Top FX industry news stories of 2020
The year 2020 will be one to both remember and to forget for everyone in the FX trading world.
The forgetting part is quite obvious. Except for those of us born before 1918 this was our first (and hopefully last!) global pandemic. And it was no fun. At best, for many of us this will all be a bad recollection and something we’d probably rather file deep in the memory bank five or so years from now. For others though it will be the year they lost a loved one to COVID, or fell seriously ill themselves.
Again, a year to forget all way round.
From a business perspective, however, 2020 was very much a year of renaissance for the Retail FX sector and the companies servicing it. Following more than a year and a half of stagnation since the FCA and ESMA introduced rules (in August 2018) that capped leverage for retail CFD traders and put in place other onerous restrictions for CFD brokers, COVID brought with it unsurpassed market volatility and everything that resulted from that – record trading volumes, record new client signups, and record revenues and profits for many firms.
Very much a year to remember, and hopefully repeat, at least from a financial point of view.
While COVID did color virtually everything that happened this year on both a personal and business plane for so many of us – remember that FX and CFD brokers had to manage all this action in an unexpected work-from-home environment – there were indeed other stories and themes which emerged from the FX trading industry these past 12 months.
Our Top FX industry news stories of 2020 are a combination of one-off stories, as well as themes which emerged during the year through various articles and discussions here on FNG.
Which stories and themes made the cut?
What was the most-read story about a Retail FX broker on FNG in 2020?
What was the M&A deal-of-the-year in the Retail FX sector?
Before we begin, we here at FNG would like to take this opportunity to wish all our readers happy holidays, and a safe and prosperous 2021. We appreciate you all making us the most-read forex industry news site in 2020, and we will continue to take that responsibility very seriously into 2021. Hopefully we can all meet in person as well as online in the new year!
FNG’s Top FX industry news stories of 2020
1. Regulators continue to limit CFD trading
As we note above the coordinated actions of the UK’s FCA and European financial regulators under the guidance of ESMA in mid 2018 led to a fairly prolonged decline in trading volumes and activity at many European brokers. That volume decline didn’t really reverse itself until earlier this year, when the onset of COVID sent markets spiraling.
However regulators don’t seem to be done when it comes to FX and CFD brokers.
The FCA announced plans to ban cryptocurrency CFDs for retail traders, a move which comes into effect in early 2021 (January 6, to be precise). That could hurt a number of online brokers in the UK, which have seen a rise in client crypto CFD trading in the second half of 2020 as the price of Bitcoin skyrocketed.
Down under, Australia’s ASIC announced new rules which basically will mimic those now in place in the UK and the EU – maximum CFD leverage of 30x, and required negative balance protection for retail traders. Australia was the last “properly regulated” place where retail traders could still get sky-high leverage if they so desired, after the US, Japan, and as noted the UK and EU put severe limits on retail trading in recent years. But not any more.
The Australian CFD rules come into effect in March 2021.
Beyond the new CFD trading rules, ASIC is also apparently looking into social and copy trading and might also propose some limitations in that area as well, after some negative experiences reported by novice traders.
2. Record volumes, client signups, and revenues for FX brokers
As we opine above not all about 2020 will want to be forgotten by those in the FX sector.
Along with COVID-19 came a global equity market crash followed by an unprecedented market rally which has lasted all the way to the end of the year. While that describes equities, virtually all other financial asset classes also saw heightened volatility and wild swings in prices – from oil (which at one point went negative) to gold to major FX pairs to cryptocurrencies.
And for those of you who follow the FX industry over the long haul, there is a very simple equation which always holds true:
Volatility = Volumes.
The wild late February through March swings brought record monthly FX and CFD trading volumes at a number of brokers, which led to a record first half at many FX firms. While trading volumes never picked back up to their February-March levels, they nevertheless generally were much higher than corresponding periods over the past couple of years, where they remain.
Beyond just the short term benefit of more trading among existing customers, 2020 also brought a record number of new traders into the Retail FX industry. Many sports bettors, shut down due to the lack of any sports activity worldwide through most of the first half of the year, turned to Retail FX and have remained even as pro sports came back online. Many younger traders – often referred to in the US as the “Robinhood generation” – became attracted to online trading as the companies they are more familiar with did well during the pandemic – Tesla, Amazon, Netflix, Zoom… This wasn’t a rally led by conglomerates and utility stocks.
But again, it mainly comes down to volatility.
3. Forex broker sponsorships of leading sports clubs
One thing built into the DNA of any Forex broker is to reinvest into marketing. The sector has – compared to almost any other industry – a very high client churn rate, so brokers understand that even if you are doing well today you can’t take it for granted that your customers of today will be your customers of tomorrow.
You must always invest in renewal.
While most FX broker advertising and client acquisition is done online where ROI can be clearly tracked, brokers are increasingly turning to certain offline activities as well, which match up nicely with their target demographic of male, young, disposable income, active online, risk taking….
One of the areas of overlap is of course professional sports, and specifically football (the European kind, not American). Top level European football clubs get tremendous following not only in their own cities and countries, but often in the Middle East, Far East and yes worldwide (outside of North America, which cares almost exclusively about its own sports).
The second half of 2020 saw a dizzying pace of new and renewed sports sponsorship agreements between cashflow-rich FX/CFD brokers and leading European football clubs, plus a number of other sports-related deals. Some of the more notable brokers and agreements include Plus500 which set a few such sponsorships such as Atlético Madrid, Atalanta Bergamasca Calcio in Italy (Bergamo), BSC Young Boys Football Club in Switzerland (Berne) and Legia Warsaw in Poland; HotForex and Paris Saint-Germain FC; GO Markets and Chelsea FC.
The list goes on and on. But on the flipside…
4. …how NOT to do a sports sponsorship: IC Markets and Inter Milan
Clearly, sports sponsorship deals are big business for Retail FX brokers. It is one of the few areas where brokers have been willing (or rather, eager) to put money offline in promoting their brands. Millions of dollars, actually. In the case of Australia’s IC Markets, a reported €14.3 million over three years to become the “sleeve sponsor” of the iconic Italian football club Inter Milan.
However after we exclusively reported that a deal had been struck between IC Markets and Inter in July, things began to go downhill. After IC Markets made a several-million-Euro deposit on the deal, Italian financial regulator CONSOB took action to block the website of IC Markets’ offshore affiliate icmarkets.com, operated by IC Markets’ Seychelles based offshore entity Raw Markets Ltd.
Eventually the deal broke up and was never formally announced. IC Markets is out of pocket its deposit and is suing Inter Milan in Italian court to get its money back, with Inter apparently claiming that IC Markets failed to comply with its contractual payment obligations after making the initial deposit.
However the lawsuit turns out, this will have been a large time/money investment made by IC Markets for the purpose of burgeoning its reputation and brand among certain demographics and in certain places, but will likely have had the opposite effect. The article on the IC Markets-Inter Milan breakup was the most-viewed article about a Retail FX broker this year on FNG.
5. USGFX bankruptcy
One of the most viewed series of articles here on FNG during 2020 was the still-unfolding saga of the bankruptcy of Union Standard International Group Pty Ltd, which operated the USGFX brand in Australia.
This isn’t the first bankruptcy of a licensed Retail FX broker, but had quite a number of elements which made the story an interesting and compelling read.
First, the USGFX brand very much lives on via the USG Group’s subsidiaries in other locations such as the UK and Vanuatu. The USG brand still adorns the front of the jerseys for EPL team Sheffield United FC, although it remains unclear who really “owns” the sponsorship rights, the now-bankrupt USGFX Australia or the UK company.
Second, the group’s controlling shareholder Soe Hein Minn has gone missing, with him and his holding company being held in contempt of court in Australia by not allowing the administrators and liquidators for USGFX Australia to do what they need to do to both figure out who is owed what, and to liquidate the company’s assets to pay clients and creditors. Cyprus based MetaQuotes has also been blocking the sale of the company’s MT4 and MT5 licenses, one of its key remaining valuable assets.
Third, and probably most interesting, is that USGFX might owe clients more than $100 million, with most of that money gone missing – probably somewhere in China. Liquidator BRI Ferrier found that USGFX had been (illegally) offering clients high interest rate paying deposits, and now most of that money is missing. Much of the money movement was processed by a China-based payment processor called UPay. BRI Ferrier has stated that UPay may not be a legitimate business, and may in fact be controlled by the aforementioned missing Soe Hein Minn.
6. FX brokers go offshore… and come onshore
While the phenomenon of offshore FX brokers is not a new one, 2020 saw a number of licensed brokers from around the world open up shop outside the spotlight of regulators. As we note above regulators in the UK, EU and Australia have severely limited CFD leverage and banned practices such as deposit bonuses, but offshore jurisdictions still allow these.
The regulatory actions have allowed offshore-only firms to chip away at the UK / EU / Australia based firms, but those firms are fighting back by opening their own offshore subs.
2020 saw FX brokers such as IG Group, TopFX, VantageFX, GO Markets, and Equiti Group open up in locations such as Bermuda, Seychelles, the Cayman Islands, and Mauritius.
On the flipside, there was clearly increased demand for “onshore” presence by a number of offshore brokers looking to expand their business, as well as brokers in the UK and Australia adding licensed subsidiaries in the EU (usually Cyprus), in planning for a post-Brexit world including the end of UK-EU license passports. FX brokers such as FXCM, Pepperstone, and Accuindex established or acquired CySEC-licensed units this year. Singapore based offshore FX broker Samtrade received FCA and ASIC licenses for newly established UK and Australia subsidiaries.
7. Diversification away from “FX” into true multi-asset brokerage
Retail FX brokers have slowly been trying to call themselves by other names – social trading broker, multi-asset broker, CFD broker…. Some firms have changed their names accordingly – AvaFX became AvaTrade, easyForex became easyMarkets. Some brokers such as Saxo Bank started to break out trading volume by asset class – FX, commodities, fixed income, equities.
The rebranding desire stems less from anything wrong or negative about the “FX” tag, and more from the realization that there’s a lot more out there to trade for retail clients than just FX pairs.
Outside the rebranding, however, FX pairs trading remained the key staple and volume driver at most Retail FX shops – until 2020. As we mention above Volatility = Volumes at FX brokers, and while there was certainly increased movement in FX rates there was record-setting volume in other areas, namely crude oil (which went negative for a spell costing some brokers millions), equities, and crypto.
And this led to….
8. Liquidity providers going multi-asset
Alongside the growth of the Retail FX and CFD sector, 2020 saw the industry begin to move more toward liquidity providers who provide multi-asset service, and not just FX. Small and mid size brokers increasingly turned to larger brokers – whose trading volume makeup closely resembled their own – and to industry specialist LPs who cater to the unique needs of FX brokers.
Companies such as IS Prime, Invast Global and the newly rebranded CMC Institutional arm of CMC Markets saw healthy growth in their businesses, driven largely by providing liquidity in non-FX CFD products: equities, equity indices, and commodities. New entrants launched such as Match-Prime. Japanese Retail FX giant GMO Click changed course in its FCA-licensed Z.com Trade UK brand to move away from Retail FX and into the liquidity business. The list goes on.
9. Revenge of the apps
Most of us have been carrying around smartphones for more than a decade now (hard to believe, but the 10th anniversary of Steve Jobs’ passing is coming up next year). But it has taken time for us to move some desktop activity to the mobile device – or at least for a new younger mobile-only generation to grow up, start investing in larger numbers, and move things with brute force.
2020 saw the breakout of mobile-app focused brokers such as Robinhood, Public.com, eToro and NAGA, driven mainly by a younger audience which is very comfortable doing things like making financial trades via the smaller screen. Robinhood is looking at an early 2021 IPO which could value the company in the $20 billion range – by comparison E*Trade was acquired in 2020 by Morgan Stanley for $11 billion, just about half that amount.
10. M&A deal of the year: StoneX buys Forex.com
The most noteworthy acquisition of the year 2020 in the Retail FX space was StoneX’s $236 million acquisition of publicly traded Gain Capital, which operated the Forex.com brand and its UK sister brand City Index.
Perhaps most notable about the deal was what it was not – huge.
Gain Capital was acquired for $6 per share – less than half its all-time high set all the way back in 2013, and 33% below its initial IPO price of $9 from 2010.
Forex.com and its longtime rival FXCM were once the dominant one-two punch in the Retail FX industry, early entrants in the business run by demanding but successful CEOs in the persons of Glenn Stevens (Gain) and Drew Niv (FXCM). Both were based in the New York area, both went public at around the same time, and at one point both were doing close to $1 trillion in monthly trading volumes – well beyond those of any other broker worldwide.
FXCM was shaken to its core by the Swiss Franc spike of January 2015, nearly going bankrupt before receiving a $300 million rescue loan from investment bank Jefferies Financial, which now controls the company. FXCM’s trading volumes and fortunes dwindled for a number of years after the Swiss Franc event, but have actually picked up over the past couple of years under Jefferies’ direction and the leadership of UK based CEO Brendan Callan.
While Gain and Forex.com exited the Swiss Franc mess in a lot better shape than FXCM, its trading volumes and place in the industry continued to head downhill, culminating in a 35% Revenue decrease and a net loss of $60.8 million in 2019 as trading volumes dipped to just above $100 billion monthly – leading to a decision to sell the company (and with it arguably the most coveted url in the Retail FX industry), as Gain Capital’s share price slid below $4 in early 2020.
The COVID-19 crisis almost derailed the StoneX-Gain deal, as Forex.com’s trading volumes (and revenues / profits) saw a temporary bump after the deal was announced at the end of February 2020, but despite some Gain Capital shareholder pushback to either cancel or get a better price from StoneX the sale closed at the end of July.
Will StoneX be able to resuscitate Forex.com’s flagging fortunes, in a manner in which Jefferies has been able to do with FXCM? We’ll learn more in 2021.