Retail FX: Entering a Phase of Mature Growth

by Sreekrishna Sankar, September 7, 2011
Industry Trends
Global, Asia-Pacific, EMEA, Latin America, North America

Abstract

Retail foreign exchange is growing to become a US$200 billion business, with an annual growth rate of 33% since 2007. Although this growth has been heavily influenced by regulatory control over leverage as well as the exit of many players due to higher capital requirement demands, Celent expects growth to prosper in a safer environment which will attract more medium-term and long-term investors.

In this report, Retail FX: Entering a Phase of Mature Growth, Celent follows the evolutionary story of retail FX, from low volumes in 2004 to significant contributions to overall FX volumes in 2011. This report analyzes the future growth for retail FX while assessing the implications of the regulatory changes to the market. The report provides an in-depth assessment of trends in the market, including the dominant growth markets in Asia, entry of non-FX brokers, and the merger and acquisition scene. This report stresses technological demands faced by retail FX players and identifies social media and mobility as two key aspects of this offering.

While more sophisticated retail investors prefer technology investment and support in algorithmic trading and liquidity enhancement, offerings have to cater to the growth segment of entrants attracted by returns. The market players are focusing on innovative ways to empower this subsegment by providing webinars, web video tutorials, discussion forums, and more evolved social media interactions.

“An important success factor for customer retention is Investing in social media to enable the development of client communities, which allow for a quick learning curve as well as increase understanding of winning strategies from the more active traders,” says Sreekrishna Sankar, Analyst with Celent’s Indian Financial Services group and author of the report.

Retail FX providers have to be quick to enhance their offerings. Development of mobility applications that will enable participants to stay connected with the 24/7 FX market have become a necessity for most providers. Focus on algorithm development and automation support, coupled with superior research and analysis tools, are key differentiators. In the back end, developing a solid infrastructure strategy and building operational efficiency to provide customers with quick and scalable service have become a must.

This report debates the strategic choices players have to make in developing their platforms, whether to white-label or outsource certain parts of it or build the solution. It also focuses on the key features that the platforms need to provide and how these will enrich the end user experience and increase loyalty to the platform, especially at a time of low profitability and high churn.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is part of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America (Boston)
Tylor Tourville
ttourville@celent.com
Tel.: +1 617 424 3284

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)208 870 7875

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81.3.3500.3023

Table of Contents

Executive Summary

3

Introduction

6

Market Overview

7

 

Drivers of Growth

8

 

Asia Is the Major Market

9

Market Trends

15

 

Line Blurring Between Retail and Institutional

15

 

Entry of Non-FX Brokers Increases Competition

16

 

Growing Wealth Management Needs

16

 

Growth in the Options Segment of the Market

17

 

Maturing Market: Acquisitions, Mergers, and IPOs

17

Technology Trends

19

 

Social Networking Enables FX Traders

19

 

Mobility Increases Access to Markets

21

Strategic Choices in Retail FX

23

 

Buy Vs. Outsource Vs. Build

24

 

Must-Haves in Modern Retail FX Offering

25

Conclusion

29

Appendix: Key Retail FX Providers

31

 

Saxo Bank

31

 

FXCM (Forex Capital Markets)

32

 

OANDA

34

 

IG Group

35

Leveraging Celent’s Expertise

37

 

Support for Financial Institutions

37

 

Support for Vendors

37

Related Celent Research

38

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