It is the final week of 2022, and it is time to reflect on the previous year's advancements in the forex and contracts for differences (CFDs) industries. In the last year, the industry has witnessed numerous ups and downs. It spans from market instability caused by war to the suspension of a popular trading platform on a mobile phone marketplace owned by a technological behemoth, but the sector has always responded.
According to a WikiFX source who spoke with executives from multiple brokers and other trading industry service providers to see what the industry's key players believe about the year coming to a close.
“Several big advancements in the FX/CFDs business have occurred this year,” stated Marc Despallieres, Chief Strategy and Trading Officer at Vantage. “The proliferation of online trading platforms and mobile applications has made it simpler for traders to access the market and execute deals from almost any location. As a result, the number of people trading FX and CFDs has increased, as has the trend toward more automated and algorithmic trading.”
“In the sector, artificial intelligence and machine learning are rapidly being utilized to evaluate market data and make trading choices. These technologies may assist traders in making better selections and increasing the efficiency of their trading activity. In recent years, cryptocurrency trading has grown in popularity, with many traders considering it as a potentially profitable sector.”
The market is volatile.
Furthermore, the trading markets were vulnerable to a variety of macroeconomic factors, whether it was the Russian assault on Ukraine that precipitated the current conflict or the worldwide troubles of growing inflation. These incidents have caused unanticipated market volatility.
“The most major shift to affect the FX/CFD market in 2022 was a rise in volatility as a result of Russia's invasion of Ukraine,” stated Tom Higgins, Founder, and CEO of Gold-i.
“Volatility has been in the doldrums for a few years, with many brokers abandoning ship. This volatility has resulted in an increase in retail trading, significantly increasing the profitability of several FX/CFD brokers. Volatility is a fickle companion; too much or too little is bad for business, but a happy balance is ideal. This is still supporting the markets, but I believe it will level out in 2023.”
He went on to say that the brokers expanded their B book trading to capitalize on the bigger price fluctuations. “We have witnessed a spike in interest in risk management solutions to handle the increasing trading and risk that brokers are experiencing. Brokers who were considering staff reductions have hired even more employees this year, putting them at risk of being overstaffed in the future” Higgins continued.
The volatility of 2022 followed a market clampdown caused by Covid-induced instability that began in March 2020. Even while the fluctuations this year were not as dramatic, they had a significant influence on the market.
Alessandro Capuano, Head of Europe at Capital.com, expects that markets will revert to typical levels of volatility in 2022. However, it is still greater than pre-pandemic levels on average. “This will undoubtedly have an impact on acquisition marketing and client trading choices,” he added.
The MetaTrader Banned
This year, possibly the most significant effect on the FX/CFDs business was caused by Apple's removal of two MetaQuotes applications from the App Store, MetaTrader 4 and MetaTrader 5. The technological behemoth did not explain its decision, but sources stated that it happened as a result of criminals licensing the MT4 and MT5 applications and offering false financial services, siphoning millions.
Apart from MetaQuotes, the brokers that provided services via these two trading platforms experienced considerable difficulties. When it comes to trading platforms, MetaQuotes is the market leader.
“This move is likely to have had a considerable effect on the sector since many traders and brokers rely on the MetaTrader software to access the market. It is unclear how the prohibition has especially impacted brokers, given there are other alternative trading platforms accessible” Despallieres said.
Indeed, after the Apple prohibition, demand for MetaQuotes' rivals' goods increased dramatically. Furthermore, brokers with proprietary trading technology are emphasizing in-house services.
The fact that the app was withdrawn from the App Store, and iOS users were no longer able to install and use the industry's most popular product, despite the fact that the mobile version remained accessible, had an unmistakable impact on the whole business. However, if we look at other organizations, we can observe that the incident had a distinct influence on each of them.
Brokers that depend on third-party trading technologies were more significantly harmed than those who use proprietary mobile applications. Those that control their own platforms have greater leeway Denis Golomedov, Chief Marketing Officer of RoboMarkets, a broker that provides both MetaTrader and proprietary trading platforms, confirmed this.
IS Risk's Managing Director, Jeff Wilkins, believes the MetaTrader ban had minimal influence on the market since alternatives would fill the void. “Traders will trade, and brokers will continue to develop and broaden their platform offers,” he said.
Juan Lemoine, Product Manager at Swissquote, stated: “A third-party platform, in my opinion, may reduce the ”time to market“ of a new broker. Existing brokers should, however, consider developing and enhancing their proprietary systems in order to compete in areas other than pricing. Unique client experiences and specialized tools that provide the broker with a distinct competitive edge may be produced more quickly on a proprietary platform than on a third-party platform.”
The Next Big Thing
FX and CFD trading is popular in developed economies where it is legal. Retail markets in the United Kingdom, Europe, and Australia, on the other hand, are almost saturated. Big companies have dominated the market, making it difficult for new entrants to emerge. It compelled brokers to seek new markets.
Several large and small brokers increased their geographical scope in 2022. Some have obtained licenses for particular markets, while the majority have obtained offshore licenses in order to improve their worldwide services.
“The financial markets have positively blossomed in recent years, with growth observed globally [and] nowhere has development happened quicker than in emerging economies,” Libertex Group CMO Marios Chailis said.
Africa, Asia, and Latin America are emerging markets on the rise. Furthermore, brokers are quickly developing in multilingual Southeast Asian nations as well as the Arab-speaking Middle East and North Africa (MENA) area.
When it comes to betting on the next big market, industry professionals' opinions differ. Higgins thinks that Latin America, with its vast population and reading culture, will be the next region to expand for FX/CFDs brokers in 2023. Chailis, on the other hand, thinks Africa will see a boom.
“However, if I had to select just one hot growth location over the next five years, it would have to be Africa. This massive untapped market of over 1.3 billion people — four times the size of the United States — is finally maturing” Chailis said.
Capuano believes that “as prospective locations for additional broker penetration, Asia is better positioned than Africa and South America.”
Geographic expansion, however, is not the sole approach for assuring double-digit growth. According to Swissquote's Lemoine, brokers may “extend their reach to other regions, such as Latin America or Asia, and employ new technology to attract a younger generation of forex traders” in order to sustain their development.
The Trend to Expect in 2023
Trends drive actions in any market, including FX/CFDs. Because 2022 is nearly gone, trade market participants are already projecting 2023 trends and responding appropriately. While there will always be unforeseen developments that might cause the market to tremble, brokers and other market players always plan for certain predictable tendencies.
“Trends play a huge role in our sector in a number of different ways, but it is frequently difficult to foresee their appearance and overall impact with any degree of precision,” Chailis said.
Regulations were one of the important sectors where there were no big improvements in 2022, which may change in the future year. “Regulators are delivering a very clear message about strengthening client protection, which I believe is a positive thing because it will help develop stronger trust and confidence in the business,” Capuano added. And, as a result, demand for automotive regtech solutions may increase, as brokers want to ensure they really know their customers and may avoid penalties for acting carelessly.
Furthermore, in Europe, ESMA has already shown its intentions to resolve regulatory supervisory gaps in license passporting. It even criticized the Cypriot regulator's enforcement procedures, which control a big number of FX/CFDs brokers.
“I believe regulation will have a significant influence in 2023, especially on the European environment,” Chailis remarked. “EU authorities are preparing to wipe out the false and immoral acts carried out by a tiny but vociferous sector of the CFD trading market, which will undoubtedly shake up the business next year.”
On the technology front, significant developments are also foreseen, particularly in the use of Artificial Intelligence (AI) in the trade area. The use of such sophisticated technology will be evident not only in automated trading but also in broker analysis and risk management.
Another important topic that is currently developing and might burst next year is the incorporation of environmental, social, and governance (ESG) considerations into investment. Customer demand for such investments is skyrocketing, and numerous brokerages are making ESG data available to individual traders. Recently, Swissquote and CMC Invest began to provide ESG data for equities and a handful of their other investing products.
“In the FX/CFDs market, ESG issues may include the environmental effect of a company's activities, a company's social responsibility, and a company's governance processes,” Despallieres said. “As public knowledge of ESG problems rises, these considerations are expected to become more relevant in the FX/CFDs market. Investors, for example, may choose to prioritize firms with a great track record of environmental stewardship or social responsibility. Similarly, financial institutions may want to include ESG criteria into their risk management strategies in order to better identify and mitigate the risks associated with their investments.”
“Overall, the relevance of ESG aspects in the FX/CFDs market is anticipated to expand in the next years, as investors and financial institutions increasingly appreciate the need of taking these factors into account in their decision-making process.”
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