About a year ago the Forex blogosphere was agog with stories of the impending takeover of the industry by Forex social networking sites. It seemed, the conventional thinking went, that most of us would trade, sooner or later, via websites that connected us to other traders and allowed us to do things such as track our results versus other traders, or follow leading “expert” traders. Facebook was coming to meet FX, and that was simply going the way it had to be.
However, a year later, things have not exactly worked out as planned. Growth of members at leading Forex social networking sites such as Currensee, FX Junction, FXSTAT and Myfxbook has stalled. And even where there’s been growth in users, it has not necessarily translated into revenues for those who operate the sites.
LeapRate has had a peek into the finances of some of the Forex social networking companies, and things still seem to be “developing” (i.e. not yet profitable). While each site has a slightly different business model and “hook”, the Forex social networking sites basically make their money in an Introducing Broker “IB” model, supplemented by the sale of ad space to (mainly) Forex firms. The IB model pays the social network company a fee each time a trader opens an account (or makes a trade / deposit) with a partnering Forex brokerage. For those social networks which also allow / encourage traders to follow an “expert trader”, the social network also earns a share-of-profits success fee alongside the expert trader.
The problem, it seems, is that Forex social networks have become somewhat popular among a niche crowd, but they haven’t generated the new-account-opening activity intially hoped. Basically, Forex social networks face the same problems other “traditional” IBs and White Labels have – they spend 100% of the marketing dollars to bring in a new client/trader, but only earn a fraction of the spread from the trading activity of that client. Forex social networks also have the burden of running somwhat complicated and expensive software systems, to provide the functionality they advertise.
The heat is going to be on as some of these companies begin to run low on funding, and as some of the shareholders and investors in Forex social networks begin to lose patience and demand results. (For example Currensee has raised about $17 million in venture capital financing from the likes of North Bridge, Egan Managed Capital, and Vernon & Park Capital. That’s a lot of cash to play with, but also creates a lot of expectations). To attract users some of the Forex social media sites have taken to certain media stunts. One site (LetstalkFX.com) has even created the “Social Forex Awards” for its own industry.
The “jury is still out there” in terms of a final verdict on Forex social networking. However it is clear to us that not all the sites will survive. For more on Forex social networks and media see the LeapRate-Dow Jones Forex Industry Report.