“FX makes up only 50% of all retail trading” – Live industry debate at FXIC Shanghai on need to go multi-asset

10.00am, December 8, Shanghai, China.

Live from the FXIC Shanghai Forex industry conference today, a discussion among senior industry executives is currently taking place in which four industry executives have, for the past 40 minutes, engaged in interactive debate about the need to diversify into other asset classes.

As with many FX companies around the world, the move toward CFDs, equities and options, futures and precious metals among so many other instruments is being followed with not only a resounding echo here in China, but with widespread gusto.

Moderated by Ian McAfee, CEO of Shift Forex, Mark Smedley, Head of Business Development and Partnerships at Drive Wealth LLC joined Tim Brankin, Managing Director of TradeToolsFX and Brian Phillips, Co-Founder and CEO of CapXM to examine how and why the need for diversification is critical to not only growth but actual survival.

Ian McAfee began by demonstrating his findings that over the last 12 months, interesting changes have occured, and one significant aspect is the increase in equities volatility in China.

Mark Smedley concurred with this and stated that this stands his company, DriveWealth, in good stead to participate in the need for a range of different tradable instruments in one place.

“DriveWealth is a US equities provider” explained Mr. Smedley. “It is an intersting fit for the FX market in the respect that it allows FX brokers to deliver direct exchange traded equities.”

Debating this subject alongside Mark Smedley, Brian Phillips asked “Why is there a push toward CFDs and equities?” before explaining this dynamic in detail from his perspective.

“As everyone in this industry has experienced the lowest volatility in 20 years during the previous year, followed by the SNB event this year which sent the FX markets into a day of unprecedented volatility, diversification was needed to allow clients to put their money to work. We have seen requests from our commercial clients to add all manner of asset classes, because their traders are asking for a wide variety.

“Whilst this is good, currently, the difficulty is that most of the time there is no way for firms to aggregate CFD liqidity as there is no way to clear CFDs at the moment. I expect to see firms coming out with prime of prime solutions and ways to clear such products. As a result of the lack of credit and ability to clear such products, we are working with brokers to resolve that. When we see the CFD sector take market share away from FX, brokers across all regions will lose business overall if they are not pricing these assets today. We are very much looking forward to moving further in this direction.” – Brian Phillips, Agrosy Capital Partners.

Tim Brankin elaborated further on the need to concentrate on not only offering multi-asset trading facilities, but to keep them available to traders within one platform. “TradeToolsFX is a full service software development firm for FX and binary brokers to help them attract and retain clients. We do a lot of MT4 development, and currently a popular product in China is binary options which are tradable on the MetaTrader 4 platform.”

Interacting with the panel, Ian McAfee picked up on this point and sakd “Brokers offering FX are expanding into multi-asset trading, that’s for sure. Our data at Shift Forex says that non-FX products make up 50% of all order flow, therefore its interesting to see how brokers are dealing with that and assessing the needs of their clients and waht to offer them. Tim, are you able to elaorate on how this fits in to your ethos?”

Tim Brankin then explained the internal mechanics of binary options, and how he places them firmly in the category of investment products. Mr. Brankin covered the point that some binary options providers and their subsquent brands are looking at it as gaming.

“Binary options are doing well in China as middle class and young urbane investors are looking at ways to participate in the market.”

“You can buy domestic shares, or invest in property but there is alot of interest in diversifying into other asset classes. Binary options as a new product there is still alot of education that needs to take place, our role is to provide the tools and market the products to our clients, get them comfortable and know how to trade them effectively.”

“Binary options is a nice entracne into the world of investing, regardless of asset classes. This gives a way to dip your toe into all forms of electronic trading without taking on a large risk.” – Tim Brankin, Managing Director, TradeToolsFX.

Ian McAfee lead on this further by saying “There is strong demand for CFDs in China. Your firm helps firms hedge CFDs, therefore we would like to find out how you do that and what the risk persectve is.”

Brian Phillips comprehsnively answered that by saying

“We did alot of business in HK and there are a lot of bullion houses there which are now asking us about diversiying their products as they need to diversify risk. Mainly, they are looking to manage their products and find a way that brokers cannot have all their eggs in one basket. CFD trading gives their book a healthier perspective.”

Definitely one way that different positions being placed can reduce the net risk to the broker.” – Brian Phillips, CEO, CapXM.

Mark Smedley continued on this point “One of the key aspects that relate to US equitiies is that the client owns his particular share, and the broker doesn’t expose itself to any risks. It allows the broker to establish a relationship to sell alternative products. Brian mentioned the importance of not keeping all eggs in one basket. This is where our partnership with CQG comes in, where you can trade multi asset on one platform, and in addition, via DirectFX we are hte first to offer US equities on the MT4 platform.”

“There have been some policy based changes here in China. There are a lot of companies that work with US equities in China. Policy changes will open up the marketplace and allow anyone to offer US equities. We are a full broker dealer in the US and assume the regulatory risk. Clients can open and own equities.” – Mark Smedley, Head of Partnerships, DriveWealth.

Brian Phillips understands that there are benefits for all participants in this sector. “For the three of us today here, this will go forward collectively because our client wants to trade with all of us, therefore strategic partnerships should occur in the form of collaborations between offerers of different products. If they don’t, they’ll lose business. Brokers offering FX with only tight margins and narrow spreads, cannot monetize, therefore CFD etc is the way forward.”

Tim Brankin concluded by saying that “As a technology company we are always looking for new ways to add features. We recently formed a partnership with Autochartist which specifically looks at technical analyis to give traders a constant flow of trade ideas. We did this partnership to attract astute traders for binary options, and have made a specific product via this partnership for binary traders, which is integrated within MT4. It is a case of us generating more aspects to create the best environment that supports as many assets as possible.

Photography copyright Andrew Saks-McLeod