds and/or securities to settle other trades. name is derived from the failure of a privately owned German had been put into receivership before the corresponding dollars were sent, due to the time zone difference. Smith ex- volumes growing substantially since that time, settlement risk has grown significantly. To mitigate this risk, CLS was created. Currently, there are over 60 members, which represent some of the largest financial institutions from around the world. CLS provides a central and their customers. To facilitate settlement, all members are required to have a single multi-currency account with CLS, supporting the 17 currencies that are settled by its system. Settlement After conducting a trade, members send transactional details to CLS Bank, including trade details, counterparties, and settlement data. On the day of settlement, CLS Bank multilaterally nets all the instructions between the settlement members, calculating each institution s pay-in obligations for the day to ensure settlement of all their instructions on a paymentversus-payment basis. As settlement completes, pay-out of multi-laterally netted long balances will occur. Example: GBP/USD = 1.50, EUR/USD = 1.25 If you have any questions or comments please contact us at report@forexmagnates.com 106
Major News of the Quarter January ICAP Announces Increase in Electronic Broking Volumes Up 3% Year on Year Read the Entire Article If you have any questions or comments please contact us at report@forexmagnates.com 114
Detailed broker information for the largest brokers in terms of volume FXCM Saxo Bank Alpari IG Group OANDA Gain Capital GFT CMC FxPro GMO Click Securities DMM.com CyberAgent FX Money Partners 151 www.forexmagnates.com
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Name: Status: Year Established: 2003 Shareholders and Funding: Yahoo Japan Corporation Investments and M&As: President, Representative Director: Masahito Ito Capital: Reported Net Profit in 2013 (4/2012-3/2013): Trading volume (OTC): Number of Accounts (OTC+Click365): Total Deposit (OTC+Click365): Regulation: Japan FSA News: Month Trading volume (OTC) (in million yen) Customer accounts (OTC) Customer accounts (Click365) Deposited Amount (OTC) (in million yen) Deposited Amount (Click365) (in million yen) Jan-12 85,173 173,881 72,231 5,738 Feb-12 120,192 178,185 76,719 5,358 Mar-12 150,816 181,969 80,625 5,286 Apr-12 116,763 82,905 5,283 May-12 115,075 82,905 Jun-12 87,581 Jul-12 109,199 190,329 89,575 55,168 Aug-12 106,872 191,839 91,156 56,253 Sep-12 107,689 193,556 92,950 56,730 Oct-12 57,930 197,615 97,129 57,990 199,258 98,866 57,505 Jan-13 202,097 101,780 5,102 Feb-13 326,026 206,059 105,817 62,825 166 www.forexmagnates.com
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Forex Industry Biggest M&As and Investments Broker Type Amount Value Gain Capital City Index Investment Investment Investment $100m $17m $8m+15% $9.7m $12m $100+m $279m $32m $55m $12m $300m Index Ventures Japanese broker MyGaika $175 million invested in the company in total Fortune Capital Japan its white label of MG Financial s retail Forex business of retail Forex business of CMS Forex Acquired US clients base of GFT 09/2007 09/2005 08/2011-2010 03/2009 05/2010 12/2010 01/2011 05/2011 06/2012 12/2012 02/2013 08/2006 02/2008 Investment Investment from Spectrum Equity Investors Acquired by TradeStation for $17m net of cash IG Group $6m $207m $236.6m 07/2007 11/2011 2007 09/2008 09/2010 Equity $3m Refco sold a 35% stake to Lehman and Long Ridge Invested/Acquired part of Avalon software house 2007 01/2009 177 www.forexmagnates.com