Michael Greenberg, Founder at Forex Magnates just send me his view about my last post

Retail Forex Industry - Where Are You Heading To?

Here you have Michael’s view:

Francesc,

It’s an interesting article.

Though I have to disagree with several statements. Here are the main points I’d like to argue:

Maturity: The industry is indeed in its maturity stage. But in the US and Western Europe only. Middle East, Asia and Australia are booming and there is much to grab there.

Volatility: I have no idea how can anyone expect a higher or a lower volatility in 2010. The one expecting a higher volatility in 2010 has 50% chance of being right.

Brokers going public: It remains to be seen how successful Gain’s IPO is going to be and how the stock price will behave in the ensuing weeks and months. But this doesn’t mean that 3 more brokers will go public.

There is a reason why Gain is going public in this very volatile period and this is because it is backed by Venture Capital firms. These firms HAVE TO liquidate their investments sooner or later in order to pay back their investors and therefore they push their firms to an ‘exit’. The only other firm to receive a similar investment is Oanda. I doubt if any other brokers will go public any time soon.

M&A: I also don’t believe that the M&A stage is approaching - most of Forex brokers over evaluate themselves and there are not too many of them anyway. In this climate massive M&A process is simply not going to happen. There is also not a lot of sense in acquiring a broker completely (too many question marks) - there is much more sense in acquiring its clients when it goes out of business or moves offshore. Just like what FXCM did very successfully recently.

Education: What is happening now, and is going to dramatically change the brokers landscape, is the increased education that the traders are receiving and demanding. If a few years ago a trader, any trader, just clicked a banner and started trading right now they research the subject first, then research all they can about their chosen broker and only then sign up and trade. This affects their losses, the cost of their acquisition and forces the industry to shift to more transparent way of doing business. Subsequently STP/ECN execution methods, which were only available to very large and sophisticated investors, are available and much more accessible to any retail trader.

When the same educational practices reach Middle East and Asia too most of the small bucketshops will go out of business. Here is the big short term opportunity for scammers and long term opportunity for fair brokers.

Forex Portals: I’m surprised that the acquisitions in the Forex portals market haven’t happened yet but I’m sure this is an ongoing process. The only reason I can think of is the exact reason I gave above about the forex brokers M&A process: Here too the portal owners overestimate their valuations and there aren’t too many of independent portals anyway.

My advise to portal owners (Francesc it’s a hint ;)) - if you get a nice offer with nice multiples - take it. Nobody is going to come back with x2 offer because it losses any economic sense.

Michael Forex Magnates

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

Interbank FX Tightens Spreads
SALT LAKE CITY, Nov. 17, 2009—Interbank FX (www.interbankfx.com), a leading off-exchange retail foreign currency (Forex/FX) broker has implemented new multi-bank liquidity pricing with major currency pairs as low as one pip.
“At Interbank FX, we obtain competitive bids for order flow on our multi-bank feed, allowing our customers to achieve optimal pricing and execution, faster processing times and increased liquidity on every trade,” said Todd Crosland, Chairman and President of Interbank FX. “We’ve lowered our spreads with an average spread below 2.0, offering our customer base optimum pricing to facilitate their trades.”
Full Story

On August 25,2009, NFA’s BCC issued a Complaint against Japan Forex, an independent introducing broker Member of NFA located in New York City. The Complaint charged Japan Forex with failing to have an independent audit conducted of its anti-money laundering (.’AML‘) program, or complete AML training annually, in violation of NFA Compliance Rule 2-9(c).
… The Hearing Panel, having considered this matter and having accepted the Offer made by Japan Forex, hereby orders Japan Forex to pay a fine of $10,000 to NFA within 30 days of the effective date of this Decision.
Full Story

This guys is doing a great job keeping us all more than well up-dated about the latest goings in the Retail Forex Industry. I’m talking about Michael Greenberg and his site Forex Magnates.

Worth following him

Francesc

FXCM releases Financial Data for Q3 2009: Over $115 million in capital
by Michael Greenberg, Forex Magnates

Hi everyone

Forex.com (Gain Capital) announced on Friday the implementation of the new NFA requirements one week earlier as FXCM did last week.

Francesc

——————

Effective Monday, November 30, 2009, a new NFA compliance rule will go into effect for US regulated firms. This rule will require a minimum 1% margin requirement for the major currencies, capping the available leverage at 100:1. The new margin requirement for all other currencies will be 4% or 25:1 leverage.

In anticipation of this rule change, we will be changing the margin settings for all customers’ accounts on Monday, November 23, 2009 at 5 pm ET.

We will be emailing customers over the next few days notifying them of this change. Customers that wish to continue to utilize 200:1 leverage, may transfer their to FOREX.com UK.

Should you have any questions, or if you are unsure of how this change will impact your GAIN Capital account, please contact Alexia Iatridis at 1.908.212.3909, or at aiatridis@gaincapital.com or you can speak to your Relationship Manager.

Hi everyone

Following the steps of FX Solutions and GFT, FXCM the leading retail FX broker is implementing too NFA’s new requirements.

New requirements should be in place on November 30th, but FXCM is putting them in place one week early and will take effect on November 22.

Important New Margin Requirements for All FXCM Micro Clients
Important New Margin Requirements for All FXCM Clients (Standard Accounts)

Francesc

A few days ago, I announced here that FX Solutions was announcing they were reducing leverage offered to clients to adjust themselves to New NFA Regulation.

Today is the turn of GFT Forex

Francesc

————————————-

Dear Valued Customer,

We’ve recently learned of new leverage requirements set forth by the NFA that will change the leverage amounts available to customers. As of November 30, 2009, all major currency pairs will have a maximum leverage of 100:1 and exotic currency pairs will have a maximum leverage of 25:1.

Major pairs include any pair with two of the following currencies: US dollar (USD), British pound (GBP), Swiss franc (CHF), Canadian dollar (CAD), Japanese yen (JPY), Euro (EUR), Australian dollar (AUD, New Zealand dollar (NZD), Swedish krona (SEK), Norwegian krone (NOK), Danish krone (DKK)

All other pairs are considered exotic.

……..

Best Regards,
GFT

Watch it with your girlfriend/wife and share the experience

Francesc

Hi everyone

This is the first notification I’ve received from a US based broker adjusting leverage to NFA’s new requirements. Maybe it is not the first one to make the move, but no doubt many more will follow.

Meanwhile, the fly to UK or Australia branches from US based clients continues

NFA…, are you sure that you are ruling to protect customers interests?

Sometimes, it seems to me that you a trying to protect the backyard of Futures firms… silly right?

Francesc

Important Notice: Reduction in Leverage

On November 30, 2009, the NFA will implement amendments to the Financial Requirements Sections 11 and 12. This amendment will limit leverage to 100:1 for U.S. held accounts on the ten major currencies and 25:1 on all others. Currently all instruments that FX Solutions offers will be leveraged at 100:1 when the rule is implemented. At the close of business on November 30, 2009, ALL open positions held with a FX Solutions accounts will be margined at 100:1.

The Majors Include: British Pound (GBP), Swiss Franc (CHF), Canadian Dollar (CAD), Japanese Yen (JPY),Euro (EUR),Australian Dollar (AUD) and New Zealand Dollar (NZD)

While using low margin requirements can sharply increase the percentage profit or loss potential, FX Solutions is able to provide an alternative to the new reducing leverage amendments.

FX Solutions customers have the option of continuing all current functionality by seamlessly opening an additional account with FX Solutions Australia or FX Solutions UK. These alternatives will allow you to:

* Maintain leverage up to 400:1 on Forex and up to 200:1 on Spot Metals†
* Continue to trade on a ticket-based system
* Place stop loss and limit orders on individual trades
* Utilize Hedging functionality††

Some customers will receive this email over the next few days. Below are the links for customers to create an additional account with FX Solutions AU and UK. Customers using the forms below must have no open positions; for customers with open positions they do not have to close their positions at this time. All new accounts created using the forms below will keep the broker assigned to that account.

Best Regards,
FX Solutions

†FX Solutions asks that you consider the risks associated with increasing your leverage. A relatively small market movement will have a proportionally large impact on the funds you have deposited or will have to deposit; this may work against you as well as for you. You may sustain a total loss of initial margin and you may be required to deposit additional funds to cover a short margin position.

††When employing hedging as a trading strategy, traders should be aware of the costs associated with offset trading. Although hedged trades are opposite of each other, the trades will be treated as independent trades. Traders will pay the entire spread twice (buying at the high end of the spread and selling at the low end). Additionally, at the end of day, rollover/interest policy applies to both trades involved in the hedge; this may result in paying or in some cases receiving interest on both the long and short position. A hedged trade may limit your ability to benefit from market movement.