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Trading up: forex and binary traders increasingly relying on igaming affiliates
Sarah Robertson of Income Access looks at the evolution of the retail forex and binary options sectors and examines how affiliates fit into their marketing mix.
In 2016, forex, CFD trading and financial spread-betting in the UK experienced their strongest growth in five years, growing 14% year-over-year, according to Investment Trends. Nonetheless, forex brokers and their counterparts in the newer binary options sector face high levels of competition.
With regulatory change also on the horizon, brokers are increasingly looking to streamline their customer acquisition by diversifying their marketing mixes, including placing more emphasis on the affiliate channel.
Evolution and challenges
The retail forex sector dates back over two decades. Amid rising internet penetration, the mid-1990s saw the emergence of online trading platforms providing margin brokerage accounts to private investors.
These brokers included Oanda, founded in 1995, GAIN Capital and FXCM, both founded in 1999, and ETX Capital, whose retail arm was unveiled in 2002.
The industry’s growth was supported by technological developments such as the 2005 launch of the now-ubiquitous MetaTrader4 trading platform.
Meanwhile, the market volatility accompanying the 2007-2008 financial crisis and subsequent Eurozone debt crisis also drove the industry’s expansion, even as the period’s economic slump acted as a brake on trader deposits.
During the global rebound that followed, an entry barrier still remained for prospective customers. Succeeding at forex trading requires a sophisticated knowledge of economic indicators and technical analysis of currency pairs. Unsurprisingly, simpler forms of financial trading emerged to bridge this gap.
These included binary options, which involves traders predicting whether a particular asset – a currency pair, a commodity or stock index – will appreciate or depreciate over a set time.
As Jeff Saunders, head of affiliates at binary broker MarketsWorld, acknowledges: “Forex is more difficult to trade than binary options, where you just make your bet and wait for the expiry.
“We launched in 2011 and, despite our being only six years old, we are one of the oldest platforms in the industry – at the time there were only a handful of providers,” says Saunders.
Today there are over 500 binary brokers, according to FinanceFeeds’ research. The forex space is even more competitive, with more than 1,200 brokers.
Both sectors face the additional challenge of regulation. “If you’re a very regulated forex broker, it makes it harder to compete with offshore brokerages who use very aggressive sales techniques,” says Vincenzo Roselli, head of affiliate marketing at ETX Capital.
The forex broker is regulated by the UK’s Financial Conduct Authority (FCA), which he describes as “a very strict regulator” compared to the Cyprus Securities and Exchange Commission (CySEC) overseeing some brokers.
Regulation is also tightening for the binary sector in the aftermath of some brokers’ exploitative tactics. “CySEC, no doubt under pressure from other larger regulators, has now started to act and to put a leash on CySEC-regulated brokers,” says Saunders.
Some binary brokers choose regulation by a gambling regulator as an alternative to CySEC. Considering its binary product a form of fixed-odds betting, MarketsWorld is regulated by the Isle of Man Gambling Supervision Commission.
The forex sector faces its own upcoming regulatory challenges. “The regulation in the forex business is very uncertain and likely to change in the near future and get a lot stricter,” says Roselli.
He points to the FCA’s planned changes to brokers’ leverage and customer margin and the entry into force of phase two of the Markets in Financial Instruments Directive (MiFID) for EU brokers in January 2018.
In the context of these challenges, brokers are looking to streamline their marketing strategies. Roselli divides the forex sector into traditional, long-established firms like ETX Capital and newer brokers. “The more traditional broker tends to have a more diverse marketing mix,” he says.
Certain traditional brokers like ETX Capital offer both institutional and retail financial trading, further diversifying their customer acquisition and revenue streams. The broker’s institutional business and High Net Worth (HNW) division, serving private clients depositing over £250,000, complement their retail business.
Even traditional brokers without institutional or HNW businesses still tend to wield diverse marketing strategies. They leverage offline channels such as TV – Roselli cites Plus500’s campaigns on the Eurosport TV network, while ETX Capital has previously run ads on Bloomberg Television – and print ads in financial newspapers.
Nonetheless, given the internet’s integral role in forex trading, online channels remain key.
As Jonathan Chapman-Pemberton, Head of Affiliates at GAIN Capital, notes: “Digital marketing has always been a big focus for us and all channels play their part in the wider marketing mix. It’s important not to over-rely on any one particular channel and to strike a balance in the investment to maximise reach.”
Media buys with relevant high-traffic websites are an important digital focus. Serving traders’ need for economic news and technical analysis, major online forex media have emerged. Sites such as FX Street boast the traffic to command cost per mille (CPM) impression ad deals from brokers.
For ETX Capital, which runs prospecting media buy campaigns as well as programmatic retargeting, the channel “is effective for brand exposure but has low ROI in terms of customer acquisition”, according to Roselli.
The PPC channel has similar limitations. ETX Capital runs both generic and branded AdWords campaigns.
However, Roselli says, “Google prices are incredibly expensive these days – it’s very hard to get customers on a reasonable CPA that allows profitability.” Among SEMrush’s list of the UK’s 20 most expensive AdWords keywords are “spreadbetting offers” (£118.03) and “open a forex account” (£112.25).
Given the investment required, PPC and media buys can be beyond the budgets of newer brokers. MarketsWorld turned to more cost-effective channels when it launched. “Early on, it was decided to grow the business slowly but steadily through the affiliate channel and organic SEO efforts,” says Saunders.
A challenge for binary and forex affiliate programmes is that they can take time to build. “Whilst this started out as a relatively slow burn, we have developed an excellent, profitable affiliate channel,” says Saunders of MarketsWorld’s six-year-old programme.
Some financial affiliate programmes expand more rapidly. Within a year of the launch of ETX Capital’s programme in 2013, it was responsible for 50% of new customers.
Roselli says that today the channel drives 35% to 40% of acquisitions. He estimates that newer forex brokers with less diverse marketing mixes are seeing up to 80% of acquisitions through affiliates.
For all types of financial trading broker, the affiliate channel’s key strength is its performance-based model and cost-effectiveness. “It’s always been profitable for us, with very strong ROI,” says Roselli.
Due to regulatory restrictions, brokers like ETX Capital and GAIN Capital work with affiliates on a cost per acquisition (CPA) basis.
“You can quite easily control your cost per acquisition and make sure each affiliate brings a positive return,” says Roselli. He adds that the channel also allows brokers to “measure results more effectively than other channels”.
Chapman-Pemberton, who recently launched GAIN Capital’s new affiliate programme, agrees. “As the affiliates are remunerated on a CPA model, there is an instant transparency on the channel costs,” he says. “This means we and the affiliate can quickly analyse the performance of multiple brands and products we offer, enabling quicker decisions to be made to improve performance.”
The forex affiliate space is also highly diverse. Roselli lists educators, signal providers, trading rooms and news sites as examples, in addition to brand comparison sites similar to those in the igaming space.
This begs an important question: are igaming affiliates promoting forex brands? With no gaming affiliates promoting ETX Capital, Roselli argues that forex and igaming are very different products. “I see more crossover between sportsbook and casino brands and binary options,” he says.
Saunders agrees. “The rise in popularity of binary options has seen a number of affiliates from the casino and poker world get involved – there is obviously a crossover between these platforms and our own,” he says, adding that gaming affiliates nonetheless require more support than binary ones.
With binary affiliate managers increasingly working with igaming affiliates, and forex brokers like GAIN Capital raising their investment in affiliate marketing, the outlook for the financial affiliate channel looks bullish. As Chapman-Pemberton says: “Affiliates are an important addition to the marketing mix for 2017 and will become an established channel for years to come.”
Sarah Robertson oversees Income Access’ business development in the igaming and financial trading spaces.
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