Sunday, February 24, 2013

Who Will Survive In The Forex Sea?

It is difficult to read any financial news online without coming across an advertisement for a forex trading platform. Currency exchange trading has become so popular over the last couple of years that there are hundreds of platforms that have popped up all over the world. With a market flooded with different companies vying for the business of traders, who will rise to the top and who will be left holding the bag?

“The industry has grown rapidly,” says Markos Kashiouris. Kashiouris is the founder of IronFX which is an award winning trading platform operating globally. “The industry changes by the day and those who do not change with it will be left out in the cold.” One of the main “changes” that he talks about is regulation. “There are some companies that want to simply “get by” and maintain minimum standards. This is unacceptable to traders who are looking for the best platform to trade with.” Kashiouris is right. Investors are taking the time to run checks on different companies as opposed to just responding to an ad for an account bonus. IronFX is regulated by Cyprus Securities and Exchange Commission (CySEC), Australian Securities and Exchange Commission (ASIC) and fully registered with all EU competent authorities.

In August 2010, the Commodity Futures Trading Commission announced new rules for retail forex brokers. These regulations include a $20Million capital requirement plus 5% of all retail foreign-exchange liabilities exceeding $10Million. It also required registration, record-keeping, and financial reporting. The question is, how many are complying with the rules? “We comply with all regulations placed on us and will be the first in line to register with any government body that requires it,” Kashiouris said.
Companies that will survive as leaders include those who focus on customer retention. With any industry, consumers have their choice of companies when the market is flooded. Companies need to ask why people would choose them over another company. The same holds true in the world of forex. In December 2012, Global Forex Trading shut down their US operations. The year prior they were recognized for their customer service by International Business Times; however, their pulling operations out of the United States left a sour taste with many of their clients. “I simply left,” stated Charles Rogers, a retired steelworker from Grand Rapids, Michigan. “They transferred my account to one of their ‘partners’ which didn’t sit too well with me. I closed up my account and went with a different company. It would have been nice to have had some type of warning.”

Trust is something else that is important. Forex brokers who will survive will be those whom you can trust. Unfortunately, finding information to help that trust does not come easy. According to Vantage Point Trading, you cannot trust reviews. In a recent article, they state that about 90% of people who try trading lose money and that it is no wonder why people blame their brokers. This means that you will read negative reviews of brokers even though they may not deserve. You thought it would be the other way around? Well, there is some of that going on as well. Some positive reviews are likely posted by the broker or a marketing company for the broker. As such, you need to read news from unbiased sources such as the New York Times, World Finance, and other leading finance publications.

Forex brokers also need to maintain transparency if they want to come out on top. In 2011, ActivTrades, a London-based forex broker, was fined £85,750 from the UK’s Financial Services Authority (FSA). The fine was a result of the company failing to keep client’s money separate from the firm’s money, a big “no-no” in the finance world. The violation was discovered as part of a review by UK regulators. Broker who want to maintain transparency need to ensure that they abide by all regulations by conducting internal audits as well as consulting with outside independent audit firms such as Ernst & Young.

Overall, forex trading is becoming more and more popular. Additional regulations and an abundance of choices will ultimate cause the death of many retail forex brokers. Those who survive will be those who are already leading the market and willing to maintain their customers and comply with regulations required.

My name is CJ Pearce and I have been a journalist for over 20 years. I like to write about my own personal experiences with investing and adapt them for other investors. I believe that writing from an investor point of view as opposed to a financial insider brings more prospective to the content being presented. I am a regular contributor to many publications including Social media Today, Seeking Alpha, and Industry News Corp.