LeapRate publishes industry report: Online Trading - Not just Retail and not just Forex anymore....

Dec. 13, 2010 - PRLog -- LeapRate presents the first comprehensive review of the rapidly growing online Forex trading sector. Our report addresses questions and issues including:
•   How big has online "Forex" trading grown? How much more is it likely to grow?
•   Which regions are growing, which are not?
•   Forex trading versus CFDs.
•   How do the trading firms make money? Market-maker vs. Agency model.
•   Why are (virtually) none of the big “traditional” banks or brokerage firms active in this sector?
•   Who are the key outside technology providers?
•   How have regulators worldwide responded to the growth of the online financial trading industry?
•   Which firms have received the most fines (and other sanctions) from regulators?
•   Which are the leading firms offering online trading, by region and by volume?
•   Which firms have the most (and least) profitable traders?

The report excerpt can be downloaded at our website www.leaprate.com. To purchase the complete version of the report please contact us at info@leaprate.com. The complete report includes a detailed review of issues including the size and structure of the online trading industry, regulatory actions and trends in several key markets worldwide, a list of leading companies by region and by volume, as well as a review and analysis of several firms including Saxo Bank, FXCM, Gain Capital / Forex.com, and FxPro.

Report Excerpts:

Online trading of FX still accounts for just a small fraction of the total global FX market. LeapRate estimates that online FX volumes total today about $200 billion daily, or about 5% of the overall global FX market. Nevertheless, this represents tremendous growth, from under $10 billion per day 10 years ago.

The online trading universe is very dispersed – no firm has more than 10% global market share, although there are some dominant firms in each major region (e.g. Europe, US, Japan)…… we estimate total annual revenues of the trading firms to be approximately $6.5 billion.

FXCM’s claim that its agency model is better for customers (than the market-maker/principal model of most of its competitors) is not confirmed by FXCM’s recently reported client profitability data. FXCM customers consistently fared in the bottom half of all firms reporting, with only 24% of client accounts being profitable over the past year, well behind the industry average of 29%, and industry leader Oanda about where half of accounts made money.

Newly-implemented regulatory limitations on leverage in the US (maximum 50:1 on the Forex “majors”, 20:1 on all other Forex pairs)….. should lower volume at US firms. The continued growth of CFD products outside the US also will shrink the relative size of the US pie – CFDs for registered instruments (such as stocks of publicly traded companies) are disallowed in the US.

Why are all the banks, and the other main players from the traditional offline FX world, absent from the online FX world? We would note the following:
•   [see our complete report for details]

Overall, agent firms typically make significantly less per volume traded than market maker firms, as agent firms are passing on part of the spread to the liquidity provider which they are agenting. For example, consider two of the largest US-based firms:
•   FXCM, which is an “agency” firm, earned (by our calculation) 2.1 pips per round-trip trade volume over the past twelve months ended September 30, 2010;
•   Gain Capital, a market-making firm, earned 2.6 pips over the same period – earning 28% more than FXCM per volume traded.

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LeapRate is an independent research and advisory firm, covering the world of online trading. Our main two areas of activity are detailed research reports on the sector, and ratings for online trading and brokerage firms worldwide. LeapRate’s research and ratings provide increased transparency to the world of online trading, allowing investors to make more informed decisions in their choice of a trading firm. For more information and disclosures see our website at www.leaprate.com, or contact us at info@leaprate.com.