Forex Industry Report

LeapRate and Dow Jones are pleased to present our joint Forex Industry Report for 2011 – the first comprehensive review of the rapidly growing online Forex trading sector.

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Our report examines issues such as:

  • How big is the online Forex market?
  • Which are the leading Forex brokerage firms?
  • How have regulations altered the industry in the US, Japan, China…?
  • What impact has social networking had on the Forex sector?
  • What financings and M&A transactions have Forex firms completed?
  • Valuations – publicly-traded multiples vs. M&A multiples.

Since our original Forex Industry Report was released back in December 2010 quite a lot has changed:

  • IPOs – Two of the largest US-based firms, FXCM and Gain Capital, have gone public.
  • M&A Activity – Acquisitions have continued to consolidate the industry, with firms such as dbFX disappearing from the scene, and firms such as AvaFX and Saxo Bank continuing to acquire and grow.
  • Increased Regulation – Regulator in the US, Japan, Europe and China continue to be proactive and in doing so have reshaped the industry.
  • New Tools – Social networks, mirror trading and autotrading are each increasingly being used as important tools by retail traders.

In this report we present our views and analysis of these issues and more, such as:

The Forex Market:

  • How big has online financial trading grown? How much more is it likely to grow?
  • Which regions are growing, which are not?
  • How do the trading firms make money?
  • Why are (virtually) none of the big “traditional” banks active in this sector?

Regulation:

  • How have regulators worldwide responded to the growth of the online financial trading industry – and how has that affected the industry in different regions?
  • Which firms have received the most fines (and other sanctions) from regulators?
  • What’s happening in China?

Outside Suppliers:

  • Which are the key software and platform providers to the Forex industry?
  • Which Forex social networks are the most popular?

Key Players:

  • Which are the leading firms offering online trading?
  • Which firms have the most profitable traders?
  • How are Forex brokerage firms valued by the market?

Some quotes from the full report:

Online trading of FX still accounts for just a small fraction of the total global FX market. LeapRate estimates that online FX volumes total today about $185 billion daily, or about 4.6% of the overall global FX market. Nevertheless, this represents tremendous growth, from under $10 billion per day 10 years ago.

Overall industry volumes shrank somewhat in 2010 and 2011-to-date from 2008 and 2009 levels, due primarily to new regulatory-mandated leverage restrictions in two of the world’s three leading markets (the US and Japan), as well as more muted volatility…

We estimate total annual revenues of the trading firms to be approximately $6 billion.

We forecast that non-Forex CFDs will continue to increase in relative importance in the overall picture, from about 9% of overall trading currently to 15% by 2015.

So why are virtually all the banks, and the other main players from the traditional offline FX world, absent from the online FX world? We would note the following…

The US regulatory situation has changed drastically over the past two years. The results of US regulator and government actions, in our view, are tremendously reduced competition in the US market and tremendously reduced choice for US consumers.

China remains somewhat of a mystery regulatory-wise, both in terms of what is indeed currently allowed and where things are headed……we now believe that [Forex firms] can accept customers from China if the customers come to [the] website without being solicited…

We estimate that third party software solutions account for about a quarter of overall volume at online trading firms, or about $43 billion in daily volume, as follows…

The trading world has warmly embraced social media as a tool for communicating and sharing ideas about trading and issues surrounding trading…… Recent growth patterns [indicate] more than a 30% rise in traffic to Forex portals over the past year……  The most popular Forex social networks include

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