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The Retail FX Experience in Japan, 2019

Executive Summary

  

Two decades since the launch of retail FX trading globally, Japan remains a very relevant case study for regulators and brokers around the world to understanding foreign exchange (FX) trading at the retail level, or for that matter retail trading of any asset class. The vibrancy of Japan’s brokerage scene takes place within a credible regulatory environment and begs the question of how industry and regulators were able to strike a balance that achieves sensible industry growth. Japan’s retail FX trading has reached highs of US$250 billion per day, and it has been adopted by roughly 7% of the country’s adult population and 15.5% of the population holding investable assets. 


Select questions answered in this study include: 

  • What features in Japan’s OTC microstructure and regulatory framework have allowed more than a dozen brokerage firms to remain viable for more than a decade? 
  • What are the preferences of Japanese investors regarding financial products, retail FX brokers, and currency pairs?
  • How competitive is Japan’s retail FX brokerage market evidenced by prevailing spreads and market share analysis? 


METHODOLOGY

  

This report relies on its author’s 10+ years of researching professionally retail FX activity in Japan, combined with the latest public information about 18 retail FX brokerage firms and Japan’s OTC FX activity regulator. 

Firms evaluated include: Central Tanshi FX, DMM.com Securities, FX Prime, Gaitame.com, GaitameJapan.com (DMM), GaitameOnline.com (IS Holding), GMO Click Securities, Hirose FX, Invast, Kabu.com Securities, Monex Group, Money Partners, Money Square, Rakuten Securities, SBI Group, Traders Security, Ueda Harlow, Yahoo Japan FX. 

Regulators mentioned include: Financial Futures Authority of Japan (FFAJ), Commodities Futures Trading Commission (CFTC), European Securities and Markets Authority (ESMA), National Futures Association (NFA).

Other firms mentioned: Currenex, EBS, FXSpotStream, Integral Corporation 



TOPICS ADDRESSED


Japan’s trading population

Financial product preferences

Japan’s regulatory footprint

Retail FX/CFD trading volume globally, by major region and product

Japan’s retail FX volume 

FX pair preferences and behavior around major net long/short positions

Breadth of FX pair offerings

Lessons from the post-leverage reduction period

Japanese active account growth stats, 2009-2018

Japan’s client deposit changes, 2009-2018

Japan’s diverse brokerage firm landscape – ownership types

Agency v. principal brokers v. both

Own v. third-party trade execution system v. both

Share of internalization v. hedging via banks, other domestic firms, or offshore firms

Evolution of FX prime brokerage in Japan’s retail FX market, 2014 to 2018

Select electronic FX trading platform preferences used by FX brokers

Spread competition by broker and currency pair

Volume weighted spread costs to consumers by broker 

Average daily volume market share of Japanese FX brokers – 17 firms

Ranking of Japanese FX brokers within the top-30 global brokerage firms, 2018

Ranking of Japanese FX brokers by client deposits – 17 firms

Ranking of Japanese FX brokers by client accounts – 17 firms

Report takeaways


CHARTS & TABLES

  

Chart 1. Japan’s Population by Select Age Group, 2000 to 2030

Chart 2. Japan’s Retail FX Trader Population Growth to 2018

Chart 3. Japan’s Retail FX Addressable Market Opportunity, 2017

Chart 4. Japanese Public’s Impression of Retail FX Brokers

Chart 5. Japanese Public’s Trading/Investing Experience by Product

Chart 6. Average Daily Volume – Global Retail FX, 2000 to 2020

Chart 7. Retail Trading ADV – FX, CFD, and Crypto Activity ꟷ to 2020

Chart 8. Average Daily Volume – Japan, 2009 to 2018

Chart 9. Japanese Retail FX Traders as Natural Short Yen Participants

Chart 10. Japanese Retail FX Traders and USDJPY

Chart 11. Japanese Retail FX Traders and EURJPY

Chart 12. Japanese Retail FX Traders and GBPJPY

Chart 13. Japanese Retail FX Traders and AUDJPY

Chart 14. Japanese Retail FX Currency Preference, July 2018

Chart 15. Breadth of FX pair offering by Japanese brokerage

Chart 16. Steady base of retail FX active traders

Chart 17. Steady growth in Japanese retail FX client deposits

Chart 18. Agency v. Principal Brokers – Own Trade Execution v. Third-Party System

Chart 19. Share of Hedged v. Internalized Trading Volume, 2012 to 2018

Chart 20. Evolution of FX Prime Brokerage Activity in Japan’s Retail FX Market

Chart 21. FX Spread by Japanese Brokerage and Currency Pair

Chart 22. Estimated Volume-Weighted FX Spread by Japanese Brokerage

Chart 23. Trading Volume Market Share – Top 17 Retail FX Japanese Brokers

Chart 24. Japanese Firms Among the Top-30 Retail FX/CFD Brokers Globally, 2018 

Chart 25. Client Deposits Market Share – Top 17 Retail FX Japanese Brokers

Chart 26. Client Account Market Share – Top 17 Retail FX Japanese Brokers


Table 1. Japan’s Regulatory Blueprint

Table 2. Background of select Japanese brokerage firms 

Relevance

Regulation of retail trading in foreign exchange (FX) and contracts for difference (CFD) is undergoing transition in Europe, causing deep industry concern. Japan's retail FX regulatory  path is, in this author's view, the optimal model for regulators globally to achieve a balance of investor protection and brokerage industry viability. This report outlines key lessons from Japan's experience with retail FX.

 

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