Retail FX: Growth Strategies in a Maturing Market

by Sreekrishna Sankar, June 14, 2012
Global

Abstract

After the phenomenal growth phase of 2005–2008, during which retail FX volumes catapulted, the industry entered a phase of maturity, during which growth rates slowed down and regulatory constraints increased. Regulators worldwide started focusing on enhancing consumer protection to reduce the risk of uninformed investors falling prey to the appeal and advertisements of higher returns. This has resulted in leverage cuts as regulators attempt to minimise investor risks. Education venues and social networks, on the other hand, are enabling new investors, with better tools and knowledge to understand market dynamics.

In a new report, Retail FX: Growth Strategies in a Maturing Market, Celent focuses on the current state of the retail foreign exchange market and how it is evolving in 2012. The report analyzes the key trends in the market as well as the opportunities emerging for retail FX geographically, and how firms can gear up for these opportunities. Given the financial pressures, brokers have to develop a cost-effective marketing and communication strategy to acquire and retain customers.

Key Emerging Markets

Geography

Importance of FX Focus

Additional Notes

Australia

Very high

Hub for growth in Asia-Pacific.

Regulatory requirements are more firm-friendly.

Building a team is easier in Australia.

Global FX brokers have already entered the market.

Brazil

Medium

Large market and good growth rate.

With global events in the next two to three years, FX will be boosted.

Regulations are stringent.

India

Low

Regulatory restrictions are high and will take a long time to be relaxed.

China

Medium

Deregulation of the currency will be complete in the next three to four years.

Opportunity to access a huge market base.

Regulatory clearances are not easy, but players can enter the market offering educational and other related services.

Malaysia

Low

Malaysian regulator has clarified that retail FX trading is not allowed since it is not compliant with Shariah law.

Source: Celent analysis

Given the rising competition, Celent expects the more dynamic brokers to invest more to deliver better technology and product enhancements to deliver better services to customers. In 2012, Celent anticipates that the end-to-end solution offerings will be a core focus area for FX brokers. Celent expects alliances and collaborations with post-trade technology providers and pretrade providers as brokers focus on delivering more functionalities to their customers, as well as expansion of FX-only platforms to evolve into multiasset platforms. To cross-sell more products and generate higher revenues per customer, platforms will focus on integration with other asset classes.

Celent expects more “prime broking” to cater to highly active retail customers who can leverage the provider’s balance sheet, given the regulatory constraint on leverage. As mobility trading gains traction in retail FX, Celent expects mobility offerings to become mandatory for FX platforms to retain customers.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

3

Introduction

6

Market Overview

7

 

State of the Market

7

 

Market Trends for 2012

12

 

Strategic Focus Areas for Retail Firms

15

Expansion Opportunities in New Markets

16

Technology and Product Enhancements

22

Effective Customer Retention

26

Conclusion

33

Leveraging Celent’s Expertise

35

 

Support for Financial Institutions

35

 

Support for Vendors

35

Related Celent Research

36

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