Every year, the Financial Partners Expo forms part of the larger iGaming Super Show in Amsterdam. For the conference in June we contributed a marketing-themed article to industry publication iGaming Business‘ (iGB) Super Show issue. It featured insights from our forex clients GAIN Capital and ETX Capital as well as binary brand MarketsWorld.
In 2016, forex, CFD trading and financial spread-betting in the UK experienced their strongest growth in five years – growing 14% year-over-year, according to Investment Trends. Nonetheless, forex brokers and their counterparts in the newer binary options sector face high levels of competition.
With regulatory change also on the horizon, brokers are increasingly looking to streamline their customer acquisition by diversifying their marketing mixes, including placing more emphasis on the affiliate channel.
Evolution & Challenges
The retail forex sector dates back over two decades. Amidst rising internet penetration, the mid-1990s saw the emergence of online trading platforms providing margin brokerage accounts to private investors. These brokers included Oanda, founded in 1995, GAIN Capital and FXCM, both founded in 1999, and ETX Capital, whose retail arm was unveiled in 2002.
The industry’s growth was supported by technological developments such as the 2005 launch of the now-ubiquitous MetaTrader4 trading platform. Meanwhile, the market volatility accompanying the 2007-2008 financial crisis and subsequent Eurozone debt crisis also drove the industry’s expansion, even as the period’s economic slump acted as a brake on trader deposits.
During the global rebound that followed, an entry barrier still remained for prospective customers. Succeeding at forex trading requires a sophisticated knowledge of economic indicators and technical analysis of currency pairs. Unsurprisingly, simpler forms of financial trading emerged to bridge this gap.
These included binary options, which involves traders predicting whether a particular asset – a currency pair, a commodity or stock index – will appreciate or depreciate over a set time. As Jeff Saunders, Head of Affiliates at binary broker MarketsWorld, acknowledges, “Forex is more difficult to trade than binary options, where you just make your bet and wait for the expiry.”
“We launched in 2011 and, despite our being only six years old, we are one of the oldest platforms in the industry – at the time there were only a handful of providers,” says Saunders. Today there are over 500 binary brokers, according to FinanceFeeds’ research. The forex space is even more competitive, with over 1,200 brokers.
Both sectors face the additional challenge of regulation. “If you’re a very regulated forex broker, it makes it harder to compete with offshore brokerages who use very aggressive sales techniques,” says Vincenzo Roselli, Head of Affiliate Marketing at ETX Capital. The forex broker is regulated by the UK’s Financial Conduct Authority (FCA), which he describes as “a very strict regulator” compared to the Cyprus Securities and Exchange Commission (CySEC) overseeing some brokers.
Regulation is also tightening for the binary sector in the aftermath of some brokers’ exploitative tactics. “CySEC, no doubt under pressure from other larger regulators, has now started to act and to put a leash on CySEC-regulated brokers,” says Saunders.
Some binary brokers choose regulation by a gambling regulator as an alternative to CySEC. Considering its binary product a form of fixed-odds betting, MarketsWorld is regulated by the Isle of Man Gambling Supervision Commission.
The forex sector faces its own upcoming regulatory challenges. “The regulation in the forex business is very uncertain and likely to change in the near future and get a lot stricter,” says Roselli. He points to the FCA’s planned changes to brokers’ leverage and customer margin and the entry into force of phase two of the Markets in Financial Instruments Directive (MiFID) for EU brokers in January 2018.
You can read the second and final part of our iGB article on forex and binary brands’ evolving marketing strategies here. Once you’ve read both parts, don’t forget to give your feedback and comments in the section below.