Key findings of the inaugural Investment Trends December 2011 Australian Foreign Exchange Report:

• Retail foreign exchange (FX) trading in Australia is relatively larger than in many other markets and growth expectations are high
• Market dynamics are very challenging with a large proportion of new entrants and switchers
• Providers thus have to be very active in both attracting new clients and retaining existing ones
• There is significant demand among foreign exchange traders for products other than FX

Australia’s retail foreign exchange trading market is relatively large and has potential for growth

Our modelling shows that 54,000 individual investors in Australia traded foreign exchange (FX) at least once in 2011. (The report defines FX trading as taking a (usually leveraged) position on a currency pair in order to gain from currency movements. It does not include normal, unleveraged currency conversion for overseas investment, trade or travel purposes.)

This is a relatively large market, as even though FX traders account for only 0.30% of the Australian adult population, in a relative sense this level of penetration is much higher than in many other markets examined by Investment Trends (e.g. United Kingdom 0.14%, Germany 0.03%).

As of December 2011, a further 29,000 people who have never traded FX before intended to start trading in 2012 (although not all will act on that intention). The size of this next wave of traders is larger in Australia than in all of the other examined countries, including the UK – a country with a population almost three times as large.

A combination of a relatively mild regulatory environment, the strong currency and proximity to Asia presents a good opportunity for FX providers operating in or looking at entering the Australian retail FX market.

No single provider dominates the FX space in Australia yet – the game is still open

The Australian FX market is very dynamic. A third of current traders started trading within 12 months prior to the study. The level of provider switching is also very high – 28% of current traders have stopped using an FX provider within the last 12 months (and continued trading with another provider).

In this environment market shares can change very quickly. Providers here need to be very active in exploiting market opportunities and plugging the gaps in their service offerings in order to protect or increase their share of the market.

In contrast to many other investment markets we analyse, there is no clearly dominant number one provider when it comes to market share.

The top five providers by primary relationship were:

Over a quarter of FX traders use a second provider to trade non-FX CFDs

Just over half (53%) of foreign exchange traders also trade other instruments with their main provider. The most commonly used other instruments include:

• Australian indices 33%
• Overseas indices 28%
• Commodities 29%
• Australian shares 23%
• Overseas shares 14%
• Futures 12%
• Options 7%
• Exchange traded funds (ETFs) 7%

Although most of the large FX providers currently offer non-FX products via contracts for difference (CFDs), a quarter of traders across the industry said their main provider only offered trading of foreign exchange.

More than half of FX traders (54%) would like their main broker to extend the range of product on offer:

• A quarter would like to be able to trade (a wider range of) shares
• 22% cited indices
• 17% cited commodities as product gaps
• 15% would like to be able to trade a wider range of currency pairs

27% of current FX traders use a provider other than their main FX broker specifically to trade non-FX CFDs and a further 12% intend to start within 12 months.

About the report

The results are drawn from the Investment Trends December 2011 Australian Foreign Exchange Report, based on an in-depth survey of 1,538 current FX traders in November and December 2011. The survey also included 613 next wave FX traders and a further 2,102 potential FX traders.

About Investment Trends:
Investment Trends is the leading specialist market research organisation in the Australian retail wealth management industry, and also operates in the US, UK, Germany, France and Singapore. We provide new insights and decision support information to over 300 leading financial services businesses. We combine analytical rigour and strategic thinking with the most advanced research and statistical techniques to help our clients gain competitive advantage.

Investment Trends also researches CFD and FX trading in a number of other international markets, as well as researching online broking, superannuation and most other aspects of retail investment in Australia.

Investment Trends’ clients include all of the top five Australian banks, the top ten investment platform providers, all major CFD providers and online brokers, as well as industry regulators, leading margin lenders, dealer groups, financial planning software providers and risk product providers.

Contact
Pawel Rokicki
Phone: +61 2 8248 8005
Email: pawel@investmenttrends.com.au
Suite 2102, Gold Fields House
1 Alfred Street
Sydney NSW 2000
Website: www.investmenttrends.com.au