The growth in FX trading and particularly online FX trading over the past 5 years has been mirrored in the growth in margin trading. With the growth in margin trading, comes the need for solutions that offers the capability to deliver the trading functionality, while also providing the risk management and monitoring capability that is required for this business.

Traditionally, margin trading was a niche business offered by private banks, offering this capability to their High Net Worth clients, who traded FX in a similar manner to trading Equities, and typically being margined at relatively high margin levels. The advancement of technology has opened up this market place to all levels of customer, which, coupled with financial institutions seeking new opportunities to generate both FX flow and revenue, has led to a need for systems that have the functionality to manage the portfolio on clients behalf, while monitoring the risk from the banks perspective.

Growth in Margin Trading
According to the International Swaps and Derivatives Association (ISDA Margin Survey of 2005, $1.21 Trillion of collateral was in use, this compares to a figure of $491 Billion is use in 2003, an increase of almost 60%. Within this increase, Hedge Funds and Institutional investors are the major contributors to the growth. From a banks perspective, there has been a significant push towards collateralised trading, driven by several factors, primarily the difficulty in processing credit applications within banks, and the credit worthiness of the prospective clients. Banks are reluctant to offer credit facilities to the types of client now looking for FX trading facilities, due to very tight balance sheet management. Margin trading does not impact on asset allocation, and potential clients are looking for facilities far in excess of the potential credit lines that a bank would normally offer.

The second major factor giving rise to the increase in collateralised agreements is the introduction of new categories of clients, particularly in FX margin trading. These categories include Hedge Funds, who traditionally traded in Equities and Fixed Income, Institutional Investors, who are also relatively new to the FX world, and Retail clients, who have entered the FX space, due to the relative stability and lack of volatility in the Equity markets, and more importantly due to the opening up of the FX markets. The proliferation of online FX margin trading solutions allows this range of clients to trade with the simple click of a button, following the creation of an account online. These online solutions range from sophisticated products from banks and financial institutions to the simpler products targeting retail clients, who offer a more simplified offering.

The third factor which has contributed to the increase in collateralised trading is Prime Brokerage. A significant number of banks have recently introduced Prime Broker facilities, either as a new product offering, or as a result of client demand for such facilities Many Prime Brokerage facilities are now put in place with a collateral requirement, in addition to traditional limit monitoring facilities.