Russia vs US: Which one is the bigger retail forex market?

Do not invest more money than you can afford to lose.

Although they lag behind Asia in every aspect, the Russian and US forex markets are interesting on their own and even more interesting when compared. What factors determine which country is the bigger retail forex market –  is it trading volume or the number of traders, or maybe the amount of funds deposited with forex brokers? Read on to find out for yourself…

Client deposits

The Russian and US forex markets are getting closer in terms of client deposits, our research showed. After the Interfax-Center for Economic Analysis (Interfax-CEA) released data about the Russian forex market, it became clear that the combined deposits of forex brokers’ clients in Russia remained at about $500 million per month in 2015.

This is not a huge difference from the amount of US brokers’ client deposits which in 2015 ranged between $544 and $597 million, according to data of the US Commodity Futures Trading Commission (CFTC). In January, however, US brokers’ client deposits fell below $500 million, getting even to the values in Russia.

Trading volumes

While the total forex deposits in the two countries could be considered similar, there is a huge gap between the trading volumes of individual brokers in the US and Russia. The largest US forex broker, both in terms of trading volume and client deposits, was FXCM with a total trading volume of $4.02 trillion in 2015, or an average monthly volume of about $335 billion. Russia’s largest broker in terms of trading volume was Alpari, which averaged $90 billion per month last year, or nearly a quarter of the levels of its US peer. The volumes of Gain Capital, the second largest forex brokers in the US, was nearly $3.7 trillion in 2015, or on average $305.5 billion per month, which is also much larger than the volumes of Russia’s leader.

In the first two months of 2016, the leading brokers on the two markets showed mixed results. FXCM saw its trading volume from retail operations  at $331 billion in January, falling by monthly 7% to $309 billion in February. Meanwhile, Alpari had a trading volume of $80 billion in January, which increased to $88.5 billion in February. In comparison, Japanese GMO Click Securities was the forex broker with the world’s largest retail  trading volume in February of JPY 144.3 trillion, or close to $1.28 trillion.

Active clients

In terms of active clients, the US brokers also performed much better than their Russian competitors. FXCM, which only gave active clients data for the second half of the year, handled on average 182,400 active accounts in 2015, compared to 137,000 active accounts that Alpari had last year.

More details about the differences of the Russian and US retail forex brokers in 2015 follow (in billion USD):

Note that as of the beginning of March, IBFX, US’ third largest broker in terms of retail client deposits, terminated its forex broker operations and sold its US clients to peer Oanda.

Regulation

The significant differences in the performance of individual brokers in markets with relatively similar size (client deposit-wise) could be explained with the number of brokers that operate in the two countries. While in the US there are just six forex brokers, in Russia they are close to 100. One reason for this is regulation – in the US forex brokers fall under a wide range of restrictions. The US regulator, the CFTC, is known as one of the strictest authorities in the forex world. All six licensed brokers are required to file certain data with the CFTC on a monthly, quarterly, and annual basis.

Another significant barrier to entry in the US is the high initial capital requirement of $20 million. In comparison, Russia requires forex brokers to present an initial capital of at least 100 million Russian rubles (about $1.5 million). This additionally hinders the licensing of forex brokers in the US and contributes for the huge difference with the Russian market.

Russia, on the other hand, just recently started requiring Russia-based forex brokers to be licensed by the Central Bank of Russia (CBR) in order to operate in the country. However, foreign brokers are still allowed to target local citizens without any significant restrictions. Currently, Finam Forex is the only forex broker licensed in Russia. Alpari has, through its unit Alpari Forex, also applied for a license with the CBR.

Since 1 January, 2016, non-licensed Russian brokers are forbidden to provide their services within the country. They need to obtain a license and to participate in a self-regulatory organization (SRO) with at least 10 members. In line with this, the CBR recently started a register with SROs and has already included at least seven organizations in it.

When concluding on whether the US or the Russian forex market is leading, keep in mind that the two countries have a big difference in size. The US is nearly twice as large as Russia in terms of population. At the end of 2015, the US’ residents exceeded 321.4 million, while these of Russia were 146.3 million.