Retail foreign exchange brokers continue to diversify into CFDs as volumes fall

Four margin forex brokers are due to go live with Sucden Financial's newly launched applications programming interface (API) feed for contracts-for-differences (CFDs) trading by the end of January, continuing a trend for brokers diversifying away from declining forex business.

In the past year, online brokers have been hit by declining revenues from retail traders amid a low-volatility environment and a subsequent reduction in trading. In the second and third quarter of 2012, NYSE-listed online broking firm, Gain Capital Holdings' retail business generated revenues of $75.1 million, compared with $106.3 million in the same period the previous year. This reflected total retail trading volume collapsing to $619.5 billion, compared with $805.1 billion during Q2 and Q3 in 2011, which it said was due to low market volatility reducing client activity.

"The last six months have been tough for FX brokers and, as such, they've focused on trying to differentiate themselves and diversify into other products. CFDs, particularly indexes and commodities, are an obvious route for them to expand into," says Jonathan Brewer, head of e-FX business development at Sucden Financial in London.

Brewer adds that the London-based institutional broker introduced an API-feed for CFD trading in December as a result, having launched CFD trading on its white-label platform in June 2011.

"Our first client, based in the Far East, will go live within the next week, with our second client going live shortly afterwards. By the end of January, we will have four clients on the feed, with the other three clients based in Europe and the Middle East," he says.

Brewer expects 20% of its client base will adopt its CFD feed this year, up from 10% previously that had taken the product as part of Sucden's white-label offer. "We envisage global interest – for example, western mainland European clients like trading index products, clients in the Middle East like trading oil and, in general, the US indexes are also a good way for customers to get exposure to stock markets," he says.

Brewer declined to name the clients.