Retail FX volumes are undercounted in official surveys, such as the ones undertaken by the Bank for International Settlements and various large central bank FX committees, says Aite. That is because a lot of retail FX flow is internalized by brokers and only the relatively small portion that is covered in the interbank market appears in the surveys. Aite predicts total global retail average daily volume will rise from $362 billion in 2010 to $401 billion in 2013.
Aite, which draws on a proprietary database of brokers, as well as survey data and official statistics, says the UK and Japan are the two main engines for global retail growth, and believes that is not likely to change soon.
The UK is predicted to account for 30% of volumes in 2013, Japan 28%, the US 14.2 %, Asia ex Japan 12.4 % and Europe ex UK 9.4%. Other regions are forecast to account for 5.4%.
| Average daily retail FX volumes by region ($billion) |
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| Source: Aite Group estimates |
As the chart above shows, Japan experienced its main leg of growth from 2007. That was when a large crop of Japanese brokers emerged to challenge the early success of domestic firms such as SBI Securities and Gaitame.com.
A few years before the Japan FX boom – from 2000 to 2005 – a heated competition among three Russian retail FX brokers (Alpari, Forex Club, and Akmos) gave rise to FX trading in Russia and Eastern Europe. FX trading also rose on the back of Denmark’s Saxo Bank and Switzerland’s AC Markets, which is now owned by Swissquote Bank.
Over time, the move of retail FX trading operations from continental Europe to London made the UK the number one spot for retail FX outside Japan.
Since 2006 – and as tougher regulations began to emerge in the US and Switzerland – a sizeable crop of Cyprus-based retail brokers gained prominence by capturing a large audience from Southern and Eastern Europe, the Middle East and North Africa.
Most of this considerable activity was internalized, and the remaining activity was sent to London, bypassing the European continent.
With the exception of South Korea, where there was a brief burst of retail FX activity in 2008 and 2009, Asia remains a relatively untapped market for retail FX.
Australia and New Zealand have been a hotbed for retail FX since 2010, and Aite says growing demand for AUD bodes well for retail FX business down under.
The US has a small client base compared with Japan, but Aite says it is beginning to wake up to retail FX potential, with the entrance of large securities firms such as E*Trade and the prospect of US banks also being able to offer retail FX.
Next week, EuromoneyFXNews plans a closer look at the Japanese retail FX market.