5Editor's Note

Section 1 | Q4 2013 Forex Market Overview

Forex Market Quarterly Overview

Institutional FX Volumes' Review

Retail Forex Volumes

Retail Forex Volumes By Accounts

Retail Forex Volumes By MT4 Usage

Exchanges Update

Section 2 | Articles

London Summit: What People Were Talking About

The Automation Generation: Can Technology Instigate Higher Revenues?

The Shanghai Free Trade Zone: Chinas Route to Asian Dominance?

Between East and West: FX in Kazakhstan & Uzbekistan

New Ways to Trade: Hybrid Financial Products

A Year of M&As: Analyzing the Trends

Binary Options Industry: Following in the Footsteps of Forex?

Can Malta Impeach Cyprus From its Prominence?

The Era of One to Many: Prepare for Multi-Asset Platforms

Reaping the Rewards: New Model to Motivate Quality Sales Team

Costs Are Critical: Transaction Cost Analysis Embraced by FX

The Role of Social Media Marketing in Turkeys Fragmented FX Market

Trading Signals and Binary Option: A Match Made in Heaven?

What Does it Take? Mapping the Components of Trading Platforms

Section 3 | Detailed broker information

Forex Industry Biggest M&As and Investments

Section 4 | Major News of the Quarter

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12

16

20

24

28

32

38

44

52

60

68

78

84

92

100

106

110

116

124

132

141

172

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CONTENTINDEX

9M A R K E TO V E R V I E W

Section

01

Institutional FX Volumes' Review Retail Forex Volumes Retail Forex Volumes By Accounts Retail Forex Volumes By

MT4 Usage Exchanges Update

www.acmgold.com

IN RELATIONSHIP WE TRUSTLIQUIDITY | TECHNOLOGY | SECURITYLIQUIDITY | TECHNOLOGY | SECURITY

LIQUIDITY | TECHNOLOGY | SECURITY

12

OVERVIEW01

With 2013 behind us, how will the year be remem-bered? As the year when

volatility finally returned to pre-2011 levels as Abenomics drove Japanese yen higher and ushered in record volumes for the first sev-en months of the year. Or, will the year be seen as the continuation of 2012 as the euro volatility was at historical lows and the FED failed to show it was serious about tapering.

During the fourth quarter, we expe-rienced a bit of the latter. Without the backdrop of much yen move-ment, overall activity depended on a boost from other currencies such as the dollar, euro and pound. However, despite a few days here and there where traders reacted to economic reports or a random FED or ECB meeting and moved the markets, volumes failed to improve much from their summer lows.

At issue is speculation, or more truly the lack of it. Volumes strive in times of speculation and debate as traders wage counter battles on the direction of the market. In the current environment, the lack of tapering during 2013, despite sev-eral signs of it poised to take place, led to a multi-month trend of a weakening dollar. The result was a directional market that triggered a decline in day to day activity and

short-term speculation.

Evolve or Die

On the topic of volatility, during the Forex Magnates London Sum-mit (more on page 38), one of the noticeable trends in the mar-ket was that more and more par-ticipants were embarking on new projects to handle the cyclical na-ture of the industry. While the pre-vious decade was rich in volatility, and nearly any market maker could put their stick in the ground and strike oil, current trading activity has made it a much more difficult environment for brokers. Market making is still viewed as a profit-able business, but more and more we hear from dealing desks that their success is tied to two or three big days in the market each month, instead of any semblance of con-sistency. As a result, two classes of brokers are forming; those whose fortunes (and long-term existence) are closely tied to volatility, and others that are branching out into alternative revenues streams.

While volatility can float all boats, such as was seen in the first half of the year, it is apparent that a large percentage of firms arent able to handle drawn-out periods of low volatility. Last year the low vola-

FOREX MARKET QUARTERLY OVERVIEW

tility environment led to a num-ber of major brokers experiencing losses, while others embarked on expense reductions to stay profit-able. Even with the positive trends in the beginning of 2013, many firms found it difficult to turn around the negative momentum caused by 2012. Case in point were GFT and MIG Bank which both sold their businesses this year and whose financial statements showed only moderate profits in 2013 despite an increase in trading.

Responding to this reality, in ad-dition to getting leaner with their expenses, many firms have been expanding their product lines to appeal to evolving trader inter-ests. Among the leading examples is the launch of binary options platforms. While there is a fear of binary options and forex canni-balizing each other, many brokers are finding that the two products appeal to separate client types.

In addition, for firms with strong existing marketing channels and affiliates, binary options trading provides a new product to pitch to forex leads that were never con-verted. Our Binary Options Indus-try Review on p. 84 of this report examines this fine balance be-tween the two industries.

Another example is diversifying

13

tradable instruments. As witnessed by statements from both Saxo Bank and FXCM in the fourth quarter, non-forex products have become a larger contributor of volumes at those brokers. While many new CFDs or exotic currency launches do fail to gain client interest, the continual addition of new prod-ucts can help engage dormant customers and provide additional resources for sales personnel to pitch. Broader product depth is also a key ingredient for firms targeting new regions, as clients tend to fa-vor trading currencies and CFDs they are familiar with. In fact, many non-English forex portals limit ad-vertising only to brokers who offer regional products.

Platform Wars

Diversifying has also meant the launch of new trading platforms to appeal to different types of trad-ers. Around the industry, Meta-Trader continues to garner a mixed opinion. On one hand, the worlds most popular retail forex platform is seeing more brokers begin to offer MT4 as it provides an easier way to onboard clients with exist-ing forex trading experience. On the other hand, many brokers have been quite forthcoming to Forex Magnates about relating their dis-pleasure with working with Meta-Quotes in terms of continuing support and upcoming product changes. In addition, offering the platform does little for firms to distinguish themselves from their competition.

As a result, new platforms such as apps-based tradable and Spot-wares cTrader have garnered in-creased interest from brokers. Since launching, cTrader has been marketed towards more serious re-tail forex traders by focusing on the platform being ECN-based. Con-tinuing this strategy, Spotware has added new features such as region-al private server connections to re-duce latency as well as expanding usability of its algo trading plat-form. Similarly, as an apps-based platform, tradable has seen interest from brokers who see the potential in offering an open system.

While neither cTrader nor tradable can be said to have made much of a dent into MetaTraders dominance, the fact that the products are ap-pearing on more brokers' platform lists bodes well for the expansion of the development of a third party ecosystem which is critical in rais-ing user adoption.

Several More Updates

1. Daniel Skowronski re-signs as CEO of Alpari UK

2. FXCM reports it has set aside $15 million for potential settlement with FCA about asymmetric slippage

3. OANDA soft launches third party partnership program

4. FX related venture funds arriv-ing to the space with the launch of FMOH Ventures and FXC-QCP

5. List of brokers creating sepa-rate technology provider units grows with initiatives from Easy

Forex, Markets.com and Bfore

New Entrants to Watch for

1. TradeCrowd New social trad-ing broker

2. GWAZY Forex platform that uses elements of binary options trading

3. ORE White label platform for brokers to offer clients trading in FX options

4. Timur Latypoff Technology Lab MT4 bridge provider also special-izing in bitcoin feeds

5. FSWire Social sentiment trad-ing product

6. Inovance Bringing machine learning trading to forex

7. TradingFloor Saxo Bank is launching its trading portal as a so-cial trading platform

8.WL Creator Simplified white label creator launched by X Open Hub

868482

80

78

Jan 13

'

Mar 1

3'

May 1

3'

Jul 13

'

Dolar Index Source: Marketwatch

Sep 1

3'

Dec 1

3'

DOLLAR INDEX: MID-YEAR VOLATILITY REPLACED WITH A

STEADY LOWER TREND

Fig 1.

Nov 1

3'

35

ARTICLESForex Magnates London Summit How to Increase Revenue Through Technological Advancement Shanghai Free Trade Zone FX in Kazakhstan & Uzbekistan Hybrid Financial Products Mergers and Acquisitions Binary Options Industry Can Malta Impeach Cyprus From its Prominence? Multi Asset Platforms Maintaining a Quality & Motivated Sales Team Transaction Cost Analysis Social Media Marketing in Turkey Trading Signals and Binary Options Mapping The Components of Trading Platforms

Section

02

ARTICLES02

60

Kazakhstan and Uzbekistan fall under the definition of central Asian countries or

Eurasia due to their distinct loca-tion: On the west bordering Eastern Europe and on the east connecting deep into Asia. The two countries have been members of a number of pacts post-Soviet demise, such as the Organization of Central Asian Cooperation and the Free Trade Area (CISFTA) as countries in the region were looking beyond the former Soviet Union to position their economic prospects.

Since gaining independence in the early 1990s, the region has had two decades of volatility, and has since established its macroeco-nomic structure. The first decade was a period when nations in the pact were faced with recession and hyper inflation and govern-ments were establishing their cap-ital markets structure. The recent decade has been a time of growth and prosperity with global trade being a considerable factor be-hind developments in the region.

BETWEEN EAST AND WEST: FX IN KAZAKHSTAN & UZBEKISTAN

The region has been heavily in-fluenced by the Russian doc-trine since the early 20th century, and thus later has been catego-rized under the Soviet umbrella. Since the breakup of the re-gion in 1991, several countries have taken steps to ensure that the region and its individual oc-cupants benefit from the new phase of growth and that de-velopment takes center stage.

Both Kazakhstan and Uzbekistan are now entering their peak years as Western countries look East for investment purposes to re-place saturated economies in Eu-rope and the United States. These two countries are fortunate to be home to a large number of use-ful natural resources that are driv-ing their respective economies.

Kazakhstan has taken advantage of a first-claimer and has secured its position as the regions finan-cial leader. The country is a pow-er economy in comparison to its neighbors, and its 16 million popu-

Central Asia is rapidly emerging as a financial-ly viable region, driven by natural resources, trade, economic reforms and a strategic location near Russia, China and India.

This article will explore two of the regions key countries, Kazakhstan and Uzbekistan, to learn of the role that global financial instruments play in their developing economies.

By Adil Siddiqui

63

Source: World Bank

Broker Number of Trading Accounts Average daily trade volume $ millions

Instaforex 10,500 415

Roboforex 5,000 275

Admiral 4,500 210

Alpari 3,500 180

Fibo 1,500 125

Teletrade 2,500 120

Forexclub 1,750 80

xForex 1,200 60

Masterforex 1,100 55

FXOpen 1,200 50

Forex4you 1,000 45

PFGFX 750 35

Liteforex 500 25

NordFX 450 15

Total 10,450 485

Source: Forex Magnates

Kazakhstan Main Brokers and Trading MetricsFig 16.

Source: World Bank

Kazakhstan GDP Growth Rate %Fig 18.

2

0

4

6

8

10

2008

2007

2009

2010

2011

2013

2012

2.4

8.5

1.2

7 7.5

5 5

Source: Forex Magnates

Kazakhstan Main Products: % Traded of Total Instruments

Fig 19.

10%Stock Indices

70%FX

15%Metals

5% Energy

Fig 20. Kazakhstan Unemployment Rate

5

6

7

8

2007

2008

2009

2010

2013

2012

2011

Source: Forex Magnates

Fig 17. KAZAKHSTAN FX TRADERS

35,000-45,000

$350

$1.4 - $1.8 billion

Number of Retail FX Traders

Average First Deposit

Average Daily Trade Volume

Spot FX is not a regulated asset class in Kazakhstan*

ARTICLES02

78

Mergers and Acquisitions (M&A) were one of the hottest topics across the

forex industry during 2013.

But it is not only the mere market move that makes waves, but even more dramatically its implica-tions for the companies involved and for the industry as a whole.

When discussing acquisition of FX firms by fellow market participants, it is essential to evaluate the deep-er reasons for these transactions and the impact they are aimed to have on corporate success.

In order to conduct such an evalu-ation, this article will use as ob-jective measurements as trading volumes and stock value cre-ation, wherever the information is both available and substantiated.

M&A Effects on Forex Companies

The effects of mergers and acqui-sitions can be verified by com-paring the stock value, number of traders, total volume and other factors of the combined com-panies before an M&A event and a year after it, in order to see if the combined company can as-sume control over all the previous market share, as well as pointing

A YEAR OF M&As: ANALYZING THE TRENDS

out what was lost in the process.

FXCM Eyes GAIN Capital

The biggest M&A transaction this year, oddly enough, was the one that did not actually take place at all. On April 9th, FXCM pro-posed to GAIN Capitals share-holders to acquire the firm for $210 million in FXCM stocks.

At the time, GAIN Capital had about 63,000 clients, valuing the CPA as if to infer that all FXCM was gaining would put the cost per client acquisition at a stagger-ing $3,333.30. Obviously, this was not the way FXCM evaluated its rival, and there must have been other factors involved in this offer.

GAIN Capital offered FXCM the chance of securing much more than just its existing cli-ents if the acquisition was to go through. The value of the GAIN Capital brand the FOREX.com do-main name are examples of as-sets that are hard to quantify, however are still very valuable.

Additionally, if the acquisition of GAIN Capital had been complet-ed, FXCM would have been trans-formed into a global giant, with no rival anywhere in the world

The year of 2013 saw a considerable amount of mergers and acquisitions, some of which have created a shuffle in the balance of power across the forex industry.

This article will examine the major M&A transac-tions to establish a com-prehensive view of the corporate strategies that have reshaped the entire market structure during this year.

By Avi Mizrahi

79

A YEAR OF M&As: ANALYZING THE TRENDS

year. That was apparently not good enough for GAIN Capitals manage-ment members, who one can safely assume, exposed themselves to the risk of jeopardizing their positions as a result of the operating syner-gies that would have been imple-mented once FXCM had taken over.

GAIN Capital Evades FXCM, Purchases GFT

Eventually, GAIN Capitals manage-

ment rebuffed FXCMs takeover at-tempt and acquired GFT for $108 million in cash stocks and notes. GAIN Capital shareholders, who had witnessed the value of their investment cut in half -- from the IPO to the time of the FXCM pro-posal -- seem to have benefited greatly from the GFT deal, as in-dicated by both stock market re-action and by financial details. But the acquisition should also be seen as a brilliant move by GAIN Capitals management to keep the firm independent as FXCM had to take its offer off the table once

GFTs acquisition was announced.

The financial details of GAIN Capi-tal's acquisition of GFT: Net Cost: 27.8 million, FY 2012 volume: $1.3 trillion, customer assets of $650M, 140,000 customer accounts, estimat-ed cost per client acquisition: $199.

GAIN Capital estimated that the integration of GFT could have brought an additional positive increase in EBITDA of between $35 million to $45 mil-

lion had it taken place in 2012.

Compared to the FXCM proposal, GAIN shareholders now have the opportunity to take advantage of almost 90% of the potential $45 million in EBITDA increases, while FXCM had offered them just 15% of a potential $70 million in EBIT-DA increases due to synergies. The acquisition of GFT was evident-ly a very good investment for GAIN Capital as the firm will be able to re-coup it in less than year, even under the tough conditions of 2012. But, what was the reason that lead GFT

other than in Japan, having a vir-tual monopoly on the retail FX trading business in the US market.

When FXCM tried what might be considered a hostile takeover of GAIN Capital, the companys stock (GCAP) quickly rose in value, re-sulting in trade 26% higher than the $5.35 implicit value of the of-fer. As the year continued, GAIN Capital shares continued their up-ward surge, reaching $14.31 in Sep-tember, subsequently settling back down at around $8 in December.

When the proposed acquisition of GAIN Capital was announced, FXCM calculated that the com-bined company would have had pro forma revenues of almost $570 million in 2012, client assets of about $1.6 billion and an estimat-ed post-synergy adjusted EBITDA of between $163 to $183 million.

An improved economy of scale would have led to potentially sig-nificant operating synergies, which according to FXCMs esti-mations, could have potentially brought between $50 and $70 mil-lion in EBITDA annually, once in-tegration was completed. FXCM additionally calculated that poten-tial capital synergies with regard to regulations for example, hav-ing only one joint registration in every regulated market instead of two, could have resulted in the re-lease of between $80 and $100 mil-lion in currently restricted cash.

The deal would have benefited FXCM greatly according to its own estima-tions, as it could have taken only 3 years to recoup the $210 million in-vestment to be made in stocks, with $70 million of additional EBITDA a

FXCM AND GAIN CAPITAL STOCK PRICES DURING 2013

Source: NYSE

250%200%

150%

100%50%0%

Jan 13

'

Mar 1

3'

May 1

3'

Jul 13

'

Sep 1

3'

Nov 1

3'

GCAP +73.84% FXCM +68.92%

GCAP +73.84% FXCM +68.92%

Fig 27.

Feb 1

3'

Apr 1

3'

Jun 13

'

Aug 1

3'

Oct 1

3'

Dec 1

3'

ARTICLES02

84

To examine how the bina-ry options industry is de-veloping, Forex Magnates

interviewed four leading binary options technology providers and a recent new comer cross-ing over from the forex platform industry into the binary field.

We spoke to Ilan Tzroya, CEO of Tradologic; Eyal Rosenblum, Co-CEO of TechFinancials; Shay Ham-ama, VP of MarketsPulse; Tammy Levy, Marketing Director of Spot-Option; and Maor Lahav, COO of PandaTS. This group of industry experts has discussed with Forex Magnates the binary options in-dustrys split between gaming and financial trading, along seven vec-tors identified as pivotal to this markets future.

Forex Integration

As late as last year it was impossible to know for sure whether or not bi-nary options could be embraced by the established retail forex industry

BINARY OPTIONS INDUSTRY: FOLLOWING IN THE FOOTSTEPS OF FOREX?

and incorporated into the range of financial products that FX firms offer to their clients. During this year however, the question can be answered and positively so, as technology providers report many brand name FX firms as their clients. Following up on that, Forex Mag-nates posed the question of wheth-er binary options are expected to be an integrated part of FX firms own brands, or is it going to be offered under separate binary-only brands, inhabiting a different ecosystem.

The answer to that depends on the direction that FX companies plan on taking with binary options, industry professionals told Forex Magnates. FX brokers who want to use bi-nary options to offer a more gam-ing oriented experience will chose to operate a separate bi-nary brand as just another profit generator for their bottom line. FX firms who decide to offer bi-nary options as a financial prod-uct, could start by testing it as a separate temporary brand. In order to leverage the strength of their

The binary options in-dustry has come to a crossroad where it has to choose whether to follow the way set by the forex industry into financial legitimacy, or go down the path of the gaming industry.

This article will review the current state of this industry by present-ing various views and predictions voiced by leading binary options technology providers.

By Avi Mizrahi

85

any industry is to identify its tar-get clientele. When Forex Mag-nates asked whether FX companies need to worry about binary options cannibalizing their client base, the resounding answer from technol-ogy providers was an unsurprising No. This was explained by the fact that binary options trading par-ticipants can be divided into two main groups which FX compa-nies cannot utilize without them.

The first group of binary options

traders is gamblers, not a segment traditionally targeted by financial companies. Binary options brokers can target online casino gamblers, poker or blackjack players, with sim-ple binary options aimed for those who are looking for fun and for the chance of winning money online.

The second group of traders turn-ing to binary options is comprised of people looking to make financial trades but do not have the abil-ity to commit to FX trading, due to its higher demands for initial

capital investment, time required to analyze and follow the mar-kets, and a steep learning curve. Absolutely anyone can under-stand trading in financial mar-kets using binary options, Forex Magnates was told by a provider, however only a small percentage of people have the technical and math skills required to understand even common terms in Forex, such as margin call and leverage.

Additionally, in times of low vola-

tility in currency markets, binary options can meet the need for ex-citement. This way binary options could be used as a tool for retention at low volatility, and thus help to prevent FX clients from abandon-ing trading at all due to boredom.

Industry Structure

At the beginning of the year the young industry seemed to be cen-tered around three to five binary options providers, but recently new

already-established brand, com-panies would then be likely to in-corporate this product into their offering, just as was done with CFDs and copy trading platforms.

But, offering binary options may erode a companys image as a fi-nancial broker and may suggest that it is operating in the grey area close to gambling. This is of concern to FX firms who have established re-liability and respectability in the eyes of both traders and regulators.

The apparent solution to this could be to offer the more sophisticated, longer-term binary options of-fers and market them as finan-cial introductory products while emphasizing regulation. Follow-ing that strategy, SpotOption has reported a shift in commitment by FX firms since CySECs bina-ry options regulations last year.

Client Base Overlap

A crucial step for understanding

Fig 29.

Conversion

Conversion From Existing Database

Lifetime

Average Number of Trades

Lifetime Value

$2K

1:7

20%

5 Months

220$1,600

20%Lifetime Average Deposit

Withdrawal Average

KEY FIGURES OF AN AVERAGE BINARY OPTIONS TRADER

Source: SpotOption

141

DETAILED BROKER INFORMATION

For The Largest Brokers in Terms of

VolumeFXCM Saxo Bank Alpari OANDA IG Group GAIN Capital CMC FxPro Pepperstone AxiTrader

FXOpen DMM.com GMO Click Securities

Section

03

COMPANIES03

142

Shareholders and Funding: Publicly-owned, list of shareholders here

Investments and M&As: data at the end of the report

Reported Net Income in 2011: $12.7 million

Reported Net Income in 2012: $9.0 million

Reported Net Income in Q3 2013: -$5.1 million

Market Cap: $1.3 billion (as of Dec 30, 2013)

Reported Monthly Retail Volume: $302.7 billion (average for September, October and November)

Reported Monthly Institutional Volume: $186.7 billion (average for September, October and November)

Number of active clients: 184,062 (as of November 2013)

Regulation: NFA/CFTC, UK FCA, HK SFC, ASIC

Company Name:

FXCMStatus:

Public (NYSE:FXCM)

News in the Past Quarter:

Year Established:

1999

FXCM Thankful as November ADVs Rise Read More Here

FXCM Sees Red in Q3 2013 Results Read More Here

FXCM Releases In-App Mobile Deposits Read More Here

FX Stretches Credit Facility to $205 Million, M&A in the Works? Read More Here

FXCM Reports Dim Volumes for September Read More Here

FXCM Appoints Yousef Malek Shamoun as MD of Middle East Operations Read More Here

FXCM Announces Issuance of $12 Note to Infinium Capital Read More Here

175

MAJOR NEWS OF THE QUARTER

October November December

Section

04

NEWS04

178

NOVEMBER

During November, M&A and IPOs were on broker minds. Among poten-tial acquirers, FXCM and GAIN Capital raised eyebrows as the two brokers announced that they were raising cash through separate credit and debt deals. While not disclosing whether funds were earmarked towards a spe-cific endeavor, both firms mentioned that they were continuing to actively pursue acquisitions in the sector. Among possible IPOs, OANDA and Al-paris names have been oft-rumored to be considering such actions. At OANDA, its now becoming a matter of when and not if, as the broker has announced the appointment of both a new CEO and board members who are expected to assist with undertaking a liquidity event. Overall industry interest for IPOs was raised as Plus500 stock hit all-time highs since going public in July and being recently valued at over $700 million.

Read the entire article

More M&A and IPOs Coming?

Unveiled during the Forex Magnates London Summit, Saxo Bank made its first public revelations of its upcoming plans to launch social trading in Q1 2014. The new offering will be based on the brokers TradingFloor analy-sis portal. The website is evolving to both an interface for trading as well as showcasing existing market analysis features. According to Kim Four-nais, Saxo Bank Co-Founder and Co-CEO, the broker was an early leader in bringing FX to retail traders and with the new offering they plan on becoming a market leader by combining their multi-asset trading envi-ronment along with their already existing distribution of content.

Read the entire article

Saxo Bank Launching Social Trading

After a quiet summer, prices of bitcoin were back in the up in November following news that Baidu, the Google of China was accepting the digi-tal currency as payment for some of its web services. Triggering a bout of speculation from China, prices skyrocketed to all-time highs in the $1,250s as Chinese bitcoin exchange, BTC China became the largest ven-ue by volume. The return of interest led to another round of CFD and forex brokers announcing that they were planning to launch trading in bitcoins. However, the surge has also caused brokers such as Plus500 and AvaTrade to reduce leverage in their CFDs. Prices though, ended the month and fol-lowed into December on a low note as Chinas government began to apply restrictions on transfers to exchanges.

Read the entire article

Bitcoin Goes Crazy on Chinese Speculation