Emerging markets to drive retail foreign exchange growth in 2013

Africa, Asia, the Middle East and Latin American are tipped to drive growth in retail foreign exchange volumes, according to results of an industry survey by trading technology vendor Integral, published on February 14.

The survey of 31 global retail foreign exchange brokers carried out in December 2012, revealed expectations for a rise in the number of retail forex traders in Africa, Central and South America, the Middle East and Asia, this year. Respondents said activity should remain constant in Europe, Australia and New Zealand, but expect a fall in North America this year.

Brokers are also anticipating more new entrants into the Asian markets, signalling the relocation of businesses from a more stringent operating environment in Europe and North America where margin and capital requirements have come into force. The trend has raised concern among some brokers that are cautioning against the establishment of oligopolies in the more developed markets as a result.

"I believe that in many large western markets like Japan, the US and UK, rules are already very draconian and overly burdensome, and we are in danger of really going to small oligopolies in these markets which will drive down competition. Great for FXCM and IG Markets, as two of the largest incumbents, but bad for the industry as a whole," says a retail broker.

"In many emerging markets, countries and peripheral markets, regulation is non-existent or too light, and that is leading to real problems for the industry reputation-wise. Here significant regulations are needed."

Perhaps reflecting concerns of retail traders, half of the brokers surveyed expect more brokers to shift towards operating an agency model versus in-house market-making in 2013.

"Private investors are increasingly attracted to forex brokers where there is no perceived conflict of interest; they like to deal with a broker that can offer transparent pricing directly from the market," says Harpal Sandhu, chief executive officer at Integral in Palo Alto, California. "Furthermore, more brokers are enticed by the idea of a less risky business model with the prospect of steadier, consistent profits."

For full results of the survey click here