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And Finally…

I may have missed something here but I received an email about a retail broker – apparently this firm is “the global leader in online forex trading”, something they may wish to discuss with the thousand or more firms in FX who are not only bigger but probably better, which refers to “50% month-on-month growth” in FX trading volumes.

This broker has, apparently, seen “trading volumes [rise]sharply between March and June, increasing by approximately 300% over those three months”. You will be surprised to hear that no actual numbers are given for those trading volumes, but who are we to stand in the way of this miracle growth? Profit & Loss publishes the monthly volume data for the major, excuse me, lesser, platforms who only deal in tens of billions of dollars every day and they all saw dramatic declines from March to June of between 30-50%.

Now it could be the information I was reading was poorly, or more likely cleverly, worded to make it read in a certain fashion but even looking at the data even the biggest growth story in the multi-dealer world (apart from this broker of course!) FXSpotStream, managed only a 21.1% growth versus the same four months in 2019.

Equally, and this is why there are no numbers perhaps, it could be that this broker has suddenly started handling $900 million per day (hopefully on a single count basis – I’d hate for them to be comparing apples with oranges) from $300 million previously. That would, of course, cast a slight shadow on its claims to be an online leader…

There is something in the release, however, because the broker does claim that it attracted 220,000 new accounts in March-June. It acts as a principal to transactions, hence why it does not offer services to the US amongst some others and why a large number of the new accounts came from Africa, eastern Europe and south-east Asia.

Finally, I am informed that working from home has given traders more time to focus on trading. This sounds like few of the accounts are actually traders, rather they are retail punters having a crack at the many CFDs offered by the firm, but it’s OK because “people are actively looking for new income channels” and “Forex trading has also been done online for many years, making it one of the most natural courses of action for new and dormant traders looking for profitable avenues.”

I did look pretty hard on the website but I couldn’t find the bit where it is revealed that only a fraction of retail punters make money in FX – maybe I should have looked harder. Notwithstanding that, there clearly seems to have been a surge in retail trading flows, which raises a red flag in my mind.

The information, does, I think, provide a really good insight into the retail world, and I totally accept that in such a competitive market the PR spiel can get a little punchy at times. It could also indicate that there is a consolidation in the retail broker market about to happen as these new accounts may be from other firms.

I would also really like to know where these firms get their liquidity from; I will be amazed if it is a top 30 bank or even a major non-bank market makers, however – and this is a real concern – it could be from one of the shadow “liquidity providers” that have caused problems for the industry in the past. And this is the red flag, because it bothers me that some firms seeing the apparent growth will try to service it, without perhaps going down every compliance channel. We have seen before how “institutional liquidity providers” have crept into the retail market with unfortunate consequences for several parties, we really don’t need it again.

This all tells me that at some stage we need a global regulatory approach to the retail FX market. This should include, as is the case with hedge funds in the US, controls around the marketing and what can and cannot be said. There are some retail brokers out there (and actually I shouldn’t really call this firm a broker given they trade against their clients) that do their best for the clients and want them to succeed. They also display the appropriate risk disclosures in a prominent fashion with detail. People can make their own mind up and if they want to punt this market and if they lose money then fine, I just feel that there is a duty of care that can be handled much better by a better description of the risks and the banning of firms being able to trade against individual traders.

What can the institutional market do about this? Not a lot, but maybe a closer check of where their liquidity is recycled might help just a little bit.

Finally, I am told in the document that “remote work will keep traders focused on forex markets”. Given how the vast majority of retail punters are just that – casual traders who have other jobs – if they’re focused on these markets what are they doing about their real job? Even worse if they are some of the unfortunate victims of this pandemic who are unemployed, is this people punting away their benefits because they have been sold a fantasy?

Twitter @lamboPnL

Colin Lambert

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