How did the listed retail FX brokers do in 2023? Stock price analysis (2024)

In 2023, the retail Forex market experienced a variety of shifts and developments reflecting global financial market trends. The look at listed FX brokers reveals several aspects characterized by growth in some areas and challenges in others. This sector is known for its fierce competition, which was increased even further by unregulated prop trading firms. Unregulated prop firms offer traders the ability to trade on a funded account. Many of them have no partner broker, which means they steal customers from retail FX brokers.

Prop firms have been able to attract traders with the promise of high leverage and aggressive marketing strategies, without the regulatory oversight that constrains traditional FX brokers. This scenario presents a double-edged sword as it offers traders more options but also raises red flags about investor protection and market integrity. Many unregulated prop firms are not allowing traders to access real markets as they offer a virtual simulated trading environment that can be manipulated. This competition from prop firms pushes regulated brokers to innovate and adapt but also underscores the need for a regulatory response to ensure a safe market environment and fewer scams and fraud. The situation is different with regulated and reliable prop trading firms, as they are partnered with regulated brokers and only provide traders with trading capital. The best prop firms in 2024 for US traders are not direct competitors for brokers, but reliable partners that help brokers attract even more traders.

The Forex retail landscape is super competitive with a multitude of brokers and unregulated prop firms operating within the sector. Unregulated proprietary trading firms significantly impact the income of retail foreign exchange (FX) brokers. They commonly draw in clients by providing access to substantially funded accounts in exchange for minimal audition fees. If a trader passes the challenge they get a funded account and many unregulated prop firms do not have regulated partner brokers which means they are stealing potential customers from retail FX brokers. While it is difficult for brokers to operate in increasingly competitive environments, retail traders can take advantage of improved products and offers as brokers are trying harder to attract clients.

The UK’s Forex market turnover rose to 2.98 trillion dollars in October 2023, marking a 3% year-over-year growth. This number indicates that London’s status as a leading FX hub is solid, despite the potential impacts of Brexit.

In the United States, the total assets of retail FX traders have grown mildly in 2023. Retail FX deposits had a positive momentum, with the total Forex funds held at registered brokers reaching 528 million USD in May, which was a 14 million increase from the previous month. The main reason why the US FX numbers are so low is the restrictions on CFDs in the country. It is prohibited to trade CFDs and since the majority of retail FX brokers offer FX pairs in the form of CFDs these numbers are understandable. If the US had no restrictions on CFDs, the picture would be completely different. IG US notably reported the strongest increase in client deposits, rising to 69.8 million USD by the end of May 2023, which was 20% month-over-month growth. IG US overtakes Charles Schwab as the 3rd largest holder of retail Forex funds.

However, there are several challenges present in the sector, specifically in attracting and retaining traders in a highly regulated environment. The performance of various brokers, such as GAIN Capital and OANDA, showed only marginal growth or even declines in client funds. This was a reflection of the competitive and regulatory pressures within the industry.

The US started to address many unregulated prop firms cases, and the future for this sector indicates a significant shift towards increased oversight and transparency. This is going to have a profound impact on prop trading firms and retail Forex brokers. Lately, the Securities and Exchange Commission (SEC) has taken steps to expand the oversight of prop trading firms by requiring a majority of them to join the Financial Industry Regulatory Authority (FINRA). This move is aimed at closing the regulatory gaps, enhancing the market’s fairness, and reducing scams. The rationale behind these regulatory changes is to foster a fair, transparent, and efficient market environment by bringing prop firms under FINRA’s oversight. Strengthened oversight of prop firms is not only positive for retail brokers but also for traders. Prop firms will be required to report post-trade activities as well.

For retail FX brokers, these regulatory shifts suggest a landscape where competitive dynamics could change. Increased regulatory compliance costs and operational adjustments for prop firms could level the playing field for retail Forex brokers, impacting liquidity and trading strategies potentially. As market oversight and transparency improve, retail traders benefit the most from stable and fair conditions, which could influence the selection of trading prop firms and brokers.

All the abovementioned regulatory changes also come with challenges. The National Law Review emphasizes ongoing legal debates around the scope of the SEC’s authority and the adequacy of notice provided to firms about prohibited conduct, indicating a complex regulatory environment that firms must navigate. These increased costs and scrutiny also slow down the growth and development of the prop trading industry, which could be a negative side of all the regulatory shifts.

In summary, the future regulatory trends in the prop trading firm sector signify the move towards stricter regulation and oversight, aimed at enhancing market integrity and investor protection. This dynamic and evolving regulatory environment will likely have a significant impact on both prop trading firms and retail Forex brokers, affecting their operational practices, competitive dynamics, and the overall structure of the market.