The term ‘economic crisis’ and all associated euphemisms might have become a bit of a cliché, but the events that have rocked the financial sphere over the past four years have been real and undeniably catastrophic. Virtually all markets have been shaken since 2008, and many have been forced to reassess their operations. It has not been any different with the forex market, which was affected by the debt crisis but has since emerged, largely improved.
“In the turmoil following the collapse of Lehman Brothers, the deep liquidity in the world’s largest financial market offered hard-pressed investors a lifeline as other markets seized up,” explains Peter Garnham, a forex market specialist. “Only in the forex market, which kept trading throughout the turbulence, was there the opportunity to hedge loss-making positions with big macro-economic bets.”
But it has not all been plain sailing. During the worst of the crisis in 2008 and 2009, spreads on particular currencies were at least 400 percent wider than normal, according to Michael Melvin, Head of Currency and Fixed Income Research at the Global Market Strategies Group, and Mark P Taylor, Professor of International Finance at Warwick University. “There were times in the fall of 2008 when it was difficult to trade at all in normal sizes,” they say.
And though things have largely recovered since then, 2012 got off to a rocky start as market conditions faded once more. Low volatility and volume compounded with struggling confidence to reduce institutional and private investor revenue, while banks turned to infrastructure investment to maintain low prices.
A new asset class
Since then, things have been picking up. Funds that had lost on average six percent in 2011 moved into modest profits in 2012. Analysts suggest that investors might be facing fewer risks because of central bank interventions, but that may have come at the cost of falling volatility in major currencies and shrinking opportunities for investors.
“Forex has emerged substantially stronger since the onset of the economic crisis in 2008, and has become an asset class of its own,” says Markos A Kashiouris, Founder and CEO of IronFX. “I see two reasons for this exponential growth. First of all is market efficiency; it reflects accurately the current fundamentals of each currency. The second main reason behind this growth is the market volatility itself, which can be taken advantage of by a fast-moving forex market.”
The forex market is curiously resilient and surprisingly malleable. It has developed from a closed arena – exclusively used for bank trading purposes – to an open and accessible financial market. The market resisted the years of crisis by innovating its platforms and targeting a wider demographic of clients. Garnham says that the internet has allowed individuals to access greater liquidity and tighter trading spreads, while more robust electronic deal processing has made risk management easier for both liquidity providers and customers.
The arrival of widespread mobile internet has opened up the opportunity for non-stop trading for retail investors. “Innovation is the impetus we need to respond to the continually developing and ever-growing forex market; and not only to respond, but to create change and exceed market expectations,” explains Kashiouris. “We allocate a lot of time, effort and resources to technological innovations that will improve trading conditions but also on product innovations in order to satisfy changing and evolving customer needs.”
IronFX has defied trends during the economic downturn. Founded in 2010, a precarious time to be investing in financial markets, the company has thrived since its inception.
“Prior to founding IronFX, we spent a lot of time analysing the industry and its biggest players. During that time we came to a simple realisation” explains Kashiouris; “the industry was spending too much on marketing for very little results and was facing ever-diminishing marketing returns. In addition, little attention was paid to the customer, with forex brokers offering just basic customer support.”
By identifying inherent flaws in the way business was being conducted in the industry, the founders of IronFX, including Kashiouris, were able to create a platform that was more efficient and reliable. “Differentiation through best-of-market, customer-focused service,” explains Kashiouris. “Our customers are always at the forefront of any decisions we make, whether it relates to service, technology or products. We have pioneered a unique customer-focused model where we provide a dedicated sales account manager for every single client.
“The company is growing at an astonishing rate and we cannot see why this should slow down as long as we continue listening to our clients and keep putting quality of service at the top of the agenda. Our model is easily scalable and highly cost-efficient. To put it simply: we have a unique and proven business model that allows us to keep gaining market share at phenomenal rates while remaining a very efficient and lean organisation.”
The keys to success
Key to IronFX’s success has been its clever use of available technology. Internet and mobile technology have been the defining game changers in the development of the forex market. Not only has it opened up the market to individuals and small institutions, but it has also enabled trading platforms to diversify their products. “Markets are constantly moving and traders expect access anytime, anywhere,” says Kashiouris. “Most importantly, they expect easy access, and that is why we have created the industry-leading ‘One Account, Fifteen Platforms’ trading functionality, accessible to any trader anywhere in the world, anytime. Using our award winning trading functionality, clients can access their accounts from any platform – from iPad and Mac to Android and Blackberry.
Forex has emerged substantially stronger since the onset of the economic crisis… and has become an asset class of its own
“The emergence of smart phones has re-shaped the industry. Mobile trading is a must for any serious firm. At IronFX we have launched six award-winning mobile trading platforms – iPhone, iPad, PDA, Smartphones, Android and Blackberry. We invested in these projects from the beginning of our operations and the early stages of adoption of mobile technology. We continue focusing on these and any other technological developments required to be ahead of the curve.”
Trading technology is at the heart of the forex industry, so remaining abreast of technological developments takes investment and effort. “We have partnered with SAP and developed in-house a bespoke, fully-automated, back office and client funding interface ensuring efficient processing of all client requests,” says Kashiouris. “Clients have access to the unique client portal, which is connected to trading and to the back office. The same system is used for our partnership program, Introducing Broker (IB), to ensure a secure connection to the IB portal where our partners have one-click, live access.”
Maintaining the smooth operation of a system like this takes a sophisticated team of IT experts; something IronFX acknowledges: “Our internal IT department is manned by worldwide experts who are constantly alert to technological developments,” says Kashiouris.
The backbone of any forex trading platform is the ability to supply regular and up-to-the minute information to their clients. Platforms that can achieve that and enable the quickest and most efficient trades will ultimately have a leg up on the competition. “Latest fundamental and technical analysis is available through our dedicated Research and Analysis portal where clients can obtain updated market analysis, daily news, support and resistance level information throughout the day,” says Kashiouris. “In addition, our Head of Global FX Strategy, Marshall Gittler, a bulge-bracket veteran in the forex industry, features regularly in the biggest business channels in the world and is often quoted by the most reputable worldwide financial press.”
On-demand access for the latest and most important information, combined with easy-to-use technology, has demystified the forex financial market. Individuals and small businesses that would once have left forex to large banks are now equipped to give it a go, often with much success. But that does not mean that risk has completely been eliminated from the equation. Indeed the opposite is true, but trading platforms such as IronFX have just become more adept at managing themselves on an individual client and corporate level. “As an additional measure we report overall exposures, on a monthly basis, to the local authorities, indicating that we comply with the European capital adequacy requirement directive,” says Kashiouris.
In touch with the market
For Kashiouris, online social networks have changed the way people perceive forex trading and how they engage with the market. “As technology is evolving, so is the trading industry; more and more people are drawn to social networks and mobile connectivity,” he explains. “With our team of experts we constantly monitor industry trends while looking for the next big thing. With our mobile platforms and social trading networks we enhance the trading experience and environment. Clients are at the forefront of the financial trading environment by joining IronFX as their broker of choice.”
Though the forex market is extremely liquid by nature, the new Basel III regulations will affect some types of operations and will certainly change the way forex companies hedge against risk, particularly long-dated transactions. Long-dated forex transactions maturing between 2013 and 2018 are already reportedly becoming more expensive because of credit pricing changes. Though the Basel III convention is primarily designed for banks it will have significant impact on other financial markets. “As a regulated entity, we are required to strictly monitor our exposures on a daily basis and ensure that the Basel II requirements are met,” explains Kashiouris. But recent revisions to the liquidity requirements and what types of assets qualify as sufficiently liquid have been affected.
This will mean that more banks and financial institutions will be likely to invest in the forex market.
“We see forex continuing to increase its share of market wallet among investors,” he says. “The superior liquidity, the transparency of the market, the 24-hour dealing, the fact that forex is too big a market to manipulate; all that will make forex an increasingly popular asset class. “Client funds security is a top priority for us alongside unmatched trading conditions and customer service. Our clients are assured that their funds are held with security, clarity and integrity.
We see forex continuing to increase its share of market wallet among investors
We provide banking and treasury services through UBS, BNP Paribas and other world-class banking institutions. In addition, all client funds are completely segregated.
All client funding related activities are monitored and reviewed by our external and internal auditors, Ernst & Young and KPMG. Finally, we provide an automated risk management system that ensures that our clients’ account balances will never go negative.”
In addition, IronFX maintains a compliance function; an independent unit within the company that ensures all operations are compliant with local and international guidelines.
With the ever-changing regulatory environment and technological evolution, the forex industry is in a constant state of flux. Basel III is likely to shake things up in the next few years, but there are other stringent rules that must be followed. “Without a doubt the Markets in Financial Instruments Directive (MiFID) has been a game changer,” he says. “It allowed the establishment of a single financial market in Europe.
MiFID has increased the competition among investment firms, giving them a single ‘passport’ to operate throughout the EU without any restrictions. With the adoption of MiFID, investors have access to a greater number of trading venues and the option to select the best providers in Europe. MiFID helped IronFX to become a global leader in online trading as we offer the best market product and service without any geographical limitations.”
But market trends are not just influenced by regulatory developments. In fact, over the past year Kashiouris has observed an increased politicisation of markets, in the sense that they are increasingly responding to political turmoil or unexpected harmony. “Last year was notable for the increasing politicisation of the markets and the dominating influence of the monetary authorities,” he says. “Economic indicators and private-sector capital flows, the usual drivers of markets, took a back seat to the decisions of politicians and central bankers.
“Around September, the market started to take the European Central Bank’s promises seriously and we saw an important change: the risk on/risk off trade that had dominated markets for so long started to break down. We saw less correlation between markets and more of a focus on the individual circumstances of each country. For example, the weekly correlation between euro/dollar and the S&P 500 was 62 percent in August, but by the end of the year it had fallen to 44 percent was down to 34 percent. This indicates diminishing systemic fear and a more discriminating market, although by no means back to where we were before the financial crisis.”
For Kashiouris there is still quite a way to go for the market to return to pre-crisis levels. Uncertainty in the eurozone is the biggest threat to stability right now, but “so long as the eurozone holds together, we expect the forex market participant to continue focusing more and more on individual countries’ stories as the recovery is still uneven around the world,” he says. Kashiouris believes now is a good time for investors to obtain returns from their portfolios by studying the fundamentals of each country. “Risk-taking sentiment is likely to improve as stability takes deeper root in Europe,” he says; “that should encourage carry trades, which means greater flows into emerging markets that offer higher yields. But at the end of the day, we still see central banks setting the pace for markets. Political risk remains high and market participants will still worry about the fat tails of the black swans. We worry that the benign trends that have begun could be derailed quite suddenly if political risk in the eurozone periphery rises further.”
Driven by experience
IronFX has been successful in such a tough environment partly because of the experience of its founders. Kashiouris’ diverse background in investment banking and real estate has given him the know-how necessary to run a competitive business. “We have implemented everything – and more – that we aspired to from day one,” says Kashiouris. It was always the plan to be a more complete platform, offering both retail and institutional services.
These services have become something of a trademark of IronFX. “White label partnerships are another showcase of our technological innovation,” says Kashiouris. “We allow any licensed firm in the world to become a forex broker in two weeks, free of charge. This becomes a new delivery line for them; it is risk free. It allows us to capture the institutional growth that is prevalent in the forex market and is one of the key drivers of growth in the medium-term.”
Over $4trn is traded each day, and Kashiouris believes that this number will continue to swell. The company has ambitious plans for growth, and given the boundless nature of its online trading technology, IronFX is perfectly qualified to attract new customers from emerging markets. “Our target is to concentrate on growth in terms of accounts,” says Kashiouris. “Growth will come from the Far East and places like China. We are already there with native account managers to capture this growth.”
Though forex is Iron FX’s most important line of business, investors can also use its platform to trade spot metals, futures, shares and binary options. “IronFX provides all the management tools required for an optimal trading experience,” explains the Founder and CEO.
“Within an innovative trading environment explicitly designed by professional traders with years of experience in the industry and features such as best-of-market pricing, high-speed execution and unparalleled client service, IronFX ensures our clients will maximise their trading potential on forex, stocks, equity indices, spot metals, binary options and other commodities. In the battle for global trading dominance, IronFX remains committed to remaining the global leader in online trading.”
IronFX won Best CFD Trading Broker, Asia and Best Customer Service Provider, Asia in the 2013 Exchanges & Brokers Awards, as well as Best STP/ECN Broker, in the 2013 Foreign Exchange Awards.