CONTENT INDEX

Editor's Note Section 1 | Q4 2013 Forex Market Overview Forex Market Quarterly Overview Institutional FX Volumes' Review Retail Forex Volumes Retail Forex Volumes By Accounts Retail Forex Volumes By MT4 Usage Exchanges Update Section 2 | Articles London Summit: What People Were Talking About The Automation Generation: Can Technology Instigate Higher Revenues? The Shanghai Free Trade Zone: Chinas Route to Asian Dominance? Between East and West: FX in Kazakhstan & Uzbekistan New Ways to Trade: Hybrid Financial Products A Year of M&As: Analyzing the Trends Binary Options Industry: Following in the Footsteps of Forex? Can Malta Impeach Cyprus From its Prominence? The Era of One to Many: Prepare for Multi-Asset Platforms Reaping the Rewards: New Model to Motivate Quality Sales Team Costs Are Critical: Transaction Cost Analysis Embraced by FX The Role of Social Media Marketing in Turkeys Fragmented FX Market Trading Signals and Binary Option: A Match Made in Heaven? What Does it Take? Mapping the Components of Trading Platforms 38 44 52 60 68 78 84 92 100 106 110 116 124 132 12 16 20 24 28 32 7

Section 3 | Detailed broker information Forex Industry Biggest M&As and Investments Section 4 | Major News of the Quarter

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Section

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MARKET OVERVIEW
Institutional FX Volumes' Review Retail Forex Volumes Retail Forex Volumes By Accounts Retail Forex Volumes By MT4 Usage Exchanges Update

01

OVERVIEW

ith 2013 behind us, how will the year be remembered? As the year when volatility nally returned to pre2011 levels as Abenomics drove Japanese yen higher and ushered in record volumes for the rst seven months of the year. Or, will the year be seen as the continuation of 2012 as the euro volatility was at historical lows and the FED failed to show it was serious about tapering.

FOREX MARKET QUARTERLY OVERVIEW W

Evolve or Die On the topic of volatility, during the Forex Magnates London Summit (more on page 38), one of the noticeable trends in the market was that more and more participants were embarking on new projects to handle the cyclical nature of the industry. While the previous decade was rich in volatility, and nearly any market maker could put their stick in the ground and strike oil, current trading activity has made it a much more difficult environment for brokers. Market making is still viewed as a protable business, but more and more we hear from dealing desks that their success is tied to two or three big days in the market each month, instead of any semblance of consistency. As a result, two classes of brokers are forming; those whose fortunes (and long-term existence) are closely tied to volatility, and others that are branching out into alternative revenues streams. While volatility can oat all boats, such as was seen in the rst half of the year, it is apparent that a large percentage of rms arent able to handle drawn-out periods of low volatility. Last year the low vola12

During the fourth quarter, we experienced a bit of the latter. Without the backdrop of much yen movement, overall activity depended on a boost from other currencies such as the dollar, euro and pound. However, despite a few days here and there where traders reacted to economic reports or a random FED or ECB meeting and moved the markets, volumes failed to improve much from their summer lows. At issue is speculation, or more truly the lack of it. Volumes strive in times of speculation and debate as traders wage counter battles on the direction of the market. In the current environment, the lack of tapering during 2013, despite several signs of it poised to take place, led to a multi-month trend of a weakening dollar. The result was a directional market that triggered a decline in day to day activity and short-term speculation.

tility environment led to a number of major brokers experiencing losses, while others embarked on expense reductions to stay protable. Even with the positive trends in the beginning of 2013, many rms found it difficult to turn around the negative momentum caused by 2012. Case in point were GFT and MIG Bank which both sold their businesses this year and whose nancial statements showed only moderate prots in 2013 despite an increase in trading. Responding to this reality, in addition to getting leaner with their expenses, many rms have been expanding their product lines to appeal to evolving trader interests. Among the leading examples is the launch of binary options platforms. While there is a fear of binary options and forex cannibalizing each other, many brokers are nding that the two products appeal to separate client types. In addition, for rms with strong existing marketing channels and affiliates, binary options trading provides a new product to pitch to forex leads that were never converted. Our Binary Options Industry Review on p. 84 of this report examines this ne balance between the two industries. Another example is diversifying

tradable instruments. As witnessed by statements from both Saxo Bank and FXCM in the fourth quarter, non-forex products have become a larger contributor of volumes at those brokers. While many new CFDs or exotic currency launches do fail to gain client interest, the continual addition of new products can help engage dormant customers and provide additional resources for sales personnel to pitch. Broader product depth is also a key ingredient for rms targeting new regions, as clients tend to favor trading currencies and CFDs they are familiar with. In fact, many non-English forex portals limit advertising only to brokers who offer regional products.

As a result, new platforms such as apps-based tradable and Spotwares cTrader have garnered increased interest from brokers. Since launching, cTrader has been marketed towards more serious retail forex traders by focusing on the platform being ECN-based. Continuing this strategy, Spotware has added new features such as regional private server connections to reduce latency as well as expanding usability of its algo trading platform. Similarly, as an apps-based platform, tradable has seen interest from brokers who see the potential in offering an open system. While neither cTrader nor tradable can be said to have made much of a dent into MetaTraders dominance, the fact that the products are appearing on more brokers' platform lists bodes well for the expansion of the development of a third party ecosystem which is critical in raising user adoption. Several More Updates

New Entrants to Watch for

1. TradeCrowd New social trading broker 2. GWAZY Forex platform that uses elements of binary options trading 3. ORE White label platform for brokers to offer clients trading in FX options 4. Timur Latypoff Technology Lab MT4 bridge provider also specializing in bitcoin feeds 5. FSWire Social sentiment trading product 6. Inovance Bringing machine learning trading to forex 7. TradingFloor Saxo Bank is launching its trading portal as a social trading platform 8.WL Creator Simplified white label creator launched by X Open Hub
Fig 1. DOLLAR INDEX: MID-YEAR VOLATILITY REPLACED WITH A STEADY LOWER TREND

Platform Wars

Diversifying has also meant the launch of new trading platforms to appeal to different types of traders. Around the industry, MetaTrader continues to garner a mixed opinion. On one hand, the worlds most popular retail forex platform is seeing more brokers begin to offer MT4 as it provides an easier way to onboard clients with existing forex trading experience. On the other hand, many brokers have been quite forthcoming to Forex Magnates about relating their displeasure with working with MetaQuotes in terms of continuing support and upcoming product changes. In addition, offering the platform does little for rms to distinguish themselves from their competition.

1. Daniel Skowronski signs as CEO of Alpari

reUK

2. FXCM reports it has set aside $15 million for potential settlement with FCA about asymmetric slippage 3. OANDA soft launches third party partnership program 4. FX related venture funds arriving to the space with the launch of FMOH Ventures and FXC-QCP 5. List of brokers creating separate technology provider units grows with initiatives from Easy Forex, Markets.com
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ARTICLES
Forex Magnates London Summit How to Increase Revenue Through Technological Advancement Shanghai Free Trade Zone FX in Kazakhstan & Uzbekistan Hybrid Financial Products Mergers and Acquisitions Binary Options Industry Can Malta Impeach Cyprus From its Prominence? Multi Asset Platforms Maintaining a Quality & Motivated Sales Team Transaction Cost Analysis Social Media Marketing in Turkey Trading Signals and Binary Options Mapping The Components of Trading Platforms

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02

ARTICLES

BETWEEN EAST AND WEST: FX IN KAZAKHSTAN & UZBEKISTAN

Central Asia is rapidly emerging as a nancially viable region, driven by natural resources, trade, economic reforms and a strategic location near Russia, China and India. This article will explore two of the regions key countries, Kazakhstan and Uzbekistan, to learn of the role that global nancial instruments play in their developing economies.

azakhstan and Uzbekistan fall under the denition of central Asian countries or Eurasia due to their distinct location: On the west bordering Eastern Europe and on the east connecting deep into Asia. The two countries have been members of a number of pacts post-Soviet demise, such as the Organization of Central Asian Cooperation and the Free Trade Area (CISFTA) as countries in the region were looking beyond the former Soviet Union to position their economic prospects. Since gaining independence in the early 1990s, the region has had two decades of volatility, and has since established its macroeconomic structure. The rst decade was a period when nations in the pact were faced with recession and hyper ination and governments were establishing their capital markets structure. The recent decade has been a time of growth and prosperity with global trade being a considerable factor behind developments in the region.
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The region has been heavily inuenced by the Russian doctrine since the early 20th century, and thus later has been categorized under the Soviet umbrella. Since the breakup of the region in 1991, several countries have taken steps to ensure that the region and its individual occupants benet from the new phase of growth and that development takes center stage. Both Kazakhstan and Uzbekistan are now entering their peak years as Western countries look East for investment purposes to replace saturated economies in Europe and the United States. These two countries are fortunate to be home to a large number of useful natural resources that are driving their respective economies. Kazakhstan has taken advantage of a rst-claimer and has secured its position as the regions nancial leader. The country is a power economy in comparison to its neighbors, and its 16 million popu-

By Adil Siddiqui

Fig 16. Broker Instaforex Roboforex Admiral Alpari Fibo Teletrade Forexclub xForex Masterforex FXOpen Forex4you PFGFX Liteforex NordFX Total Fig 18. 8.5

Kazakhstan Main Brokers and Trading Metrics

Number of Trading Accounts 10,500 5,000 4,500 3,500 1,500 2,500 1,750 1,200 1,100 1,200 1,000 750 500 450 10,450 Average daily trade volume $ millions 415 275 210 180 125 120 80 60 55 50 45 35 25 15 485 Source: Forex Magnates

*
Fig 17.

Spot FX is not a regulated asset class in Kazakhstan

KAZAKHSTAN FX TRADERS

Number of Retail FX Traders Average First Deposit Average Daily Trade Volume

35,00045,000 $350 $1.4 - $1.8 billion

Source: Forex Magnates Fig 19. Kazakhstan Main Products:

Kazakhstan GDP Growth Rate %

2.4 7.5 1.2

% Traded of Total Instruments

10 8 6 4 2 0

10%

Stock Indices

70%

FX

5%
08 09 07 10 13 12 11 20 20 20 20 20 20
Source: World Bank

Energy

Metals

15%

Source: Forex Magnates

Fig 20. 8 7

Kazakhstan Unemployment Rate

6 5

20 08

09

07

20 10

20

20

20

11

20

20

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ARTICLES

A YEAR OF M&As: ANALYZING THE TRENDS

The year of 2013 saw a considerable amount of mergers and acquisitions, some of which have created a shuffle in the balance of power across the forex industry. This article will examine the major M&A transactions to establish a comprehensive view of the corporate strategies that have reshaped the entire market structure during this year.

ergers and Acquisitions (M&A) were one of the hottest topics across the forex industry during 2013. But it is not only the mere market move that makes waves, but even more dramatically its implications for the companies involved and for the industry as a whole. When discussing acquisition of FX rms by fellow market participants, it is essential to evaluate the deeper reasons for these transactions and the impact they are aimed to have on corporate success. In order to conduct such an evaluation, this article will use as objective measurements as trading volumes and stock value creation, wherever the information is both available and substantiated. M&A Effects on Forex Companies

out what was lost in the process. FXCM Eyes GAIN Capital

The biggest M&A transaction this year, oddly enough, was the one that did not actually take place at all. On April 9th, FXCM proposed to GAIN Capitals shareholders to acquire the rm for $210 million in FXCM stocks. At the time, GAIN Capital had about 63,000 clients, valuing the CPA as if to infer that all FXCM was gaining would put the cost per client acquisition at a staggering $3,333.30. Obviously, this was not the way FXCM evaluated its rival, and there must have been other factors involved in this offer. GAIN Capital offered FXCM the chance of securing much more than just its existing clients if the acquisition was to go through. The value of the GAIN Capital brand the FOREX.com domain name are examples of assets that are hard to quantify, however are still very valuable. Additionally, if the acquisition of GAIN Capital had been completed, FXCM would have been transformed into a global giant, with no rival anywhere in the world

By Avi Mizrahi

The effects of mergers and acquisitions can be veried by comparing the stock value, number of traders, total volume and other factors of the combined companies before an M&A event and a year after it, in order to see if the combined company can assume control over all the previous market share, as well as pointing
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other than in Japan, having a virtual monopoly on the retail FX trading business in the US market. When FXCM tried what might be considered a hostile takeover of GAIN Capital, the companys stock (GCAP) quickly rose in value, resulting in trade 26% higher than the $5.35 implicit value of the offer. As the year continued, GAIN Capital shares continued their upward surge, reaching $14.31 in September, subsequently settling back down at around $8 in December. When the proposed acquisition of GAIN Capital was announced, FXCM calculated that the combined company would have had pro forma revenues of almost $570 million in 2012, client assets of about $1.6 billion and an estimated post-synergy adjusted EBITDA of between $163 to $183 million. An improved economy of scale would have led to potentially signicant operating synergies, which according to FXCMs estimations, could have potentially brought between $50 and $70 million in EBITDA annually, once integration was completed. FXCM additionally calculated that potential capital synergies with regard to regulations for example, having only one joint registration in every regulated market instead of two, could have resulted in the release of between $80 and $100 million in currently restricted cash. The deal would have beneted FXCM greatly according to its own estimations, as it could have taken only 3 years to recoup the $210 million investment to be made in stocks, with $70 million of additional EBITDA a

year. That was apparently not good enough for GAIN Capitals management members, who one can safely assume, exposed themselves to the risk of jeopardizing their positions as a result of the operating synergies that would have been implemented once FXCM had taken over. GAIN Capital Evades FXCM, Purchases GFT

GFTs acquisition was announced. The nancial details of GAIN Capital's acquisition of GFT: Net Cost: 27.8 million, FY 2012 volume: $1.3 trillion, customer assets of $650M, 140,000customeraccounts,estimated cost per client acquisition: $199. GAIN Capital estimated that the integration of GFT could have brought an additional positive increase in EBITDA of between $35 million to $45 mil-

Eventually, GAIN Capitals manage-

Fig 27.
GCAP +73.84% 250% 200% 150% 100% 50% 0%

FXCM AND GAIN CAPITAL STOCK PRICES DURING 2013

FXCM +68.92%

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GCAP +73.84%

FXCM +68.92%

Source: NYSE

ment rebuffed FXCMs takeover attempt and acquired GFT for $108 million in cash stocks and notes. GAIN Capital shareholders, who had witnessed the value of their investment cut in half -- from the IPO to the time of the FXCM proposal -- seem to have beneted greatly from the GFT deal, as indicated by both stock market reaction and by nancial details. But the acquisition should also be seen as a brilliant move by GAIN Capitals management to keep the rm independent as FXCM had to take its offer off the table once
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lion had it taken place in 2012. Compared to the FXCM proposal, GAIN shareholders now have the opportunity to take advantage of almost 90% of the potential $45 million in EBITDA increases, while FXCM had offered them just 15% of a potential $70 million in EBITDA increases due to synergies. The acquisition of GFT was evidently a very good investment for GAIN Capital as the rm will be able to recoup it in less than year, even under the tough conditions of 2012. But, what was the reason that lead GFT

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ARTICLES

BINARY OPTIONS INDUSTRY: FOLLOWING IN THE FOOTSTEPS OF FOREX?

The binary options industry has come to a crossroad where it has to choose whether to follow the way set by the forex industry into nancial legitimacy, or go down the path of the gaming industry. This article will review the current state of this industry by presenting various views and predictions voiced by leading binary options technology providers.
o examine how the binary options industry is developing, Forex Magnates interviewed four leading binary options technology providers and a recent new comer crossing over from the forex platform industry into the binary eld. We spoke to Ilan Tzroya, CEO of Tradologic; Eyal Rosenblum, CoCEO of TechFinancials; Shay Hamama, VP of MarketsPulse; Tammy Levy, Marketing Director of SpotOption; and Maor Lahav, COO of PandaTS. This group of industry experts has discussed with Forex Magnates the binary options industrys split between gaming and nancial trading, along seven vectors identied as pivotal to this markets future. Forex Integration

and incorporated into the range of nancial products that FX rms offer to their clients. During this year however, the question can be answered and positively so, as technology providers report many brand name FX rms as their clients. Following up on that, Forex Magnates posed the question of whether binary options are expected to be an integrated part of FX rms own brands, or is it going to be offered under separate binary-only brands, inhabiting a different ecosystem. The answer to that depends on the direction that FX companies plan on taking with binary options, industry professionals told Forex Magnates. FX brokers who want to use binary options to offer a more gaming oriented experience will chose to operate a separate binary brand as just another prot generator for their bottom line. FX rms who decide to offer binary options as a nancial product, could start by testing it as a separate temporary brand. In order to leverage the strength of their

By Avi Mizrahi

As late as last year it was impossible to know for sure whether or not binary options could be embraced by the established retail forex industry
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already-established brand, companies would then be likely to incorporate this product into their offering, just as was done with CFDs and copy trading platforms. But, offering binary options may erode a companys image as a nancial broker and may suggest that it is operating in the grey area close to gambling. This is of concern to FX rms who have established reliability and respectability in the eyes of both traders and regulators.

any industry is to identify its target clientele. When Forex Magnates asked whether FX companies need to worry about binary options cannibalizing their client base, the resounding answer from technology providers was an unsurprising No. This was explained by the fact that binary options trading participants can be divided into two main groups which FX companies cannot utilize without them. The rst group of binary options

capital investment, time required to analyze and follow the markets, and a steep learning curve. Absolutely anyone can understand trading in nancial markets using binary options, Forex Magnates was told by a provider, however only a small percentage of people have the technical and math skills required to understand even common terms in Forex, such as margin call and leverage. Additionally, in times of low vola-

Fig 29.

KEY FIGURES OF AN AVERAGE BINARY OPTIONS TRADER

Lifetime Average Deposit Lifetime Value

Conversion

1:7

$2K
$1,600

Withdrawal Average Average Number of Trades

20% 220

Lifetime

5 Months

Conversion From Existing Database

20%
Source: SpotOption

The apparent solution to this could be to offer the more sophisticated, longer-term binary options offers and market them as nancial introductory products while emphasizing regulation. Following that strategy, SpotOption has reported a shift in commitment by FX rms since CySECs binary options regulations last year. Client Base Overlap

traders is gamblers, not a segment traditionally targeted by nancial companies. Binary options brokers can target online casino gamblers, poker or blackjack players, with simple binary options aimed for those who are looking for fun and for the chance of winning money online. The second group of traders turning to binary options is comprised of people looking to make nancial trades but do not have the ability to commit to FX trading, due to its higher demands for initial
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tility in currency markets, binary options can meet the need for excitement. This way binary options could be used as a tool for retention at low volatility, and thus help to prevent FX clients from abandoning trading at all due to boredom. Industry Structure

A crucial step for understanding

At the beginning of the year the young industry seemed to be centered around three to ve binary options providers, but recently new

Section

03

DETAILED BROKER INFORMATION

For The Largest Brokers in Terms of Volume
FXCM Saxo Bank Alpari OANDA IG Group GAIN Capital CMC FxPro Pepperstone AxiTrader FXOpen DMM.com GMO Click Securities

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COMPANIES

Company Name:

FXCM
Status:

Year Established: 1999

Public (NYSE:FXCM)

Shareholders and Funding: Publicly-owned, list of shareholders here Investments and M&As: data at the end of the report Reported Net Income in 2011: $12.7 million Reported Net Income in 2012: $9.0 million Reported Net Income in Q3 2013: -$5.1 million Market Cap: $1.3 billion (as of Dec 30, 2013) Reported Monthly Retail Volume: $302.7 billion (average for September, October and November) Reported Monthly Institutional Volume: $186.7 billion (average for September, October and November) Number of active clients: 184,062 (as of November 2013) Regulation: NFA/CFTC, UK FCA, HK SFC, ASIC

News in the Past Quarter: FXCM Thankful as November ADVs Rise Read More Here FXCM Sees Red in Q3 2013 Results Read More Here FXCM Releases In-App Mobile Deposits Read More Here FX Stretches Credit Facility to $205 Million, M&A in the Works? Read More Here FXCM Reports Dim Volumes for September Read More Here FXCM Appoints Yousef Malek Shamoun as MD of Middle East Operations Read More Here FXCM Announces Issuance of $12 Note to Innium Capital Read More Here

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04

Section

MAJOR NEWS OF THE QUARTER October November December

175

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NEWS

NOVEMBER
Bitcoin Goes Crazy on Chinese Speculation
After a quiet summer, prices of bitcoin were back in the up in November following news that Baidu, the Google of China was accepting the digital currency as payment for some of its web services. Triggering a bout of speculation from China, prices skyrocketed to all-time highs in the $1,250s as Chinese bitcoin exchange, BTC China became the largest venue by volume. The return of interest led to another round of CFD and forex brokers announcing that they were planning to launch trading in bitcoins. However, the surge has also caused brokers such as Plus500 and AvaTrade to reduce leverage in their CFDs. Prices though, ended the month and followed into December on a low note as Chinas government began to apply restrictions on transfers to exchanges. Read the entire article

Saxo Bank Launching Social Trading

Unveiled during the Forex Magnates London Summit, Saxo Bank made its rst public revelations of its upcoming plans to launch social trading in Q1 2014. The new offering will be based on the brokers TradingFloor analysis portal. The website is evolving to both an interface for trading as well as showcasing existing market analysis features. According to Kim Fournais, Saxo Bank Co-Founder and Co-CEO, the broker was an early leader in bringing FX to retail traders and with the new offering they plan on becoming a market leader by combining their multi-asset trading environment along with their already existing distribution of content. Read the entire article

More M&A and IPOs Coming?

During November, M&A and IPOs were on broker minds. Among potential acquirers, FXCM and GAIN Capital raised eyebrows as the two brokers announced that they were raising cash through separate credit and debt deals. While not disclosing whether funds were earmarked towards a specic endeavor, both rms mentioned that they were continuing to actively pursue acquisitions in the sector. Among possible IPOs, OANDA and Alparis names have been oft-rumored to be considering such actions. At OANDA, its now becoming a matter of when and not if, as the broker has announced the appointment of both a new CEO and board members who are expected to assist with undertaking a liquidity event. Overall industry interest for IPOs was raised as Plus500 stock hit all-time highs since going public in July and being recently valued at over $700 million. Read the entire article
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