US Retail FX numbers plummet following FXCM market exit

US retail forex market

A new report issued by Australia based research house Investment Trends has, not surprisingly, found that the US Retail and margin trading FX sector has taken a big hit in 2017, following the (forced) exit from the market earlier this year of former #1 broker FXCM.

FXCM, and its founder and CEO Drew Niv, were banned from the US FX industry and fined $7 million by the CFTC. The CFTC found that FXCM engaged in false and misleading solicitations of FXCM’s retail foreign exchange customers by concealing its relationship with its most important market maker and by misrepresenting that its “No Dealing Desk” platform had no conflicts of interest with its customers.

FXCM soon after sold its US retail FX business to rival Gain Capital Holdings Inc (NYSE:GCAP) and its unit, and changed the name and ticker of its publicly traded parent company to Global Brokerage Inc (NASDAQ:GLBR).

The Investment Trends report is an in-depth study of American FX traders’ attitudes and investing habits. The report is based on a large-scale survey of over 8,000 traders and investors conducted by Investment Trends in August 2017.

Key highlights from the Investment Trends 2017 US FX Report include:

  • Margin FX trader numbers plummet following FXCM’s exit, though new-to-market inflows held steady
  • The competitive landscape narrows and expands at the same time, as many FX traders now look into futures trading
  • Penetration of smartphones increases, while tablets fall out of favour

The study shows that the population of margin FX traders in the United States contracted significantly in the past year. The latest Investment Trends research shows that 85,000 Americans placed at least one FX trade in the last 12 months, down 19% from the previous study. This year’s decline is, in fact, the largest among eight FX markets explored by Investment Trends.

According to Dr. Irene Guiamatsia, Research Director at Investment Trends:

The retail margin FX market in the US faced challenges on multiple fronts. Aside from the strong run on equities, recent regulatory decisions caused the exit of Interactive Brokers and former market leader FXCM.

Despite these headwinds, the pool of new-to-market traders was comparable to previous years. In the last 12 months, 25,000 Americans started trading margin FX for the first time, compared to 27,000 in 2016 and 24,000 in 2015.

Education programs or learning about Forex as part of college coursework are the driving forces sustaining the consistent inflow of these new-to-market traders.

The margin FX industry faces stiff competition from rival investment products, ranging from futures to binary options. For example, 15% of current margin FX traders currently trade futures, and a further 23% are thinking of starting in the next 12 months. According to Dr. Guiamatsia,

Futures trading is a significant contender for the same share of wallet and FX traders who also trade futures currently split their trading volume equally between the two products.

So while there are only very few margin FX providers left, they are now competing with many brokers that offer a broad range of listed instruments and typically enjoy higher levels of brand recognition.

The vast majority of FX traders (82%) currently use a mobile device in relation to their trading, with new-to-market traders even more inclined to do so.

“The rising adoption of mobile devices is a phenomenon observed globally,” said Guiamatsia. “Interestingly, the use of tablets has consistently declined over the last four years in the US.”

This development suggests FX providers must increase the focus on delivering mobile platform usability on smaller sized screens. Mobile charting capabilities is hence set to become a key battleground, as traders increasingly use mobile devices to open or close their trading positions.

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