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Is ‘retail’ FX flow becoming more challenging?

Is ‘retail’ FX flow becoming more challenging?

With retail flow on the up, there is a need to capture and grow into the new opportunities being presented.  Finalto is doing just that with its expertise and innovative, flexible offerings

Flow coming from purported retail sources is always up for scrutiny but, over time, are there genuine shifts in the type of flow we see at Finalto? 

Retail flow is mostly internalised at source by the originating broker, depending on various factors, including risk appetite, balance sheet and technical capabilities. The flow that gets externalised has changed over time and we’d like to explore why. 

A successful 2020 

After what was generally a tough year in 2019 for retail risk books, the volatility in the first half of 2020 caused exceptional performance for brokers. The explosion in retail trading activity was a global phenomenon, impacting every asset class, including FX. The frenzied volatility in a number of so-called meme stocks in January this year underlined just how much retail was driving the action in some corners of the market. These days, retail investors account for as much as 25% of US stock market trading activity, up from 10% in 2019.  

FX markets were not left out of this trend, and we saw considerably more retail FX flow. Daily turnover in the global FX market has been estimated at $6.6 trillion in 2020. All of this has led to a general increase in risk appetite and higher internalisation, at least where there were no other factors preventing it. With the increase in risk appetite, trading desks were now left to hedge significantly larger positions. It’s important that their liquidity providers (LPs) were able to identify the shift and ensure the liquidity was optimised for such changes. 

A changing client base 

Meanwhile, the credit contraction in clearing space has left certain client types turning to what were traditionally retail brokers to handle their business. A much larger balance sheet is needed to access credit at all, and clearing houses are demanding more in terms of collateral. Over time, brokers are now commingling ‘pure retail’ with quasi-institutional flow from money managers, small hedge funds, ultra-high-net-worth individuals and experienced prop shops. 

Technical sophistication 

This has become possible as the technology is stronger today. The advancement in technical sophistication of brokers has empowered them to handle the new client base they are attracting. The wait time for a new FIX connection on the institutional side can be anywhere between 24 hours and six weeks; most retail brokers could deliver it in 1–12 hours.

This ease of pricing distribution does come with some potential pitfalls related to the recycling of liquidity; however, good dialogue with your LPs, and providing qualitative and occasionally quantitative feedback can prevent most problems. 

In conclusion 

Retail flow hasn’t really changed, but the sources of retail flow now have more strings to their bow. They need a partner that is capable of allowing them to grow into these new opportunities. 

At Finalto, our expertise in handling a large number of client types with our depth of experience, bespoke liquidity offerings and technology makes us the ideal partner for these future challenges. Retail brokers deserve a full service from their LP. Good and robust liquidity is a prerequisite; the real task now is to go the extra mile and have the ability to cater to the vast majority of their broker clients’ technology and risk management needs as well. Moreover, an LP that has the ability of offering a full turnkey technology solution such as Finalto 360 will also be assisting the client in their two main objectives: acquisition and retention of clients. 


Any information provided in this article shall not be considered investment advice. Contracts for Difference (CFDs) are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74%–89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. 

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