Hi everyone,
The last few weeks I’ve had the opportunity to speak with top management of some of the most important firms in the retail Forex industry about the present and the future of both sides of the industry, the retail Forex Brokers and the Forex Portals and Forex sites with high traffic.
These are the conclusions I took based on their feed-back:
1. The industry has begun its first cycle of maturation. Real consolidation and a changing landscape are inevitable soon. Signs are now undeniable.
2. The unprecedented volatility of 2008 stalled this year but it will begin in 2010.
Lower volatility on average will only serve to increase consolidation as it will become harder for brokers:
A. To get new clients as ad results and demo conversions to live plunge when volatility dies.
B. Clients trade less when volatility is low.
3. Forex volumes peaked in 2008. They are down from 30 to 50 percent in 2009 versus peaks.
4. Regulation is changing fast around the world in the US, Japan, Switzerland, etc. Regulators are squeezing out players and will continue to do so.
Players will have to be bigger, richer, and most likely not to take the other side of client trades.
5. Gain Capital is the beginning trend of Forex providers going public, others will follow. IG Markets, which is already a public company, has an advantage in consolidation so far but by the end of 2010 there will be 4 public companies in the space.
6. Consolidation so far was mostly that small firms were disappearing. Going forward you will see half or more of the middle firms to be merged or acquired. The big Forex firms will become much larger acquiring the smaller and who knows maybe we see M&A between large firms.
7. Financially the big firms - except one - made money so far in 2009 but much less than in 2008. One of the biggest firms saw profits declining 25 percent but others are down 50 to 85 percent.
Although they expect 2010 to be better than 2009 it’s unlikely to repeat 2008 or even 2007.
This should reinforce the idea that M&A are the way to grow.
8. Of the middle firms, very few made money, as many grew too fast in 2006 to 2008 and they now find that market does not have enough capacity for them.
This should explain what what we have been seeing recently about massive account opening bonuses, lower spreads and other incentives.
If 2010 does not repeat the volatility of 2007 or 2008, some should give up. Survivors will join the prior group and become big themselves.
This struggling landscape for middle firms could dramatically change if non-English speaking markets keep growing at their recent fast pace. Some are finding overseas the clients generation rates they are lacking at home.
9. Most relevant to us Forex Portals and Forex sites with high traffic is that as firms in this space become public they get the “cash” to do acquisitions that were not affordable before.
10. As the changes outlined above take place, us Forex Portals and relevant Forex sites will become more realistic about valuations, future prospects alone, etc. And this will allow smoother and cheaper roll ups of firms.
11. Borrowing money will remain challenging and expensive. Venture Capital firms are squeezing as industry and will be very selective.
12. Size will matter in attracting money and all firms in the space - even FXstreet.com who is the biggest - are too small to merit attention of many financial players.
What do you think?
I will welcome your feed-back and if you are an industry player that would like me to publish a post with your view, please do not hesitate to ask.
All views are here more than welcome.
Francesc
Francesc Riverola,
