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FNIB. A Market Strategy. by Daniel Bruno, Chartered Market Technician

Posted on Tuesday, 22nd May 2012 @ 02:33 AM by Text Size A | A | A

First National Innovation Brokers:

A Market Entry Strategy




January 2011

First National Innovation Brokers: A Market Entry Strategy



Opportunities for business in the retail FX market abound. The sheer size of the FX market and the explosive growth of internet-based retail FX trading make room for new entrants to earn profits despite intense competition. The reputation of the retail FX market, albeit not necessarily factual, as a quick and legitimate means to earn easy cash attracts more and more traders and investors, novice and professional, big and small alike, thereby increasing FX retailers’ potential for growth. This paper proposes the establishment of the internet-based retail FX trading firm First National Innovation Brokers (FNIB). The opportunities and challenges of FNIB as a new entrant in the retail FX market and its strategy to compete and position itself in a still esoteric and competitive market are discussed. This paper details FNIB’s strategies to create its own comparative advantage in a market where traded instruments are largely undifferentiated. FNIB will capitalize on the gaps, therefore opportunities, in the FX market to gain market share. These opportunities, however, are coupled with risks. Regulations that are getting more and more stringent could constrain the growth of firms, particularly the new ones. In addition, new players cannot rely on immediate client acceptance as it would be challenging to break the loyalties of clients to established firms. Nevertheless, FNIB will aptly develop its strategies to get away or limit its exposure from these risks.

Table of Contents



1.    Introduction………………………………………………………………………………… 1


2.    Overview of the FX Market…………………………………………………………. 5

2.1.     Instruments, Major Markets and Currency Pairs,  and Agent Types 6

2.2.     Market Players………………………………………………………………………. 8

2.3.     Evolution of the FX market…………………………………………………… 12


3.    Retail FX Trading Market…………………………………………………………. 15

3.1.     Market leaders (U.S. market)…………………………………………………. 17

3.2.     Regulatory Environment……………………………………………………….. 23


4.    Five Forces Framework Analysis of the Retail FX Market………….. 26


5.    First National Innovation Brokers……………………………………………… 30


6.    S-W-O-T Analysis……………………………………………………………………… 33


7.    Conclusion………………………………………………………………………………… 35


References……………………………………………………………………………………….. 38




List of Tables


Table 1. FX turnover by instrument and execution method (in percent)…………………8

Table 2. Number of banks that account for 75% of total turnover by country…………..9

Table 3. Top 10 banks in 2010……………………………………………………..……10

Table 4. Retail FX dealers and futures commission merchants registered

with CFTC with retail FX obligations…………………………………………..16

Table 5. Top 3 U.S. retail FX dealers: a comparison…………………………………….20

Table 6. List of regulators in selected markets……………………………………………23


List of Abbreviations


ASIC               Australian Securities and Investment Commission

AUD               Australian dollar

BIS                  Bureau of International Settlements

CAD               Canadian dollar

CFD                Contract for Difference

CFTC              Commodities and Futures Trading Commission

CHF                Swiss franc

CONSOB        Commissione Nazionale per le Società e la Borsa

DGCX             Dubai Gold & Commodities Exchange

DMCC            Dubai Multi Commodities Centre

EBS                Electronic Broking Service

ETF                 exchange traded funds

EUR                euro

FCMs              futures commission merchants

FNIB               First National Innovation Brokers

FSA                 Financial Services Authority

FX                   foreign exchange

GBP                British pound

IBs                  Interactive brokers

JPY                 Japanese yen

MAS               Monetary Authority of Singapore

NDF                non deliverable forwards

NFA                National Futures Association

NZD                New Zealand dollar

OCO               order cancels other orders

OTC                over-the-counter

PAMM            Percent Allocation Management Module

PLN                Polish zloty

SGD                Singaporean dollar

USD                U.S. dollar

  1. 1.    Introduction

The foreign exchange (FX) market is where currencies are bought and sold. It is a network of traders, investors, and institutions that facilitates cross-border trade and investments by allowing traders of goods or capital to exchange currencies. The modern FX market is an offshoot of the shifts in the foreign exchange policies of countries, from fixed to floating exchange rate regimes, after the Bretton Woods system. The market is characterized by its global 24-hour daily operation, geographic dispersion, high liquidity, and leverage. A huge chunk of the transactions in the FX market are speculative in nature, wherein investors try to profit from the spread between the buying and selling price of currencies. David and Leustean (2009) reports that about 95% of transactions are made by speculators who buy and sell to generate profit from the difference; while the remaining 5% are accounted for by companies and governments for their cross-border transactions.

The FX market has increasingly attracted the general public during times of stock market declines and volatility because it is seen as an alternative to the fickle equities markets and because of its liquidity. The overriding reason for the addictive appeal of FX, however, is the immense leverage and delusion of easy money and instant riches offered by online FX trading platforms. In the wake of battered portfolios worldwide and the loss of paper trillions in net worth since the onset of the of 2008 crisis, FX trading became the mirage of an oasis to the thirsty traveler. Moreover, the non-stop 24/5 nature of FX makes it irresistible to dabblers and amateurs with day jobs, all of whom will, in all likelihood, lose their money trading FX. These client losses translate into firm profits.

The expansion and structural changes in the FX market have attracted huge interest in FX trading, particularly in retail trading, where new entrants, including financial heavyweights, aim to get a piece of the huge FX profit pie. But whereas the FX market was once the exclusive purview of big banks, established investment funds, and multinational corporations, new players, tiny but savvy, can also set up shop for relatively small cost and a potential for huge profits.

Electronic FX trading has facilitated the efficient matching of orders and has dramatically reduced trading spreads and costs. This has eliminated some of the advantages of being a large player, e.g., a bank. In addition, the current burdensome regulatory, legal and tax environment, slated only to get worse for the foreseeable future, could be more disadvantageous to large firms centered in or tied to major financial hubs, such as New York and London. The First National Innovation Brokers (FNIB), a new internet-based retail FX trading firm, will probe the veracity of this conjecture by setting up shop outside the U.S. and EU and exploiting business approaches deemed unsuitable for large players. The goal will be to serve customers in those large markets without being subject to those markets’ rules or potential regulatory threats, if not in theory, then in practice, thus generating crucial competitive advantages for growth.

A very rough comparison of what not to do is the case of the U.S. vs. Switzerland and UBS. UBS was heavily exposed to pressure and blackmail from the U.S. government. UBS’s reckless and provocative behavior notwithstanding, UBS was deeply invested in the U.S. in every sense of the word.  Indeed, in December 2010 it came to light that UBS received tens of billions in TARP (Troubled Assets Relief Program) from the U.S. taxpayer. Today, small cantonal and private Swiss banks have absorbed billions in market share lost by UBS. These small firms have no presence in the U.S.

The FX market is evidently the world’s biggest and most liquid financial market. The most recent Bank for International Settlements (BIS) survey results show that the market turnover in the global FX market is $4 trillion per day in 2010, 20% more than the estimated turnover in 2007 (BIS 2010). King and Rime (2010) report that 85% of the growth in the FX market over the past three years comes from the increase in the trading activity of “other financial institutions,” specifically, the increase in trading activity of high-frequency traders, smaller banks, and retail investors. The widespread use of electronic trading methods fueled the increase in the trading activity of these three markets. This is the first time that inter-dealer transactions surpassed FX transactions in other financial institutions since the BIS survey of 1989. This shift has important implications in the FX market, will reinforce its uptrend and create new opportunities in the fast growing FX market.

The FX market has undergone important structural shifts that have profound impact on who is trading and how trading is done. Since the early 1990s, extensive changes in trading technology occurred and transformed open outcry and landline telephone-based trading to automated electronic trading and subsequently in the first decade of the twenty-first century, internet trading spearheaded market growth with its concomitant “democratic” tendencies to level the playing field. Rime (2003) forecasts that the introduction of internet trading could be the most significant structural shift in the FX market. It now looks like Rime is right. The market has witnessed the growing importance of internet-based trading. Internet-based platforms fueled the explosive expansion of retail FX trading, which is FNIB’s intended market.

Retail FX trading, among other segments of the FX market, is a mania akin to gambling that has taken the world by storm. The market is not saturated and opportunities abound. Browsing through the internet will show a good number of internet-based non-bank retail trade dealers that are competing for market shares. Retail FX transactions capture a small share of the total FX market as major financial institutions, via interbank dealings, account for the bulk of trading. Transactions involving households and small non-bank institutions are estimated at $150 billion per day, or only about 10% of global spot trading (King and Rime 2010). Despite this, the sheer scale of daily transactions in the FX market and the increasing popularity of FX trading provide more than enough incentive to enter the market.

Recognizing the opportunities in retail FX trading, this paper proposes the creation of FNIB, a new online FX retail trading company. This paper provides an assessment of the opportunities and challenges of FNIB as a new entrant in the retail FX market.  FNIB’s strategy to compete and position itself in a still esoteric and competitive market will be examined. Moreover, this paper will discuss FNIB’s strategies to create its own comparative advantage in a market where traded instruments are largely undifferentiated; indeed they are identical.

The paper proceeds as follows. Section 2 presents an introduction of the FX market. Section 3 provides a discussion of retail FX trading, the leading market participants, and regulatory setup. Section 4 uses the five forces framework developed by Michael Porter to analyze the state of competition in the retail FX market. Section 5 provides a more detailed discussion about FNIB. Section 6 employs the S-W-O-T analysis framework to discuss FNIB’s entry strategy and the opportunities and risks it faces.  Finally, section 7 concludes.


  1. 2.    FX Market: An Overview

The FX market is the international market for currency exchange. No other financial market in the world matches the size and liquidity of the FX market. The most recent Triennial Central Bank Survey[1] of the BIS (BIS 2010) estimates the daily turnover of the FX market at $4 trillion. This is 12 times more than the daily turnover of world stock exchanges, which was around $320 billion in 2009, or 50 times more than the turnover in the New York Stock Exchange (NYSE).

The FX market is characterized as a highly decentralized 24-hour over-the-counter global market where buyers and sellers are linked via a network of telephones, computers, and electronic dealing systems. Just as the world never stops turning, indeed it seems to spin faster with each passing year, this market too never sleeps. Trading begins in the Asia-Pacific where the International Date Line is closest, from New Zealand to Australia to Tokyo. While trading in these countries remains open, trading in other parts of Asia, such as in the Middle East, begins. A few hours more, when it is already late in the day in Asia where it started, trading in Europe starts. Following the opening of trade in Europe is the start of trading in U.S. markets when it is early afternoon in Europe. The cycle repeats when it is mid or late afternoon in the U.S. and financial centers in the Asia-Pacific begin to trade.

Countries, corporations, and individuals have different motives for buying or selling foreign exchange. It could be to pay for imports, to invest, to hedge risks or to profit from speculation and arbitrage. Whatever the reason for currency exchange, it remains that foreign exchange is the sine qua non of global trade and FX will never go away…will never crash, as it were.


2.1.         Instruments, Major Markets and Currency Pairs  and Agent Types

Instruments. Spot transactions, outright forwards, and FX swaps traditionally comprise the traded instruments in the FX market. Currency spot trading involves the outright exchange of two currencies, where the current market price is the spot exchange rate. But transactions in the spot market do not necessarily require instantaneous settlements, that is, payments on the “spot”; payments can be made within two business days from the day the deal is made. The spot market is characterized by high volatility, high risk, and high returns (or, of course, losses).

Exchange in a forward transaction (outright forward) is the same as in a spot transaction except that it can be settled on an agreed date. The settlement in an outright forward transaction could be a few days to a few years.  Forwards are particularly attractive as carry-trade transactions.

In an FX swap, two traders swap a currency for another for a specified period of time and, at a later date, the transaction is reversed.

In addition to these aforementioned traditional instruments are options.  BIS (2010) has also categorized a group of “other FX products” which is defined as FX derivative instruments that involve other several features.

According to share in total turnover, results from the most recent BIS survey estimate that currency spot trading covers 37% of transactions, outright forwards 12%, FX swap 44%, currency swap1%, and options and other instruments 5%.

Major markets. The U.K. (37%) and the U.S.A. (18%) markets together account for more than half of daily transactions. In fact, the most active trading hours during a day is when the trading hours of these two markets overlap, that is, when it is afternoon in Europe and when trading has just begun in the U.S. The other major markets are Japan with a share of 6%, Singapore, Switzerland, Hong Kong, whose shares are each 5%, and Australia with 4%.

Major currencies. In FX market transactions, the U.S. dollar is the standard and most widely traded currency. Other currencies are quoted in terms of the U.S. dollar. The other major currencies are the euro (EUR), the Japanese yen (YEN), the British pound (GBP), and the Swiss franc and the most active trading pairs are the USD/EUR (28%), USD/YEN (14%), and USD/GBP (9%).

Agents.  Large banks and investments and securities houses, which mainly comprise “reporting dealers,” account for 39% of total turnover in 2010. Other financial institutions, such as mutual, pension, and hedge funds, report 48% of total turnover, and non-financial customers 13%. Lechner and Nolte (2009) note that retail investors comprise the fourth group of agents for which no reliable information on their share is available.[2]

Table 1 shows how trading between these agents is executed. Most of the transactions in the FX market are executed electronically (41%), an increase of 7 percentage points from the previous survey in 2007.[3] The other execution methods are inter-dealer direct (18%), customer-direct (24%), and voice broker (16%).


Table 1. FX turnover by instrument and execution method (in percent)


Inter-dealer direct

Customer direct

Electronic Trading Systems

Voice broker


Electronic Broking System

Single-bank proprietary platforms

Multibank dealing systems







Outright forwards







FX swaps







FX options














Source: BIS (2010).


2.2.         Market Players

The FX market is a global decentralized network of banks, institutional and retail investors, currency speculators, corporations, governments, and central banks. Traditionally, the participants in the FX market were mainly the largest international banks, large nonbank financial companies, large corporations, and governments. Structural shifts in the FX market as a result of major improvements in technology have opened the FX market to smaller players and even household investors.  These small traders are expected to comprise the lion’s share of FNIB’s customer base.

The level of capitalization and the degree of sophistication differentiates market participants. International banks, for example, are heavily capitalized and therefore have the capability to invest in current and more sophisticated technology and research. Smaller banks, in contrast, have limited resources to compete in the spot market for major currency pairs. Thus they make markets for customers in local currencies and increasingly trade with large banks. Another example are the household investors who are generally unsophisticated novice investors with very limited resources to invest and gather information.  The enormous amount of high quality free information on the internet notwithstanding, e.g., novice traders do not know how to act on this information, rendering it moot.

A few global banks dominate FX transactions. King and Rime (2010) note that tight spreads and guaranteed liquidity on their proprietary trading platforms make it difficult for smaller players to compete in major currency pairs. Less than 20 banks account for 75% of total turnover for any country that participated in the BIS Triennial Survey in 2010. At one end are India and Indonesia with 19 banks covering 75% of transactions, while at the other end is Finland with only one bank accounting for 75% of total transactions (Table 2).


Table 2. Number of banks that account for 75% of total turnover by country









Hong Kong SAR
































Saudi Arabia


















South Africa


Chinese Taipei












Czech Republic






















United Kingdom




New Zealand


United States






Source: BIS (2010).


Euromoney (2010) reports that the top ten banks account for 77% in 2010 based on the results of their annual FX survey (Table 3). Another interesting observation revealed in the Euromoney survey is that while the shares of the top five banks declined from 62% in 2009 to 55% in 2010, those of the bottom five banks increased from 18% to 23%. This trend is more emphasized in the banks’ electronic platforms shares. The share of the top three banks declined by 15 percentage points in 2010 from 73% in 2009, but the electronic platforms’ share of the other banks in the top 10 increased by 8 percentage points to 28% in 2010. Euromoney (2010) notes that this trend shows that the leading positions of the largest banks in electronic trading may not be as established and secured as believed. More and more banks, as well as non-banks, continue to develop electronic platforms that could compete with those of the leading banks.


Table 3. Top 10 banks in 2010

Bank Rank 2010 Share 2010 Rank 2009
Deutsche Bank








Barclays Capital












JP Morgan








Credit Suisse




Goldman Sachs




Morgan Stanley




Source: Euromoney (2010).


Nonbank dealers include nonbank financial institutions such as hedge funds, investment firms, and pension and mutual funds. The other major players are central banks and major corporations.

FX brokers bring together buyers and sellers for a fee. An FX broker does not take positions and can be the agent of one or both parties.  FNIB will go beyond the traditional neutral market position of a broker and take positions.

Until 1992, there were only voice brokers. But the number of voice brokers has declined due to the increasing use of electronic broking systems. It is, however, acknowledged that voice brokers are still important particularly in the trade of non-major currency pairs.  Perhaps FNIB could bring back elements of voice brokerage via personal telephone relationships with important clients.


2.3.         Evolution of the FX market

The explosive expansion of the FX market is a reflection of the significant transformations that took place which have changed how trades are executed and who are trading. Barker (2007) attributes these transformations to innovations in electronic trading system technology and institutional trading arrangements.

Trading in the FX market was traditionally done using phone-based technology. The platforms Reuters Monitoring Dealing Service (1980s) and Reuters Dealing 2000-1 (1989) only allowed communication between two foreign exchange dealers and did not allow for more complex matching between a number of players. An FX dealer who wishes to trade would call a bank where he has an account and asks for bid and offer rates for a specified transaction amount. In this process, banks make frequent phone calls to each other to keep up to date with current prices. Transactions were largely between banks (interbank) but some transactions were indirectly made via voice brokers, who would search for a match for dealers. The consequence of this process is that there is very low transparency in the market and “price discovery” is slow and costly. This discouraged the direct participation of smaller firms and traders.

Electronic systems began to emerge in 1992 for interbank dealers. Reuters introduced the first electronic broking system in the FX market, the Dealing 2000-2 system, in April1992. Dealing 2000-2 was followed by Minex and the Electronic Broking Service (EBS) in September 1993. The market was left with the two major inter-dealer electronic systems upon the acquisition of Minex by EBS in 1996 (Chaboud and Weinberg 2002). Barker (2007) reports that these two trading platforms dominate in different currency pairs, and therefore do not necessarily compete with each other. Reuters dominates in the trading of the British pound, Canadian, Australian, and New Zealand dollars, and emerging market currencies, while EBS dominates in euro, yen, and Swiss franc. The combined share of Reuters and EBS accounts for about 90% of interbank trading. Barker (2007) and Gallardo and Heath (2009) highlight how these systems significantly improved transparency and reduced the cost of the price discovery process, which enabled smaller institutions to transact at lower spreads that were previously available only to large institutions.

The use of electronic trading became more widespread in the interbank market. Access to electronic platforms, however, was limited to the interbank market and not directly accessible to customers. Customers continue to trade through direct contact with the dealers via telephone. Competition was limited by high entry barriers and spreads paid by customers were high during this period (King and Rime 2010). This gap led to the development of electronic trading systems that allows FX providers, particularly banks, to transact directly with their customers. Multibank electronic trading platforms, such as, Currenex (1999) and FX Connect[4] (2000) emerged to fill the gap. To compete, large banks followed and developed proprietary platforms to transact directly with their clients. Examples are Barclays’ BARX which was introduced in 2001, Deutsche Bank’s Autobahn in 2002, and Citigroup’s Velocity in 2006. BIS (2010) estimates that 41% of FX trade transactions are executed electronically, either through broking systems (19%), through single-bank trading systems (11%), or through multibank trading systems (11%).

The gaining preference of electronic broking systems over other execution methods are attributed to the its advantages, which includes low operating costs, more efficient processing of transaction, and almost non-existent geographic barriers, ease of market entry, and high transparency (Ding and Hiltrop 2010). Moreover, CFTC encourages the use of electronic interfaces as it reduces trading- and operations-related errors (CFTC 2010).

Electronic trading has made possible algorithmic trading whereby programmed computer algorithms, not humans, make the decision to trade. Algorithmic trading took off in the interdealer FX market when EBS introduced “EBS Spot Ai,” where Ai stands for automated interface, in 2004. The use of algorithmic trading has increased substantially. King and Rime (2010) report that the share of algorithmic trading on EBS jumped to 45% in 2010 from only 2% in 2004 and 28% in 2007.

Electronic trading has also made possible the growth in retail FX trading, which is executed via internet trading platforms or retail aggregators.[5] Retail aggregators act as intermediaries between major FX dealing banks and small retail investors. Some retail aggregators play as pure brokers, while others combine dealer and broker models. These platforms provide trade services in retail amounts[6] to households as well as small corporations, asset managers, trading institutions and other institutions (Barker 2007).

The lure of a 24-hour online liquid market, low trading costs, and leverage has increased the participation of a diverse range of participants in FX trading. Now, it is possible for anyone with only a personal computer and internet access to trade currencies using internet-based electronic trading platforms.


  1. 3.    Retail FX Trading Market

Retail FX trading, which is serviced by retail aggregators, is an emerging segment of the FX market. It is a small segment of the market but it is the segment that is growing the fastest. Greenwich Associates (2010) highlights the increasing importance of retail aggregators in the FX market and reports that while the total trading volume declined by 6% in 2009 from 2008, volume traded via retail aggregators grew by 16%. Greenwich Associates also estimates that retail aggregators capture 12% of FX trading volume in 2009, up by one percentage point from the previous year.[7]

The retail FX market, also referred to as e-forex, is increasingly attractive to the public because it has become more and more accessible. Anyone with a personal computer and internet connection can now trade currencies even in small amounts.  However, the currency pairs offered are only the majors.  FNIB could pioneer the trade of exotic currencies without actually holding or settling in those currencies.  Moreover, the 24-hour market feature and the illusion of easy-money and get-rich-fast make FX irresistible to dabblers and amateurs with day jobs.

The market is currently dominated by and, and their business model profits from the losses generated by the investing public. Profits generated by the bid/ask spread are insignificant. Swift customer losses, which are translated as firm profits, are guaranteed by the high leverage offered, making necessary a high advertising budget to remedy high customer turnover and maintain the firm’s market share.

Retail platforms act as intermediaries between major FX dealing banks and small retail investors and caters to the smallest accounts—households, and small corporations, asset managers, trading institutions, and other institutions. This segment of the FX market took advantage of the operational- and cost- efficiency provided by current technology to access the market that was not serviced by traditional market players.

ClientKnowledge (2007) notes that banks, which relied on their wholesale model and dismissed the potential of retail trading, had missed the trend and that independent companies are the ones attracting the new client-base of the FX market. Realizing the opportunities in the retail FX market, however, banks are slowly entering retail trading, setting up their own platforms or through joint ventures with established retail aggregators. For example, ABN Amro launched marketindex (now of the RBS) and Deutsche Bank launched dbFX in 2006, and in 2007 Citi launched CitiFX Pro in collaboration with Saxo Bank, which is among the first to enter into retail FX trading in mid-1990s.

Internet-based retail trading began in the later part of the 1990s with the launch of, among others, Saxo Bank’s Midas in 1992, CMC Markets in 1996, MG Forex in 1997, and MatchbookFX in 1999. Currently, there are only a few of the first movers remain. And most of those that remained have merged or collaborated with other brokers or banks. For instance, MatchbookFX closed its books in 2000 and Saxo Bank teamed up with Citi in 2007.

Online brokers differ in the trading platform and software they use; the range of instruments and currency pairs they offer for trade; the cost of their services, including commissions and spreads; initial capital requirement; the leverage and margin requirements; the markets they target, beginners professionals, or both; and the extra services they offer, including risk management or FX forecasting. For example, others charge fees for opening an account or subscription fees, while others don’t; others require huge minimum deposits, while others allow “cent accounts.”


3.1.         Market leaders (U.S.)

Table 4 provides a list of U.S. retail FX dealers and futures commission merchants (FCMs), ranked according to their retail FX obligations.[8] The top three FX dealers in the U.S. as of October 2010 are Gain Capital Group LLC (GCAP), Forex Capital Markets LLC (FXCM), and Global Futures & Forex Ltd. (GFT). One common characteristic of these leading firms is that they are among the early entrants. GCAP and FXCM were both instituted in 1999 and GFT in 1997. The following provides a brief background of these leading retail FX dealers.


Table 4. Retail FX dealers and futures commission merchants registered with CFTC with retail FX obligations      


Registered with CFTC as*

Total amount of retail forex obligation (US$)

Percent share (%)

Gain Capital Group Llc




Forex Capital Markets Llc




Global Futures & Forex Ltd




Peregrine Financial Group Inc




FXdirectdealer Llc




Interbank Fx Llc




MB Trading Futures Inc




FX Solutions Llc




FCstone Llc




Alpari (US) Llc




Capital Market Services Llc




RJ Obrien Associates Llc




ADM Investor Services Inc




Forex Club Financial Company Inc




Advanced Markets Llc




Prudential Bache Commodities Llc




IG Markets Inc




*RFED – Retail Foreign Exchange Dearer; FCM – Future Commission MerchantSource: CFTC (Data as of 31 October 2010).


Gain Capital Group LLC. Gain Capital Group (GCAP) is a global online trading platform founded in 1999 with headquarters in New Jersey, U.S.A. and regional offices in major financial centers, such as, Hong Kong, London, New York, Seoul, Sydney, and Tokyo. In 2004, GCAP launched, an online trading platform that services individual traders and money managers in 140 countries  and boasts of “advanced trading tools, 24/6 customer support, and a secure online trading experience” and “one of the largest and best known brands in the rapidly growing retail forex industry.” is registered with more than one regulatory agencies: the Commodity Futures and Trading Commission in the U.S., the Financial Services Authority in the U.K, the Financial Services Agency in Japan, and the Australian Securities and Investments Commission in Australia. markets to retail investors of all levels of trading experience and allows trading of currencies, commodities, and Contracts for Difference (CFDs). It offers four different trading platforms— Website Trading, FOREXTrader PRO, FOREXTrader Mobile, and MetaTrader 4— each tailored for different types of users. Website Trading is a web-based platform where traders can conveniently trade and monitor the FX market without having to download or install any software on their computers. FOREXTrader PRO is a customizable trading platform that is developed for active traders. FOREXTrader Mobile is a platform for iPhone where traders can access trading tools. MetaTrader 4 is a user-friendly trading interface with advance technical analysis and is capable of trade automation.[9]

Global Futures & Forex, Ltd. Global Futures & Forex, Ltd. launched GFT in 1997 and provides service to small- and big-account traders in 120 countries. GFT requires a minimum of only $200 to open an account. An account with GFT allows traders to use Dealbook trading software and Autochartist Chart Patterns.  But exclusive use of their software, Autochartist Trade Ideas, and additional services are available for account packages: Bronze, Silver, Gold, and Platinum. These accounts differ in amount of deposit that is required and the services that traders get. For example, a deposit of $2,000 to $9,999 qualifies for a Bronze account. Bronze account holders are eligible for one news feed, while Platinum account holders are eligible for three news feeds, analysis tools, and other premium services.

The discussion above illustrates the differences in the services that retail brokers provide. This information in addition to more specific points of comparison is summarized in Table 5, which is based on information available in


Table 5. Top 3 U.S. retail FX dealers: a comparison


Forex Capital Markets, LLC (FXCM)


Platforms FOREXTrader PRO, Mobile Trading and MT4 Mobile, FOREXTraderWeb, Metatrader 4 FXCM Trading Station Advanced, Metatrader 4 , FXCM Active Trader, Mobile TSII Platform (beta) DealBook® WEB, DealBook® Mobile, DealBook® 360
Minimum account Size
Mini $500 U.S., $250(U.K. and Australia) $25 $200
Regular $2,500 $2 $2,500
Micro $500 US, $250(UK and Australia) $25 N/A
Major pairs 50:1

50:1 (approximately)


Minors 20:1
UK and AU entities only) 200:1
Commissions Can trade on spreads as low as 0.9 pip on the most popular currency pairs. Only transaction cost is the dealing spread – the difference between the bid and the ask price. Bid /Ask Max on Micro and Standard Accounts / Low commissions on Active Trader accounts. None
Other instruments CFD’s, Metals Stocks, Metals, Oil CFD’s, Spread Betting
Client base Individuals (IBs, Money Managers, White Label partners) Over 165,000 tradable accounts. Retail and institutional forex traders in more than 120 countries. Offers spread betting for U.K. customers and CFDs for customers in the U.K., Australia, Singapore, and the Middle East.
Order types Market, limit, stop loss, If/Then, If/Then OCO,  trailing stop. Market order/ Close order/ Entry order/ Stop order/ Limit order/ OCO order Market, Stop, Limit, Parent and Contingent, Automated Trailing Stop, OCO, Scale out.
Fractional Pip Pricing Yes Yes No
Segregated Accounts Yes No No
Mobile Trading Yes Yes Yes
24 Hour Trading Yes Yes Yes
Hedging Facilities Yes No No
Scalping allowed Yes Yes Yes
Swap free accounts (Sharia Law) Yes No Yes
PAMM Yes. Policy: Customized tools and reporting for money managers. Yes Yes. Policy: Managers have the option between percentage based allocation and lot based allocation for their traded accounts.
Payment Methods Credit Card, Wire Transfer, Online Check, Check Credit Card, Wire Transfer, Debit Card, Check Credit Card, PayPal, Wire Transfer, Online Check, Debit Card, Check





3.2.         Regulatory Environment

The speculative, and therefore risky, nature of the forex market calls for regulations so that exposure of the trading public to unnecessary risks, such as scams, is as minimum as possible. Regulation of FX brokers, dealers, or other FX service providers generally includes regular audits to ensure that industry standards are complied, such as, the availability of funds to meet FX contracts with clients and the sufficiency of information provided to clients regarding the risks involved in FX transactions. On the aftermath of the mess created by the financial crisis in 2008, regulations in the financial markets, the FX market not exempt, have been tighter.

Stricter oversight is specifically true in the retail trade market as its growth and popularity caught the attention of regulators. In addition, reports of fraud have alarmed government institutions. As a result, the retail FX market is undergoing scrutiny. Regulators have introduced registration of online FX dealers and record keeping rules and raised capital requirements, among other measures that aim to protect consumers.

On 30 August 2010, CFTC in the U.S. has limited retail leverage to 50:1 from 100:1 for the majors and for other currencies, the new CFTC limit is 20:1. Financial Services Authority (Japan) has also mandated similar adjustments, restricting leverage to 50:1, and intends to limit the leverage further to 25:1 by 2011.

King and Rime (2010) note that greater regulation has led to the consolidation of retail aggregators. The number of retail aggregators in the U.S. and in Japan has declined significantly. In the US, this number fell from 47 in 2007 to 11 in 2010 and, in Japan, from more than 500 in 2005 to about 70. Critics argue that these strict regulations will reduce retail trading in these markets and shift the trading to other markets where regulations are not as limiting, i.e., critics argue that the imposition of these strict regulations creates the potential for regulatory arbitrage. For instance, there are currently no limits on leverage in the U.K. and continental Europe.

Each country has one or more institutions that regulate its own financial markets. For example, the U.K. FX market is regulated by a single agency, the U.K. Financial Service Authority. The U.S. FX market, on the other hand, is monitored and regulated by a number of government agencies, including the Financial Industry Regulatory Authority, Inc., New York Stock Exchange, Office of the Comptroller of the Currency, Securities and Exchanges Commission, Commodities and Futures Trading Commission, and National Futures Association. Table 6 lists the FX market regulators in selected countries based on information available in fxstreet,com.


Table 6. List of regulators in selected markets

Australia Australian Securities and Investment Commission
Canada British Columbia Securities Commission
Ontario Securities Commission
Investment Dealers Association of Canada
Cyprus Cyprus Stock Exchange Commission
Denmark Danish FSA
European Monetary Union Markets in Financial Instruments Directive
France Banque de France
Comité des Établissements de Crédit et des Entreprises D’Investissement
Germany Bundeszentrale für Finanzdienstleistungsaufsicht
Hong Kong SAR Securities and Futures Commission
Indonesia Badan Pengawas Perdagangan Berjangka Komoditi
Italy Commissione Nazionale per le Società e la Borsa
Japan Financial Services Agency
Japan Investor Protection Fund
The Financial Futures Association of Japan
Japan Securities Dealers Association
Kanto Local Finance Bureau
Russia The Commission on Regulation of Financial Markets Participants Relationships
Singapore Licensed clearing member of the Singapore Exchange
Monetary Authority of Singapore
Spain Comisión Nacional del Mercado de Valores
Sweden Swedish Financial Supervisory Authority (Finansinspektionen)
Switzerland Groupement Suisse des Conseils en Gestion Indépendants
Association Romande des intermediares financiers
Swiss Federal Department of Finance
Organisme d’autorégulation fondé par le GSCGI
Commission fédérale des banques
Swiss Financial Market Supervisory Authority (FINMA)
United Arab Emirates Dubai Multi Commodities Centre
United Kingdom Financial Services Authority
United States Financial Industry Regulatory Authority, Inc.
New York Stock Exchange
Office of the Comptroller of the Currency
Securities and Exchanges Commission
Commodities and Futures Trading Commission
National Futures Association



An FX service provider must have a license to operate in the country where it is based. Other FX providers, however, invest in acquiring multiple licenses in different countries. There is no doubt that registration is costly, but it could be that benefits of regulation outweigh the costs especially if a firm wants to position itself as a major player in the market. Traders perceive licensed FX brokers as safe because they are required to comply with strict quality standards. Registered brokers invite more confidence for investors (particularly the ones who are new to the market) to trade. Thus, there registered status gives them a relative advantage over unregistered firms.

It is undoubtedly true that a certain level of regulation will enhance the overall growth in the FX market. The contention in the industry is the “level” of scrutiny as no one is sure at what point is “too much regulation.” The existence of institutions that keep watch over the industry could deter the entry of unqualified firms and minimize scams that would result in bad reputation for the whole FX industry and would be detrimental to everyone, registered or not. This is why some of the largest retail traders openly and aggressively advocate for FX regulation to protect investors, which, in turn, will increase transactions in the FX market.



  1. 4.    Five Forces Framework Analysis of the Retail FX Market

The following discussion analyzes the state of competition in the retail FX market using the five forces framework developed by Michael Porter (Porter 1980). Porter (1980) argues that five basic forces influence the state of completion, and therefore the profit potential, in an industry. These five forces are: (i) threat of entry; (ii) intensity of rivalry among existing competitors; (iii) pressure from substitutes; (iv) bargaining power of buyers; and (v) bargaining power of suppliers. Understanding which ones affect the market the most allows firms to effectively plan and execute their strategies and therefore facilitates competitive positioning.

Each of the five forces and their determinants will be discussed below in the context of the retail FX market; and each of these five forces will be rated as LOW, MEDIUM, or HIGH. A LOW rating implies factors that are not very relevant determinant of the state of competition in the retail FX market; conversely, a HIGH rating implies factors that are major determinants of market competition.

Threat of entry (MEDIUM). A new entrant to any industry faces threats that are mainly due to entry barriers, particularly regulatory restrictions and high capitalization, and existing client loyalties.

Regulation. The retail FX market is currently under heavy scrutiny as interest in retail FX trading intensifies due to its explosive growth in recent years.  This regulatory trend is seen to remain, if not harsher, in the medium-term. Stricter controls, which could include higher capital requirements, more frequent and detailed reporting rules, limits on traded instruments, among others, will raise cost of entry of new entrants and will make it more difficult for them to penetrate the market.

Loyalty. In the retail FX market, the existence of established and trusted brokers is the most important barrier to entry. These existing firms have already proven their credibility to honor contracts and have earned the trust of investors. Credibility is particularly relevant in the retail segment of the FX market because it markets not only to experienced investors, but also to unsophisticated novice investors, who will likely depend on brand name to decide which broker to choose. This will require new entrants to make an effort and spend more on advertisements, which could imply start-up losses for a period of time, to gain reputation and overcome existing customer loyalties and gain market share.

Capital. Another significant threat to entry is the high investment requirement associated with the technology (both hardware and software) required to establish an internet-based trading platform. It is not sufficient that a firm can acquire available platform, but it is imperative that the firm develops its own platform that is better and different from what already exists so that it can catch the attention of the market and therefore easily gain market share.

Degree of rivalry (HIGH). The explosive growth of the use of electronic systems in FX trading made it more accessible to a diverse group of market participants. As a result, more and more firms are lured towards the FX market, particularly in retail trading where growth is even more explosive. This makes competition in the FX market tighter and fiercer. In fact, the FX market has always been described as the closest market to the “classical” competitive market. There are many buyers and sellers trading undifferentiated “products” with no evidence of substantial price differences except maybe for very short time intervals and where, with the advances in technology, information is efficiently disseminated.

Since currencies are the same—for example, the USD/EUR is the same regardless where in the world the pair is traded—investor’s choice depends largely on the spread at which the currency pair is traded and the diversity and usefulness of other services that are provided. And since there is little to no price difference in this market, there is intense competition on the services that market players provide.

The fast growth of the industry and the huge size of the FX market, on the other hand, make it able to accommodate new entrants without aggressive reactions from the market leaders, who are relying on their established credibility to maintain or increase their market shares. The only obvious reaction of market leaders is to advocate for more regulation that could deter the entry of unqualified firms or scam firms that would give the whole industry a bad name.

Threat of substitutes (LOW). The unique features of the FX market—including a 24-hour trading and ease of access through online platforms—make currency trading more and more attractive relative to other the trading of other instruments or commodities. The closest substitute to currency trading is the trading of stocks in exchanges. The FX market, however, is seen as an alternative to the fickle equities markets and because of its liquidity. Moreover, in the FX market, the amount of leverage could be as high 50:1 (U.S.) or without limit (e.g., Europe market), thus there is no requirement for putting in place the full value which allows traders to trade more with less capital.

Buyer power (LOW). Clients in retail FX trade are individual investors whose funds are not important enough to command price changes in the market. This is true despite the fact that investors can choose among a number of different traders offering the same “products” as there are switching costs involved in moving from one dealer to another, including learning new trading platforms and initial deposits (when required). Moreover, the price information of clients is limited to the internal quotes provided by their online platforms. This very limited information does not give the clients the position to bargain for more favorable price quotes.

Supplier power (MEDIUM). The most important “suppliers”, particularly in the case of the retail FX dealers are the established trading platforms, e.g. Metaquote’s Metatrader, software and hardware developers, and website developers. Retail FX trading is highly reliant on technology; it is basically the improvements in technology that created the industry. With increasing competition, there is a need to differentiate the services offered to clients. This would require more and more sophisticated trading platforms that are more efficient and websites that are informative and interesting. Innovations in trading platforms and website features are important to stay current and competitive.



  1. 5.    First National Innovation Brokers (FNIB)

The current worldwide FX business model is based almost entirely on retail customer losses. Because spreads are too tight, profits generated by the bid/ask spread are insignificant. Swift customer losses, which translate to firm profits, are guaranteed by the high leverage offered. This makes it necessary to spend heavily on advertising to lure more investors to take care of high customer turnover thereby maintaining the firm’s market share. This zero-sum game, at the expense of the consumer, is the gap in the industry and, therefore, an opportunity that FNIB can exploit. The following will discuss FNIB’s strategy on how it would compete in the retail FX market and how it plans to create a competitive advantage over existing firms.

Business model. FNIB is a new internet-based FX trading platform. FNIB will experiment with methods that promote customer gain and then capture some of that gain for FNIB as part of the bargain. But, initially, FNIB’s strategy is to enter the market via an in-house managed publicity campaign and limited advertising and operate using the same business model as what is currently at work in the market to create a small cash cow. Thereafter, FNIB will differentiate itself and create value by showing customers how to avoid losses. This strategy will differentiate FNIB from other firms; FNIB aims not only to be better but also to be different. FNIB will have the first-mover advantage in this type of business model thereby creating a competitive advantage for itself and establish market position. While other firms may be able to imitate, this could not be done so easily as this would require costly changes to their current systems and structures.

Management and Market. FNIB will bank on the superior forecasting and trading skills of management to take its own positions in the market. FNIB’s management is composed of managers and technical experts that have extensive experience in the FX market. Their expertise on offshore markets will allow FNIB to attract investors who want to go offshore but are worried about their lack of knowledge in these markets and also about the privacy and confidentiality of their transactions. FNIB can provide these clients with timely, credible, and easily accessible information about these markets, such as information on market movements and current opportunities and risks.

FNIB aims to attract both novice and experienced investors, in small or large accounts, in the local or global market. To this end, the firm will develop a range of products and services that are flexible and would appeal to a diverse group of clients. FNIB will offer its clients that are traditionally not provided by other retail FX firms. This will allow FNIB to take positions in the market and outperform its rivals by acting as more than a bookie (broker). It will offer its clients a diversified set of instruments other than FX. FNIB will not only offer trading of currencies but can also offer easy access to FX alternates, such as precious metals and energies. This will make FNIB a one-stop-shop for the retail trading of almost any instruments available in the market.

FNIB will employ the latest available technology to develop a trading system that uses innovative trading models and tools. FNIB’s proprietary trading platform will exploit the forecasting and risk-management expertise of its management to provide its clients with trading tools to limit their risks and therefore maximize their gains. This innovative trading models and tools will again differentiate FNIB from existing platforms.

Growth strategies and options. FNIB is small and nimble and can react to changes in the market more quickly than big, entrenched, bureaucratic firms. This small start-up set up will allow the company to be flexible to market changes. As a new player, FNIB can exploit the lessons learned in the industry and use this information to create and put into action fresh and innovative ideas. Moreover, it can pick off current employees of the big firms and exploit their knowledge to fast-track growth.

FNIB envisions operations in huge emerging markets, particularly in China, with or without a physical presence. FNIB can create its own “ETFs” (exchange traded funds) to trade NDFs (non deliverable forwards) in the yuan and can leverage the ETFs to amplify volatility and create trading opportunities. Moreover, FNIB will offer trading in exotic currencies currently neglected by the large market players, e.g., the Philippine peso, without actually holding these currencies with all settlements in U.S. dollars.

Advertising. As mentioned, FNIB’s will enter the market via an in-house managed publicity campaign and limited advertising. In addition to traditional advertising, it will make use of social media sites to reach its market. Social media sites are increasingly transforming business models, particularly in sales and advertising. FNIB will exploit social media sites like Facebook and use these strategically for advertisements, campaigns, and even information drive. For instance, it can easily target the huge number of followers that FXCM, e-toro and FXPRO have and piggyback on the huge advertising budgets of these firms. Also, it could target naive and disgruntled people who are angry about the economic downturn in America, Ireland, and elsewhere or to follow right wing demagogues such Glenn Beck and others on Fox News where alarmist and sensational gold coin doomsday and death of the U.S. dollar advertising thrives.

It can experiment on advertising modes that the industry has not yet done. FNIB’s website will be developed, keeping in mind clients’ desire for simplicity and efficiency. It can experiment with new gimmicks and website features to entice investors. It can use a marketing campaign involving female models just as advertisers for soap or cars do, something that has not been done before in this industry.


  1. 6.    S-W-O-T Analysis
  2. Strengths.  As a new entrant, FNIB will benefit from clients’ natural curious response to what is new, hot, and shiny. FNIB will capitalize on this natural human impulse to be curious by emphasizing early on how its innovative trading methods differ from other online brokers and how they can profit more by trading with FNIB.  FNIB can bank on the superior market forecasting abilities of its management to provide timely and accurate information to its clients on how to trade properly and thereby earns clients’ trust and gain market share. FNIB’s core strengths would be the innovations it will introduce in the market, i.e., its business model, trading platform, and trading tools, and the diversity of the products and services it will offer.

Weaknesses. FINIB’s strength as a new market entrant could potentially also be its weakness. Established firms have secured client loyalties that could be difficult to break. Moreover, it could also be true that the market might be hesitant to deal with anything new. This will add pressure to FNIB’s advertising and marketing efforts. Not only it needs to market its name but also emphasize clearly why its innovations are better than the status quo.

Opportunities. The potential growth in the retail FX market is yet to be seen. But recent trends show that the market is far from saturated despite the entry of more and more online brokers. Given that the market is still emerging, learning, creating, and recreating models to improve on existing models, there is room to fill in gaps in the delivery of service to traders.

Moreover, although regulation has tightened for retail traders in some countries, there are other markets where entry is not heavily regulated thereby reducing cost of entry. Since FNIB is not based in the U.S. or EU, it has a lighter regulatory burden. This allows FNIB to offer easier and more user friendly entry and verification process for new retail customers or easy business accounts. This will lure investors who are discouraged by the complexity of processes required by firms that under the strict monitoring and control of regulators.

Threats. In financial markets, the FX market not exempt, it is generally true that clients value trust, which firms only earns after years of impeccable performance. This is especially true for novice investors who, due to lack of information and knowledge of the industry, would most likely rely solely on the trusted brand name of established firms. The current regulatory environment also poses a threat to FNIB. While getting away with all regulation may not be possible, getting away with some unnecessary regulatory burden can be done. FNIB’s strategy is to set up shop in markets were there is less regulation so that the firm can be flexible.



  1. 7.    Conclusion

Opportunities inthe internet-based retail FX market abound. Technological innovation in electronic trading systems has opened the market to small firms and clients, thereby stimulating market growth and expansion. The resulting ease of entry results in a more competitive environment as an increasing number of firms, both banks and non-banks, enter the market to get a piece of the FX pie. Despite intense competition, the sheer size of the FX market and the explosive growth of internet-based retail FX trading allow for new entrants to gain a toehold. At the same time, the retail FX market regulatory regime is being overhauled in the wake of the 2008 crisis. A heavier regulatory and reporting burden will weigh on established firms.

The full potential of retail FX has yet to be seen. As a small percentage of current FX flows, it has the greatest potential for percentage YoY growth. Moreover, the current retail model depends on client losses to sustain itself.  First National Innovation Brokers (FNIB) will offer the consumer an alternative.  It remains to be seen what the industry reaction to this new model will be and whether it can be emulated.  The timing of this leaner model fits into the life cycle of the industry as the growth phase ages and the industry consolidates towards maturity.  FNIB will also bear in mind the attributes needed to become an attractive take-over target within five to ten years.

FNIB’s initial strategy is to enter the market via an in-house managed publicity campaign and limited advertising It will operate using the same business model currently at work in the market to create a cash cow. This will ensure FNIB’s viability. Thereafter, FNIB will differentiate itself by showing its customers how to avoid losses. FNIB will experiment with methods that promote customer profits. This will be a first in the industry. As FNIB will have the first-mover advantage in this type of business model, it will have a comparative advantage over existing firms despite other firms’ (supposed) ability to imitate later on.

FNIB will best its rivals by (i) going beyond the traditional neutral market position of a broker to take market positions and (ii) offering a diverse set of trading instruments that are not popular via existing online trading platforms. The superior forecasting and trading skills of FNIB’s management and their expertise in off-shore markets will boost the firm’s potential to generate more business.

This is an opportune time for FX. The 2008 crisis is fading; in December, 2010, equities markets reached levels not seen since the fall of Lehman Brothers.  The VIX is testing support around fifteen.  However, a sovereign debt crisis looms and some doubt the viability of the Euro; precious metals are soaring.  It does not pay to own currencies as they don’t pay interest.  Should bond vigilantes gain the upper hand, interest rates will rise and commodities will collapse.  Whatever happens, volatile FX markets are a certainty.  At the same time, should a double dip occur, FX will be seen by many investors as a refuge.  A new round of recession would be deflationary and strengthen the dollar considerably even as individual U.S. states, e.g. California, are bankrupt and the FED buys trillions in treasuries to support the bond market, i.e. keep interest rates low to stimulate the economy and hopefully promote job growth in the U.S.   Either way it’s a win-win situation for FX trading.  Additionally, the trend towards creeping government intrusion into citizens’ personal and financial life creates demand for anonymity and confidentiality that large firms in major jurisdictions cannot provide.  They are obligated to spy on their clients.  As a virtual company, FNIB can bring more value added by offering superior privacy in trading.  The domicile and legal structure of the firm will be configured with this end in mind.







BIS (2010). “Triennial Central Bank Survey: Report on global foreign exchange market activity in 2010.” Bank for International Settlements, December 2010.

Barker, W. (2007). “The Global Foreign Exchange Market: Growth and Transformation.” Bank of Canada Review, Autumn 2007.

CFTC (2010). “Guidelines for Foreign Exchange Trading Activities.” Commodities and Futures Trading Commission, November 2010.

Chaboud, A. and S. Weinberg (2002). “Foreign exchange markets in the 1990s: Intraday market volatility and the growth of electronic trading” in “Market Functioning and Central Bank Policy” (BIS, Ed.), Number 12 in BIS Papers, pp. 138–147. Basel, Switzerland: Bank for International Settlements.

ClientKnowledge (2007). “Retail FX: Understanding the trend; leveraging the opportunity.”  ClientKnowledge, February 2007.

David, O. and B. Leustean (2009). “Forex and the Liberalized Financial Market.”  Romania Scientific Bulletin Series D, Vol. 71, Issue 3. Romania: University Politehnica of Bucharest.

Ding, L. and J. Hiltrop (2010). “The electronic trading systems and bid-ask spreads in the foreign exchange market.” Journal of International Financial Markets, Institutions & Money, 20 (2010) 323–345.

Euromoney (2010). “Competition heats up in the global foreign exchange industry.” Available in:

Gallardo, P. and A. Heath (2009). “Execution methods in foreign exchange markets.” BIS Quarterly Review, March 2009.

Greenwich Associates (2010). “Global Forex: The Rise of Retail. Greenwich Report, April 2010.

King, M. and D. Rime (2010). “The $4 trillion question: what explains FX growth since the 2007 survey?” BIS Quarterly Review, December 2010.

Lechner, S. and I. Nolte (2009). “Customer Trading in the Foreign Exchange market: Empirical Evidence from an Internet Trading Platform.”  Warwick Business School Financial Econometrics Research Centre WP09-01.

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[1] The BIS Triennial Central Bank Survey is the most comprehensive source of information on activity in global foreign exchange markets. The 2010 survey covers more than 1,300 banks and dealers in 54 countries. The survey is coordinated through central banks and monetary authorities all over the world.

[2] It is estimated that transactions of households and small non-bank institutions is about $150 billion per day, about 10% of global spot trading (King and Rime 2010).

[3] This is lower than Greenwich Associates’ and Euromoney’s estimate of 50% (BIS 2010 and Euromoney 2010).

[4] FX Connect started as a single-bank system in 1996 but was transformed into a multibank trading platform in 2000.

[5] The current internet-based trading platforms can be distinguished between (i) those that are established by banks or group of banks and (ii) those that are established by non-banks, such as FXCM.

[6] This is usually defined as amounts less than $1 million, but some aggregators allow even smaller amounts, for example, GFT requires a minimum of only $200 to open an account.

[7] Greenwich Associates estimates are based on 1,497 respondents in 2009 and 1,437 in 2008.

[8] The retail forex obligation is the total amount of funds that would be obtained by combining all money, securities and property deposited by a retail FX customer into a retail FX account. (Source: CFTC,

[9] MetaTrader is developed by Metaquotes. Based on reviews, it is one of the best FX retail trading software in the market. The latest version is MetaTrader 5 that allows the trading of stock market shares, in addition to forex and CFDs.

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