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Trending Toward Transparency

by internationalbanker

George TsaparillasBy George Tsaparillas, Director of Global Strategy and Business Development, EXNESS



Amid constant foreign exchange market (forex) growth and intensified competition between brokers, a number of companies are still striving for a transparent market and fair partner relations.

Retail forex trading has grown exponentially over the past decade and is one of the fastest growing financial markets today. In 2014, the sector’s average daily volume was $5.5 trillion, with experts predicting yet more growth and consolidation. Some say that by the end of the decade, total trading volume will surpass $8.9 trillion. Others have issued even bolder estimates, putting the figure closer to $20 trillion. What has made the market so attractive? The emergence of online retail forex, which makes it possible for anyone to trade with ease, cannot be underestimated.

Every day, hundreds of retail brokers entice you to open an account and start making your fortune. Success stories of famous traders who executed speculative long or short trades at just the right times are widespread and have become exceptionally popular in the UK media. Naturally, anybody who wants to begin forex trading faces the initial stage of choosing the right platform. Choosing the right forex broker is a key factor in successful trading. There are a growing number of players in the market, which creates stern competition for new business. Naturally, the more traders who enter the forex space, the more aggressive the advertising and promotional tactics used.

The first and foremost criteria for choosing a broker are typically reliability, stability, convenience and provision of profitable conditions. While these conditions and the convenience of trading are more or less subjective selection criteria (ultimately, a broker’s conditions must allow for and support a specific trading strategy), reliability and stability are criteria that are relatively independent of the trader. As a rule of thumb, a broker is more reliable and stable if it has been operating in the market for a relatively long time and has a large trading volume—longevity breeds security. There are a number of reasons for this: a proven record indicates the ability to navigate testing conditions (such as the situation with the Swiss franc earlier this year), to manage risks skillfully and to execute a large number of transactions, as well as technological stability/advancement, which is extremely important in order execution and client retention.

However, to this day you cannot find a single rating of brokers that would make it possible to classify them by size. There are more than 35 regulatory bodies globally, with forex brokers licensed by different organisations holding various standards and rules. For now, though, no one body in the industry can assume responsibility for regulating the market’s existing companies and issue objective reporting standards.

Of course, you can learn how things really stand with a retail broker if it decides to issue an IPO (initial public offering) and become a publicly listed company. The published financial statements will be distinguished by ample transparency and will be a more-than-adequate criteria for evaluation. But with a limited number of brokers seeking to become public companies, traders must use a different yet universal indicator. The most commonly mentioned one is trading volume, which reflects the total amount of transactions executed over a specific period, predominantly in US dollars. Many brokers announce their trading volume, which often serves as an appropriate benchmark for comparison. However, the question still remains as to whether you can trust a set of figures if the firm does not provide any evidence of their methodology or veracity.

In 2014, EXNESS first certified its trading volume with independent auditors. The method of calculation and other data, such as the structure of trades by currency pairs, the average trading volume per client, and the number of active clients, was initially published in a report by Meritorius Audit Limited (MAP Audit). That same year we began to work with Deloitte, one of the world’s largest auditors, who now verify our total trading volume each month. In addition, EXNESS also publishes certified data about the size of the partner rewards and withdrawals. This year has already proved a testing time for the retail industry, with many firms suffering crippling losses on the back of January’s volatility in the Swiss franc. At least three firms went out of business as the news jolted just about all the major currency pairs, with a major U.S. player requiring a bailout. At present, the industry is far too opaque—with traders often having no visibility of the financial performance of their broker. We believe our clients deserve added transparency, and that is why we are happy to lead the industry in this respect.

As one of many brokers in a crowded industry, it is difficult to judge how this new practice will change the forex space. One thing is certain: a transparent market will benefit both sides, brokers and traders, for the better.

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