Strategic Opportunities for Retail FX/CFD Brokers for the Post COVID-19 World
Unlike most businesses the retail FX/CFD sector has done really well in the past 8 weeks and that streak of success is likely to continue in the near future perhaps as much as the next 6 to 12 months. This is a great time to store capital, clean up any issues on the balance sheet and just capitalize on the success. The most important thing though is to understand that this success is going to be temporary and not to lull your self into thinking that this year will repeat itself as inevitably the world will heal and come back stronger than ever. In late 2007 vol picked up and lasted 3 years through the financial crisis and beyond, we used that elevated financial track record to take FXCM public (Dec 2010), take lots of money off the table and fortify the balance sheet. But then the easy life of high vol and soft regulation ended and a much more difficult period started especially by 2012 as government began to crack down on the sector in a very serious way as part of its clamp down on the financial sector. This cycle is likely to repeat itself just in a shorter more violent way. Vol wont last as long as post 2008 and the crisis has only encouraged governments world wide to pursue wider powers as people look for strong central governments in times of crisis. This is unlikely to end well for sectors of the economy that are not favored by regulators, and while it looks like the sector has been punished enough in the past few years, I don’t believe that its over and is likely to get worse in a post COVID-19 world. As an example, many more Emerging Market countries will run into deeper economic trouble and unlike large western countries cannot print their way out of it. This will result in more capital controls and real restrictions on movement of capital. Given reliance of sector on many of these countries the long-term view isn’t great and this is one small example.
This is the time to use your new found temporary success to pivot strategically to a business that is sustainable and has real resale value in the market even 5 to 10 years from now. One of the great opportunities that has unveiled itself is that there are tons of fintech startups out there running businesses that some will be the future of the financial universe but most even the good ones ran their business as if cheap and easy capital from VCs will fund their way forward without caring about the short term. This has now ended for 98% of these businesses and most of these companies will not survive this economic downturn much like the 2000 dot com crash. This is a great time for the retail FX/CFD sector to scoop up startups that would help them pivot. 4 examples below that actually have real synergies with Retail FX/CFD brokers
1. Online challenger banks: This is a great way for the Retail CFD/FX broker to use its customer acquisition, onboarding and service assets to help these businesses, its also very complementary to the retail FX/CFD broker business and its customer funding issues.
2. Payment companies: Very similar synergies to challenger banks.
3. Vanilla online shares/stock broker business.
4. Institutional FX business, and not one serving the margin community of mostly other FX brokers but a real give up based institutional business.