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Interview, Javier Paz, Forex Traders, fx trader, forex forex regulation

FXTM:
How has the market evolved since you first started working in forex? Is it easier or more difficult to be a private forex trader today?

JP:
The FX market has become more electronic, more sophisticated, and faster moving, with news events being more rapidly incorporated into currency prices. Traders now deal with fewer brokers in general, and these tend to be better established, fairer to clients, and much more regulated than in the early 2000s. There are more tools available to traders and better trading terms are offered, so in that sense today’s traders have it easier. Even so, there are perennial lessons that traders of any age must continue to know: discipline, patience, the value of money, thread carefully in a market that works 24/5.5 and is very efficient and not very merciful if you assume too much.  

FXTM:
How do you see the future of institutional FX and the brokerage companies evolve, keeping in mind the tightening regulatory regimes?

JP:
The term institutional FX has different connotations to different groups. In my work at Aite Group, I cover both. On one hand, there is FX business done among institutions (banks, brokers, institutional investors, corporations), and on the other hand there are retail aggregators like Saxo Bank, Gain Capital, IG Markets, and some of these have what they call institutional business – that is, their interaction with introducing brokers, money managers, and small hedge funds. The primary business of retail aggregators is the retail public, however. So, to answer your question, I will concentrate somewhat on the future of retail aggregators. I expect regulatory costs to make the world too large for any one firm to be truly global unless they are publicly funded, and even then it’s no warranty that they will be able to. Brokers are also experiencing higher operational costs as they expand into more CFD products. As these operational costs are rising, spreads are gradually falling and broker revenues are decreasing. This means only one thing: consolidation in the brokerage space as top player selectively buy weaker firms and gain scale to compete at the national or international level. 

FXTM:
Do you think that in the future we can see centralization of the forex market and currency pairs becoming more like exchange traded instrument?

JP:
As far as my eye can see, there will be no centralization of the forex market. Currency pairs already trade at exchanges, but neither retail nor institutional investors are rushing to trade there. For retail traders trading FX futures, exchanges tend to be impersonal and too complex. To institutional traders, exchanges are also impersonal and not flexible enough to deal with issues such as trade workflow and trade size. Exchanges are adapting to soft FX futures demand by acquiring over-the-counter firms that do substantial business in other types of FX products (BATS purchase of Hotspot FX, Deutsche Boerse purchase of 360T). But the reason why I’m skeptical of centralization is that there are entrenched regional interests, diverse regulatory regimes, and time zone differences that do not favor centralization. Fragmentation is here to stay.

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