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A regulatory clampdown on foreign-exchange brokerages catering to retail investors is curtailing U.S. trading volumes for individuals, a study said Thursday.
Currency trades by retail investors in the U.S. "have dwindled to their lowest levels in years," said the report by research firm LeapRate, which studies the retail foreign-exchange trading sector. In the third quarter, trading volumes at Gain Capital Holdings Inc. (GCAP) fell by 83%, to $12 billion, compared with the prior year's quarter. Volumes at Gain's chief rival, FXCM Inc. (FXCM), fell 47% year over year, to $30 billion, the report said.
That's because stringent new regulations, as well as legislation such as the Dodd-Frank act, have cut back on the types of trades and the amount of leverage brokerages can offer to individuals, the LeapRate report said.
Regulators have been focusing on retail foreign-exchange trading in the last few years, honing in on an industry increasingly seen as offering poor odds to investors. Prior LeapRate studies indicate that 28% of retail customers make money trading currencies, on average.
Retail investors make up a small corner of the global foreign-exchange trading market, which sees $4 trillion in worldwide daily volume, according to the Bank for International Settlements. Just 8% of that volume comes from individual traders, research firm Aite Group estimates.
"In an attempt to 'properly' regulate the industry and protect consumers, U.S. regulatory authorities have effectively (and probably unintentionally) killed the domestic industry, forcing the domestic trading firms such as FXCM and Gain Capital to look abroad for expansion (and sheer survival), leaving U.S. traders with greatly reduced choice and reduced competition," the LeapRate report said.
In addition to the new rules, government watchdogs have been stepping up their enforcement actions in the industry, targeting both small scam operations and the largest players. Last month, FXCM said it would pay the Commodity Futures Trading Commission $14.2 million to settle charges that it mishandled customer accounts and failed to give clients the best prices when exchange rates moved in their favor while a trade was in process. That was on top of a $2 million fine the company paid to the National Futures Association in August over the same issues.
eFXnews : New Rules, Strict Enforcement Curtailing US Retail Forex Trading -Study
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