LMAX Exchange
Retail FX trading thus far has primarily been an Asian-European story, and going forward it will become much more Asian. Of the 55% of retail trading volume originating from Asia, a little more than half of this continent’s FX volume originates from Japanese traders. Outside of Asia, Europe (and in particular Eastern Europe) is a growth engine for the industry, generating a third of global volume. Russian trading activity is to Europe what Japan’s is to Asia; Russia’s FX trading activity (approximately US$20 billion per day) is equivalent to more than a fifth of the continent’s total volume.
The American continent held great promise for trading activity in 2008 when daily retail FX volume surpassed US$37 billion. The region’s current US$16.5 billion is a far cry from those days. The cost of running a retail FX business in the United States is the major factor keeping online firms from attaining scale. The main U.S. retail FX regulators (the U.S. Commodity Futures Trading Commission [CFTC] and National Futures Association [NFA]) require retail FX brokers to keep a minimum capitalization level of US$20 million or more (up from US$250,000 in 2005) before a single FX client is even acquired, making the United States capital requirement the highest and most onerous in the world. The opportunity for retail FX has been partially realized, but the high capitalization rate required to be regulated and reach new clients and the relatively low number of account solicitors participating in North America means that the industry’s growth will be meager until (1) better capitalized firms (i.e., banks) enter the space and (2) large securities brokers like E*Trade, Schwab, and TD Ameritrade devote more resources to promoting retail FX.
Source: Aite Group ‘Global FX Market Update 2013: Increased Market Transparency, More Competition’, June 2013
Video Transcript
Retail trading to become more Asian?
David Mercer, LMAX Exchange, CEO discusses his thoughts on the Aite Group report which states total retail FX volumes are to set increase in Asia. The wider Asian region already contributes approximately 55% of current retail FX volumes, half of which is derived from Japan. Moving forward David Mercer speculates, retail FX volumes from the region to increase, however doubts a greater share of the total flow due to a higher split and diversity across the Asia Pacific region from China, Australia and New Zealand.