North American FX Market: Further Challenges or New Opportunities？

North America is a highly regulated FX market dominated by a small number of brokers.

In the global FX ecosystem, North America is one of the most established markets and probably the most mature one. Since the start of 2001, the regional FX market has seen its ups and downs but the overall growth in terms of trading volumes and the number of new traders remained consistent.

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Due to strict regulations and financial requirements for the licensing of brokers in the US and Canada, only a handful of companies were able to provide their services in the region. As a result, the market has been dominated by a small number of brokers. However, the number of new entrants has increased in the past few years, making it difficult for existing players to keep their dominance.

While FX trading products saw a consistent rise in demand from retail and institutional investors during the last two decades, the surging demand for multi-asset investment products has raised several challenges for major FX players in the North American market.

“We‘re seeing a greater move towards less FX-focused trading behavior and more demand for more diversified multi-asset trading portfolios. The US stock market remains highly sought after among younger and more savvy traders and will continue to be a key part of any trader’s watchlist. At the same time, the demand for crypto trading continues to accelerate at a fast clip, along with expanding trading volumes for FX and commodities,” Jayden Ong, Lead Analyst at Vantage, said.

Asia vs North America

In many ways, the North American FX market is completely different from the Asian market. While the Asian region saw enormous growth in the number of new FX traders during the last few years, regulatory uncertainties in markets within the region have made it difficult for high-net-worth international clients to select a broker.

“The Asian FX market is by no means a singular entity, it is regulated by a number of regional regulators, with multiple local and regional brokers serving a much larger and much more diverse pool of traders. For instance, in 2018 alone, Asia had over 4.6 million traders, compared to 1.6 million traders in North America in the same period. The growth in trader numbers also varied greatly between regions, with numbers of Asian traders expanding by more than 40% year on year, compared with 6% growth for North American traders,” Ong added.

Selection of a Broker

Farah Mourad, a Senior Market Analyst at XTB MENA, believes that traders in North America consider the speed of execution and regulation before the selection of a broker.

“I would divide retail traders into different categories with different interests and considerations. There are those who look for a higher speed of execution, the quality of the platform provided, the variety of assets, or the leverages and spreads provided. But were increasingly witnessing retail traders asking us the right questions; Is your brokerage regulated？ The type and place of the license should always be the main concern for any trader,” Farah said.

The rise of new entrants in the North American FX market has increased pressure on existing players to improve their execution speed and trade cost.

The Role of Education

FX brokers in North America are known for their extensive educational tools to facilitate traders in the understanding of key risks and rewards associated with foreign exchange trading.

“Brokerages that provide a steady stream of new trading ideas would have the advantage of being the first point of contact with new and novice traders. On the other hand, another key part of engaging North American traders lies in user-provided reviews. Besides looking at what a broker offers, retail traders in North America rely heavily on others reviews to decide which broker is suitable for them,” Ong said.

Going Forward

While there is no imminent threat to the North American FX market in the near future as trading volumes across the retail and institutional markets are rising, there are some challenges for sure. Growing interest in cryptocurrencies and stocks definitely highlights a point of concern for the FX players in the market as it has already started impacting the interest in FX trading products. Secondly, fierce competition from other markets, including Asia and Africa will also have a major impact on the regional FX market.

“While we see significant growth, the more appealing regulations of foreign forex brokerages might add limitations to the local industry in the near future. The Internet and mobile app-based trading allowing smooth trading processes, on top of other tailored services might limit the already restricted industry on the North American soil,” Farah explained.

With growing challenges, several opportunities have also emerged for North American brokers to understand and respond to the changing needs of clients.