Forex Magnates – Within the retail review column of our Q4 2013 Forex Industry Report, a section was titled “Evolve or Die”. The section of the column discussed that much of the forex industry was struggling with a multi-year decline in volatility, and brokers are being forced to be innovative with their offerings, stating:
“While the previous decade was rich in volatility, and nearly any market maker could put their stick in the ground and strike oil, current trading activity has made it a much more difficult environment for brokers. Market-making is still viewed as a profitable business, but more and more we are hearing from dealing desks that their success is tied to a two or three big days in the market each month instead of any semblance of consistency. As a result, there are becoming two classes of brokers; those whose fortunes (and long-term existence) is closely tied to volatility, and others that are branching out into alternative revenues streams.”
Examples where the lack of volatility has put brokers on a death spiral after years of success were GFT and MIG Bank which sold their businesses for small premiums above their liquid asset values. On the other side of the coin, many brokers have been branching out into alternative offerings such as social trading, binary options, and/or B2B sales via liquidity or technology products. In addition, many firms have experienced success by expanding their operations into growing regions such as China, South East Asia and Central/Eastern Europe.
Following this trend and also to appeal to Asian traders, a popular offering from forex brokers (and futures exchanges) over the past two years has been the launch of Chinese yuan pairs. Offerings are nearly always in the form on being priced-based on offshore renminbi (CNH) contract Non-Deliverable Forwards (NDF). Since the beginning of 2013, major names such as Saxo Bank, LMAX, the CME and FXCM have begun to offer CNH denominated forex pairs along with many smaller players. Beyond interest from retail traders, CNH activity has been especially strong among larger players, as Thomson Reuters and FXall have cited it to be a key currency of growth during 2014. The bottom line is the availability of CNH trading which offers a marketable security to bet on the world’s fastest growing economy.
