2013: Regulation and technology biggest themes for foreign exchange, OANDA
The outlook for 2013 looks more positive and the global economy will finally strengthen as the effect of 2012’s global liquidity injections will move from the financial arena to the real economy, according to Dean Popplewell, chief currency strategist at OANDA.
Most analysts expect even the modest upticks in economic growth intersecting with “still-accommodative monetary policies” to provide support for other asset classes like global equities.
Popplewell warned that key events will impact in particular the foreign exchange market.
“With traditional asset classes continuing to disappoint investors, there is an opportunity for forex spot trading to grow as a viable investment alternative. Trust in forex brokers depends on regulatory oversight as it gives clients the confidence to deposit their funds,” he said.
This is based on the trend that regulators around the world are moving towards regulation of the forex market that validates the asset class and makes it available for a larger number of investors.
“Changes in regulation open the doors to the new global investor,” he said. But regulation is also the greatest threat facing the global financial services industry.
“Whereas regulators were once caught sitting on their hands, now the pendulum has seemingly swung the other way and all of the focus is on regulatory compliance. That is a huge overhead burden for financial institutions,” Popplewell said.
The financial services industry has gone from being client-focused to more compliance-focused. Banks and other financial institutions are laying people off as the market for financial services has become stagnant or is declining.
Market consolidation is already evident in the US, UK and Japan.
“No major regulatory changes are expected as the regulation has matured alongside the market. There will be more M&A activity and market entry by more sophisticated participants,” he said.
In developing markets, regulation will continue to catch up to regulated markets as other financial centres are hoping to attract investment capital and financial services talent.
Meanwhile, technology innovations are set to grow in 2013 with specific reference to social trading, affordable high speed trading and platform-agnostic trading.
“APIs will make more platforms be plug-and-play for clients, allowing them to use their independent platform of choice powered by their liquidity provider of choice,” OANDA said.