Contributing Authors

Editor's Note

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Section 1 | Q4 2014 Forex Market Overview

Forex Market Quarterly Overview
Institutional FX Volumes Review
Retail Forex Volumes
Retail Forex Volumes by Account
Retail Forex Volumes by MT4 Usage
Exchanges Update
Binary Options Update
Regulations Update

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Section 2 | Articles
The Bitcoin Exchange: Volatility Breeds Opportunity but Challenges Abound
The Inherent Dependence of Global Businesses on the FX market
The Impact of Web Analytics: Asset or Aberration?
How the West was Won: FX Brokers Eyeing Latin America
FX Trading on the Move in Africa's Heart of Gold
Analyzing Volatility: a Bright Future Ahead?
Rising Emerging Markets and their Effect on Brokerages
Tech Roundtable: The Challenges of Operating an Online Brokerage
Forex Magnates London Summit: A Showcase of New Products & Networking
The City, More than just a Square Mile
Mobile Advertising: The Next Battleground
Broker Risk Management Challenges
Gamification, the Game Changer
Commodities vs. Forex: The Correlationship Agenda
Exotic Currencies: Sorting Out Fact from Fiction

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Section 3 | Detailed Broker Information

Largest Brokers in Terms of Volume
Largest Industry Mergers, Acquisitions and IPOs

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Section 4 | Major News For Q4 2014

Top Q4 News
Our Editors' Favorite Quotes
Forex Magnates Top 12 For 2014

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Infographics Index

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Is the Cup Half Full, or Half

Empty?

That is the question forex brokers

will be answering when they look
back at the year that was in 2014.
Whatever the reason, whether the
World Cup, market complacency
with rising stock prices, or just the
result of an ongoing long term shift
in trading conditions, volatility
was at a standstill for the first eight
months of the year.
The result was that after seeing volumes rebound nicely in 2013 from
their collapse in 2012, the forex
market look primed to achieve new
lows in inactivity. Truth be told, the
March to August period was just as
bad as 2012 if not worse for many
trading venues and brokers.
But, in a blink of an eye, market
conditions made a 180, with September through Decembers trading saving the year and then some
for the industry. During that period, forex trading volatility was
pumped via a slew of events affecting nearly every major currency.
Headline events included the Scottish Referendum (British pound),
ECB announces negative interest
rates (Euro), Japans government
coalition falls with forecasts for
further stimulus (Japanese yen),
FOMC ends quantitative easing (US
dollar) and the SNB keeping the

EURCHF price floor (Swiss franc).

ity seemed to reenergize currencies as an asset class. Multi-asset

strategy traders that had been ignoring currencies, once again began to see the potential in trading
the product.

Are Volumes here to Stay?

For brokers and trading venues,

the flood of simultaneous market
moving events led to many firms
reporting both daily and monthly
volume records being broken. The
question now is whether the second half of 2014 is merely an aberration, or the return of volatility to
the forex market?
That answer may be tied in how
currencies are viewed as an asset
class. The truth is, that compared
to other asset classes, the foreign
exchange market is historically the
least volatile when compared to
other products such as commodities, stocks, and bonds. However, it
is the leveraged trading associated
with forex that creates all the risk
we often hear about that is related
to the market. As such, strategies
that work in other, more active asset classes can fail miserably in
forex trading.
What was noticeable during the
Q4 period was that more importantly than the onslaught on global
news triggering volumes, volatil

Throughout the second half of

2014, the forex market can be
viewed as a cyclical, sleeping giant. It may have looked dead
during its quiet periods, but the
existence of leveraged trading is
a cant miss opportunity that will
always attract traders as soon an
volatility picks up. This pattern
is best illustrated in the current
QIR article: Analyzing Volatility:A
Bright Future Ahead where Forex
Magnates studies the relationship
between volatility and volumes.
So are volumes here to stay? They
will always be a volatility derivative, but despite what the first half
of 2014 indicated, forex as an asset
class is here to stay which bodes
well for the industry.

Lessons from Russia

In terms of volatility, taking the

award for the most active currency
of the year is the Russian ruble. Af-

ter trading steadily in the low 30s

for most of the year, the USDRUB
began its ascent higher in September. The combination of potential economic sanctions due to
Russias conflict with Ukraine and
negative effects of falling crude oil
prices triggered consistent weakness in the currency. Aiming to restore demand, the rubles troubles
culminated in a mid-December interest rate hike to 17% from 10.5% by
the Central Bank of Russia. However, emergency actions also created panic in the industry, driving
the USDRUB to a record high of 77,
before intervention brought the
currency pair below 60 once again.
The volatility was a boon for customers, but a headache for forex
brokers. Without much clarity on
the direction of the market and
losses from trading desks, banks
closed trading en masse in the ruble or raised margin rates. Also, and
more impactful was the lack of settlement options available as prime
brokers suspended trades in the ruble, which resulted in a suspension
of ruble trading within the interbank market. For brokers that were
not maintaining a direct relationship with a bank, hedging risk or receiving market data for consistent
pricing became nearly impossible.
A few lessons learned from the ruble troubles. First, market data and
liquidity for minor currencies that
is distributed from exchanges and
ECNs can become choppy or useless in times of severe volatility. A
solution to this problem is to access direct streams with banks with
a direct margin account. Secondly,
customers of brokers with floating
spreads reported fewer execution
problems than clients trading the

ruble with fixed spreads. Due to the

volatility and lack of liquidity during mid-December, spreads often
reached over 1%, which resulted in
fixed spread brokers rejecting customer trades. Even if a broker favors the use of a fixed spread model
for minor currencies, there is an
advantage to floating spreads.

The Lean Mean Forex

Broker Machine

During the first half of 2014, there

were several comparisons made
to 2012s poor performance. In
contrast though, was that the pessimism that existed at that time
was much less apparent in 2014.
Forex Magnates considers 2012 as a
learning period for brokers, and the
realization that the volatile and free
money days of the previous decade
are over. In their place, nearly every
major broker enacted on expense
cuts and refocused their activities
on profitable and growing markets,
or simply exited the market.
The lean attitude was apparent
during the beginning of 2014, as
brokers were optimistic about the
future despite falling volatility, reporting that if the weak environment would continue they would
simply initiate more cost cutting.
As a result of brokers operating
with greater efficiency in 2014,
market conditions improved they
were in better position to scale
their marketing and products. This
was witnessed in the enthusiastic
interest in the new technologies
and proucts that took centre stage


the the Forex Magnates London

Summit in November.

The Year of CFDs

Many brokers hedged the falling volumes in forex trading with

CFDs: while nearly every broker
had a fair share of CFD offerings
prior to the beginning of 2014, the
year saw numerous brokers report
record volumes of non-forex instruments being traded, as well as
the launch of new products. Gold
and Crude Oil were spotlit by brokers in 2014, but one area that experienced precedence were single
stock CFDs. Whether the result of
a booming stock market, customer
interest in equities following the
IPOs of companies such as Twitter and Alibaba, or the delay of potential taxes in Europe, single stock
CFDs were among the most broker-marketed products.
One of the problems for brokers
that inhibits CFDs is a lack of liquidity to hedge customer order
flow. While brokers can hedge
with a CFDs underlying stock or
future, this isnt always an apples
to apples fit due to different margin requirements or trading sizes
between the two products. As a solution, the second half of 2014 saw
an increase of CFD liquidity being
offered by Prime of Prime brokers.
Consequentially, brokers now have
many more hedging solutions to
their CFD products than in previous years which should eventually
provide them greater flexibility in
their offerings.

Latin America is an
emergent, untapped
resource with countries
such as Chile and Peru
becoming increasingly
developed in terms of FX
infrastructure.
In this article, Forex Magnates will investigate the
present state of entry into
Latin Americas FX markets with an emphasis on
Chile and Peru.

By Jeffery Patterson

atin America has long been

an enticing region for foreign investment and FX.
Until recently, many FX brokers
were unsuccessful in overcoming a litany of regulatory barriers, seemingly unable to establish
a foothold in markets. This trend
has changed in recent years, with
many international brokers eyeing offices and prospects in several countries, coupled with a
blossoming domestic FX market.

others. These include a specter of

insolvent markets, uneven compliance measures, political instability
and a lack of exposure to international financial markets. With these
forces largely mitigated over the
past decade however, several
countries have begun to cultivate a
bourgeoning FX market.

Latin America, or LATAM, comprises twenty sovereign countries

collectively boasting a population
of more than 600 million people,
rivaling that of Europe. Like many
other regions around the world, the
continent is home to a unique dispersal of cultures and populations,
most of whom utilize Spanish as
their primary language for business with Brazil being the only
country relying on Portuguese.

Much like its continental European counterpart, Latin America

is merely the sum of a number of
countries, each with different advantages and disadvantages to FX
trading and brokers. Out of this
mix, two in particular have cultured
a functioning domestic FX market
insulated by regulatory oversight Chile and Peru.

Despite a highly developed and

diversified market, several factors
have collectively handicapped Latin Americas development in the financial world relative to other hubs
such as the United Kingdom, United States and the antipodes, among

Domestic FX Hotspots and

Barriers to Entry

Regulation in particular has long

been an area of contention for FX
market participants, capable of
pushing or pulling brokers to specific regions or countries, with the
United States and New Zealand being two recent examples. A number of Latin American countries
have made major gains on the

Of all the terms listed in

Forexs unique vocabulary, volatility is the one
with near-celebrity status due to its standard
association with profit
and a welcome increase
in volumes.
But is it possible to forecast the duration of increased volatility? To
answer this question,
Forex Magnates lined
up and applied specific
technical analysis tools
to identify the tracks of
the engine that keeps
brokers running.

By Sylwester Majewski

s volatility increases, so do
the dynamic moves that
can be observed on the
market. This attracts further market
participants, and consequentially, a
larger turnover. But what exactly is
volatility? A standard encyclopedia
entry describes it as: a measure for
variation of price of a financial instrument over time. Historic volatility is derived from time series of
past market prices.
Can Volatility Be Forecast?

In practical financial terms, volatility provides an explanation just

how much the price of an underlying instrument changes in a given
time frame. Periods of increased
volatility attract market participants
as it creates the opportunities to
exploit sudden price fluctuations.
Periods of lower volatility keep
traders at bay, as there isnt enough
of a price change that could be
taken advantage of to make a
profit. Finally, the higher volatility is, the bigger the uncertainty
is as to how price will change.
Nevertheless, from the perspective of a broker-dealer, increased
volatility is a positive which leads


to higher revenues. Sren Nedergaard, Head of CFDs and Listed

Products at Saxo Bank explained
how volatility interacts with other elements of the brokerage: In
short, volatility create opportunities. Many of our clients are active
traders and with price volatility
comes opportunities for our clients
to enter and exit positions.
This means that more clients will
find the entry and exit levels they
are looking for, and therefore volatility is correlated positively with
income for firms like ours due
to the higher trading activity, he
told Forex Magnates.
Positive correlation between higher volatility and growing turnover
is a well observed fact. It can be
presented in a graphic form based
on publicly available data. Forex
Magnates conducted statistical
measurements using turnover
metrics for two leading retail brokers FXCM and Saxo.
The collected data was compared
to volatility in a corresponding
period of time: volatility was measured using the popular (Average
True Range (ATR) indicator, which
was first introduced in J. Welles

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From the front-end solutions, customers trading with integrating

market data to payment
gateways and CRM systems, the foundations of
online brokers are built
on technology.
In this article, Forex Magnates interviewed leading
brokers and technology
providers for their input
on the challenges and
solutions for operating an
online broker.

By Ron Finberg

t's called online trading for a

reason ,and despite the multitude of financial products,
online brokers are genuine internet businesses. The result is that if
technology fails, brokers risk seeing clients leave or even worse,
never bothering to sign up in the
first place.
Answering our questions are Andrew Budzinski, Director of IC Markets, Adam Narczewski, Regional
Deputy Director at XTB. Tom Higgins, CEO of Gold-i, and Andrew
Ralich, CEO of oneZero Financial
Systems.

What would you consider as your

biggest, daily IT issues?
Andrew Budzinski: The primary
issues we face on a daily basis are
platform connectivity problems.
Typically, such problems occur
due to poor internet connectivity or router packet loss. Connection problems are more prevalent
in remote areas and in places such
as China, where there are other


factors in place. For the most part,

we are able to solve platform connectivity issues through the use of
data centers spread over the world
in major cities, however, for clients
in remote locations, connection issues can still be a problem. As such,
we recommend clients in remote
regions use a VPS located in Equinix NY4 (the same data center our
servers are hosted in).
Adam Narczewski: Most of the IT
issues are solved directly by our
systems provider - X Open Hub.
They manage both our xStation
and Metatrader 4 infrastructure.
Thanks to them, we do not encounter major problems during
high volatility or silent days. This
way we can fully concentrate on
better service to our clients. The
current market is very competitive,
and to stay on top you can never
stop striving for excellence. This is
where our daily focus on IT comes
- mainly on development of new
functionalities, apps and tweaks to
improve customer experience.

Just what are those

Black Swans that can
crush a brokers book
- and what poses the
greater challenge to brokers - extreme volatility
or no volatility at all?
While FX is perceived as
volatile per se, there are
exceptions to the rule.
Forex Magnates presents
the setbacks and solutions
associated with unexpected event management.

By Victor Golovtchenko

hroughout the Forex landscape, extraordinary amounts

of liquidity circulate on a
daily basis, so things have been
known to get quite intense, albeit on an infrequent basis. But
throughout 2014, there were plenty
of examples to that effect - from
the dramatic daily moves of the
Russian ruble of 5% to 20% north
and south round trips within a single trading day, to sharp Japanese
yen moves associated with the
new round of extra loose monetary
policy introduced by the Bank of
Japan, the Scottish Independence
and the Swiss Gold Initiative referendums, both which proved to be
non-events, this time around.
While a number of brokerages
are fully outsourcing their risk by
sending all trades to their liquidity providers, and some major
firms have fully transferred their
business to an agency commission based model, this is hardly the
standard practice employed across
the industry. There are a number
of brokers that choose to go the
way of the B book, and depend on
the high failure rate of traders losing their deposits to balance their
dealing desks, while others even
rely on a large portion of their cli

ents losing all of their deposits to

achieve that balance.
But lets not jump ahead of ourselves: there is nothing that wrong
with B booking as long as it is done
fairly and clients are not directly
targeted with bad spreads, slippage or the like. The return on the
flow of such brokerages can be
much higher than a simple Straight
Through Processing (STP) model,
but only if it is buffered by an appropriate risk management tactic.
So how can risk be managed properly on the marketplace and what
challenges are facing brokerages
that run their own desks?
Forex Magnates contacted two
industry risk management specialists with proven track records
- Carl Elsammak CEO and Head of
Trading at Kammas Trading and
Jeff Wilkins, Managing Director of
ThinkLiquidity, to hear their take
on why they started to provide risk
management services to brokers and on the other hand, what perils
lie in store for brokers attempting
their own risk management.
The first challenge they need to
accept is to choose to run their
own book. The prevailing opinion

Company Name:

Status:

Year Established:

Public (LSE:IGG.L)

1974

Shareholders and Funding: Public

Investments and M&As: Data at the end of the report
2013 Profit Before Taxes: 194.7 million
2013 Profit Before Taxes: 192.2 million
Q1 2015 Global Revenue: 86.6 million
Market Cap: $2.25 billion (as of Sept 23, 2014)
Estimated monthly Retail Volume: $180 billion
Number of Clients: 126,100 financial clients (CFDs, Indices, etc)
Regulation: UK FSA, ASIC, NADEX (daughter subsidiary) - CFTC

News for the Past Quarter:

You Can Now Buy IG Group Shares in the US on the OTC Markets Group Platform
Bitcoin Is Back at IG Markets Ladder and Sprint Binary Options Launched

IG Group Holdings Plc on Track for Record Quarter, Shares Hit Record Highs

IG Group Holdings PLC Details FINMA License, Swiss Bank and Securities Dealer Now Official
IG Group Announces 9% Decline in Global Revenues, Obtains Swiss Regulation

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IG Groups Share Price in the Past Three Months (p)

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IG Groups Financial Performance in the Past Five Years:

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$3.38 Billion in Fines

Handed Down By FCA,
CFTC, and FINMA in FX
Fix Scandal

A year-plus long investigation by global regulators into the business practices of major FX bank dealers has resulted in billions of dollars of fines
being levied. In total, the US CFTC, UK FCA, and Swiss FINAM issued $3.38
billion of payments against UBS, HSBC, Citibank, RBS, and JP Morgan.
The penalties were in response to evidence of price collusion of FX trading
taking place among traders at major banks. Further penalties are expected
to be issued when investigations concerning other major dealers such as
Deutsche Bank and Barclays take place. Banks have also become vulnerable to litigation from clients who have begun to form class action lawsuits
in regards to orders transacted by guilty traders. For an industry where
margins have contracted over the last three years, the fines add another
layer of net income reductions which are expected to impact the workforce.
R

FXCM Shelving M&A

Plans as Volume Increases Bolster Industry
Valuations

FXCM is always on the lookout for a Groyse Metsia (for non-New Yorkers that means hug bargain). On their most recent earnings conference
call discussing Q3 2014 financials though, CEO Drew Niv commented that
although the broker was in discussions with several parties about a major
acquisition, a return of forex market volatility had pushed industry valuations above offers from FXCM. In replace of a major deal, an announcement was made of a $50Mln share buyback, which they believe is the best
use of their cash hoard to improve shareholder value.
R

Industry Domain Sale

Record as Invest.com
Goes for $5 Million

Set to launch in 2015 is Invest.com, a new investing related site. With still
undisclosed plans of their operations, the startup made headlines with
release that the invest.com domain had been purchased for $5 million,
making it the richest domain deal in the industry. Invest.com is backed
by Singulariteam, an Israeli based VC Fund with investments in digital
startups including Yo! And Mobli. Also part of Singularteams portfolio is
Stox.com, which is believed to be related to the Invest.com initiative. In
advance of the launch, Invest.com has been forming its executive team
which includes long term members of the retail forex industry.
R

No Dealing Desk Trading Comes to Saxo Bank

During November, Saxo Bank announced that it will finally be offering a

No Dealing Desk (NDD) account execution for FX, as well as a more integrated MetraTrader4 (MT4) solution which will provide clients with a
choice of pricing structures and access to non-FX instruments. The twin
releases are part of expansion of execution services and products initiated by Saxo Bank which began with the launch of their social trading
platform, TradingFloor in January this year. Commenting on the launch,
Neil Browning, Senior Director of FX Sales, said:As Saxo experiences an
increased demand for flexible solutions, we are presenting these new accounts for our clients to empower them with the opportunity to choose
the combination of platform, pricing and market access they believe best
suits their own trading style and needs.Being a trusted service provider,
we continue to provide new opportunities for our clients, as we strive to be
the facilitator of choice.
R

Trade Game and Bitcoin/MT4 White Label

Lead List of London
Summit Product
Launches

The Forex Magnates London Summit started off with a bang with the
launch of ten new products at the Innovation Stage session. Among the
presenters were five startups that introduced their products publicly for
the first time. Starting the presentations was Centroid Solutions, who
demoed their new risk management solution aimed at small to medium
sized MetaTrader 4 brokers as an advanced monitoring system to the
MetaTrader 4 Manager. Next was Normann, a social behavior trading platform interface where traders enter orders but dont control size of trades
to limit negative emotional behaviors. Following was Qubitia, with a cloud
based strategy development and deployment system for non-programmers. Winners were Tradimo Play for its upcoming Trade Hero game
app, which is designed to educate new investors. They were followed by
Exgate, who launched an end-to-end bitcoin trading offering including
liquidity, integrated bitcoin wallets, risk management and a MetaTrader 4
white label.
R

Catch up on our other

major articles from
November:

Hello Markets gains CySEC regulation as it aims to

provide a licensed platform for its binary options
brokers partners Integral launches FX Yield risk
management platformas they bolster tools for market-making, redistributing liquidity and monitoring client order flow Software AG and Fluent Trade
Technologies partner to roll out a newFX surveillance
softwareand feed handler targeted to prime brokers
and buy-side funds