Active Japanese Currency Traders, TFX Activity Soar to New Highs

Posted originally on May 16, 2011 at the Aite Group Blog

The number of active retail FX traders in Japan rose to 643,000, a record high, for the quarter ending in March 2011. The 7.7% increase follows six quarters that each averaged 600,000 active traders. Much of this increased level of activity that took place did so in a quarter that saw a major earthquake and a record low level in USD/JPY (U.S. dollar/yen). As with retail FX’s institutional peers, price volatility attracts retail traders.

But the picture for Japanese brokerages is not too rosy. The level of volume from active over-the-counter (OTC) traders is up 3% from December 2010, but down 26% from last year’s overall level; the overall number of retail FX traders in Japan decreased 171,000 for Q1 2011 to 3.49 million. Gaitame.com, the largest Japanese FX broker, cleaned its books of dormant accounts and lost a large number during Q4 2010 due to a technical mishap — it decreased its account count by 204,000 to 326,000.

The number of registrants with the Financial Futures Association of Japan that offer retail FX has decreased 11%, from 88 firms a year ago to 78 firms today. This consolidation was inevitable given the tough leverage restrictions imposed by the Japanese regulators last year and still pending for this summer.

There are plenty of positives coming from a unique Japanese product for FX traders, called Tokyo FX (TFX). The TFX is an on-exchange product, but Japanese brokers are able to act as market-makers for it. The number of retail TFX traders totaled 327,000 at the end of March 2011, with 20% of them active. The TFX volumes have increased 25% from Q4 2010 and 40% from a year ago. Better yet, TFX account balances average JPY 569,000 (US$7,000) compared to JPY 191,000 (US$2,360) for the average OTC FX account.

Legislative Update: U.S. Banks and Retail Currency Trading

Originally posted on May 13, 2011 at the Aite Group Blog

There is an unusual level of expediency at most regulators over requirements and deadlines imposed by the Dodd-Frank Act. As we approach the July 21 anniversary of this landmark legislation, regulators from seven U.S. regulatory bodies —  CFTC, SEC/FINRA, OCC, FDIC, Federal Reserve, NCUA, and FCA – have an important task ahead: setting up rules for retail currency trading.

Retail FX (also known as Forex) deals with regular people who wish to day-trade the dollar against the euro instead of buying Apple and selling Microsoft. Many financial institutions in the market have not yet realized how popular retail FX is, and could miss an opportunity to influence the rules that will govern the space for the foreseeable future.

The OCC and the FDIC have recently announced rules governing retail FX, and are in the public comment stage. The rules for the OCC, most of which are modeled after the CFTC rules, would go into effect as of

Resistance Is Futile: TradeStation Succumbs to Forex Appeal

Originally posted on April 11, 2011 at the Aite Group Blog

Active trader darling TradeStation (NASDAQ: TRAD) announced today the launch of its TradeStation Forex Inc. subsidiary. Its arrival to Forex continues to solidify the arrival of well-capitalized financial firms into a space dominated by brokers that only offer FX services to a retail public: Deutsche Bank (DBFX, 2006), Citibank (CitiFX Pro, 2007), and TD Ameritrade (thinkorswim, 2009). Interactive Brokers (IB) and Man Financial have offered retail FX since at least 2005, but neither has created a separate entity for it or promoted it actively.

A little perspective about this move by TradeStation is in order. The firm debuted in 1982 at the onset of the trading software revolution, and went public in 1997. TradeStation launched its brokerage business

Strong Yen: Curse or Blessing for Retail FX in Japan?

Posted originally on March 29, 2011 at the Aite Group Blog

A complex yet impressive picture of retail FX traders is emerging from Japan. A recent Aite Group report sizes the retail FX market in Japan at 3.6 million, using data from the country’s Financial Futures Association (FFA) and data compiled from almost 40 medium and large retail FX brokers. An estimated 597,000 traders were considered active during Q4 2010.

The relevance of understanding Japanese active-trader patterns resides on the direct correlation that trading volumes and currency pair preferences have with retail FX broker revenue.

The Wall Street Journal recently reported that as much as US$ 171 billion (30%) of US$570 billion traded daily on USDJPY (dollar/yen) can be attributed to Japanese individuals. Without a doubt, the leverage of 50:1 offered to retail traders on their margin deposits plays a big role on how a large number of small traders can have a sizeable impact on the overall market. By contrast, the leverage used by institutional traders is somewhere between 2:1 and 5:1.

The WSJ article was written around the flash crash of sorts experienced in the dollar-yen market on March 16, taking place shortly after 5 p.m., Eastern time (5 a.m. on March 17, Japan time). This is

The Search for Active Traders: Charles Schwab Acquires OptionsXpress

Posted originally on March 22, 2011 at the Aite Group Blog

OptionsXpress agreed yesterday to an all-stock offer from Charles Schwab, valued at US$1.0 billion. Was this a marriage of convenience, or a case of a target in distressed situation? I’d say probably a little of both.

It was a slightly more than two years ago that TD Ameritrade acquired options powerhouse thinkorswim for US$606 million in cash and stock. This purchase changed the dynamics among the big stock brokerages, and Charles Schwab has now responded in kind.

There is no doubt that optionsXpress is a clear leader in options. A fair amount of growth has relied on picking up clients who subscribe to one of several education and brokerage services offered by