Retail trading set for a boost

New Client Money Reporting Rules coming into effect next year, may boost confidence among Australian retail FX traders.

First Published: e-Forex Magazine 79 / Regional eFX Perspective / December, 2017

Irene Guiamatsia

Irene Guiamatsia

“50,000 - the number of Australian OTC margin FX traders taking positions on currency pairs, with or without leverage.”

From April, Australian Regulator ASIC imposes record keeping, reconciliation and reporting obligations on a range of financial services organisations that hold client money. These include retail FX brokers. This may encourage retail traders to increase in number and step up their trading activities.

At present the number of unique Australians who place at least one FX trade in a 12-month period is around 50,000, according to research and analytics firm Investor Trends. Their research director Irene Guiamatsia, explains, “This figure is the number of OTC margin FX traders taking positions on currency pairs, with or without leverage. We haven’t measured forwards or swaps, uptake of NDFs is next to negligible but we estimate the number of options traders at 24,000, in the 12 months to Oct 2016”

Like many jurisdictions around the world, the retail platform space is dominated by MetaTrader 4 (MT4). Australian traders tend to focus on AUD and NZD, with an uptick in activity around data announcements. AUD/JPY, AUD/GBP and NZD /GBP are particular popular with almost all trades being spot. 

Gavin White

Gavin White

“A lot of retail brokerages, as well as other investment firms, are being offboarded by the bank prime brokers and are looking for alternatives.”

However, according to Gavin White, CEO of Invast Global, the Japanese owned, brokerage firm, the arrival of MT5 is an important development for many clients. “A big driver of this shift is the fact that at Invast we provide direct market access to single stock and futures exchange liquidity and execution into MT5. That allows us to connect our retail broker clients to over 30 global equities and futures exchanges. When combined with our existing FX, metals, index and energy OTC liquidity, MT5 suddenly becomes a pretty unbeatable proposition for retail brokers, and their retail clients. All asset classes on one platform, with unprecedented transparency,” adds White.

Irene Guiamatsia notes that where retail traders use brokers, “The top two are UK-headquartered IG and CMC Markets. Then follows a mix of global players such as FXCM, OANDA, Saxo, Interactive Brokers and local ones such as Pepperstone, AxiTrader and GO Markets.”

Most Australian retail clients tend to use leverage but, as in other jurisdictions, in many cases, banks have withdrawn their credit support. Invast, which mainly services institutional brokers, has been one of the players to step into the breach and offer prime brokerage. 

“It is a large and fast-growing segment, mainly due to the fact that the global investment banks are being forced to reduce their prime brokerage offerings due to the introduction of regulatory reforms such as Basel III and MIFID II,” says White. “This has meant a lot of retail brokerages, as well as other investment firms, are being offboarded by the bank prime brokers and are looking for alternatives. We’ve been serving retail brokerages, hedge funds and asset managers around the world for the past four years.”

It remains to be seen precisely how much of an impact the new client money rules will have. It seems clear however, that there is plenty of headroom for the retail trading sector to blossom with credit also now more accessible to them.