A new generation of forex traders in Italy gives hope to the industry (2024)

Article originally appeared on financemagnates

Europe is home to one of the largest retail foreign exchange (forex) markets in the world. The forex market in the region is often thought of as a whole, however, it is comprised of smaller local markets, all of them characterised by different degrees of maturity and size.

In Europe, Italy is not often thought of as an forex trading hub. However, although the market is small, it could be on the verge of a turning point. So, how does Italy's forex sector compare with those of other nations?

As far as economic importance, Italy is right up there in the European Union (EU). In fact, based on data from the IMF, in 2017 Italy’s economy was the fourth largest in the bloc, with a gross domestic product of $1.935 trillion by the end of 2017.

With England soon to leave the region, that would bump Italy into third place. Not only that but the importance of Italy as a country resonates throughout history many centuries back.

Italian economic market structure

In order to understand the forex market in Italy, it is first important to understand the financial market in general. Typically, a country’s financial market is usually composed of three segments – the banking system, capital market and insurance market. Out of these three, either the banking system or capital market dominate, depending on the country.

In Italy, despite its size to some of the more developed countries in the EU, the capital market has long traditions that underline its importance on the map of Europe. One of the most prominent participants in this market is the Borsa Italiana, the nation's only stock exchange which was founded in 1807 by Eugenio Napoleone.

Since 2007, Borsa Italiana is a subsidiary of the London Stock Exchange Group. In terms of Italian stocks, the exchange’s trading share in Europe is 75 per cent. Another interesting figure for the Borsa Italiana is turnover velocity (TV), which is the ratio between volume traded compared with the overall number of listed shares. For the exchange, TV is over 99 per cent. This is the highest value across all European trading venues.

We caught up with Massimo Giorgini, Head of Equity and Derivatives Markets Business Development, who highlighted that Italy has the highest participation of private investors on the listed market. Not only that, but investors are more and more active here via online trading venues.

“You should consider the fact that over 19 per cent of the daily value trading in cash equities, is traded by private investors, in particular, the 19 per cent I’m referring to, is related to the online trading activity. That is not including the traditional retail investment, so people that are trading by voice Brokerage, or non-direct investments like funds.

“… And the same is actually the derivatives market is mimicking the performance of the cash, because for example on the FTSE MID futures, at least 20-25 per cent of the volume is done by online traders, but we estimate that if you factor in all of the private investors this number can climb as high as 35-40 per cent.“

Furthermore, Italy’s listed markets are also extremely liquid and allow for high levels of diversification, allowing increasing numbers of Italian retail investors access to trade derivatives, ETFs and bonds.

How big is Italy's forex sector?

But how does their forex industry stack up? Well, it may come as no surprise to many of you to say that the forex sector in Italy is much smaller than the United Kingdom. In fact, the country has very few home-grown brokers.

This is in part due to the fact that the Italian financial regulator Commissione Nazionale per le Societa e la Borsa (CONSOB) has maintained a hard stance against investments which are considered high risk.

Because of this, Italian forex traders have very few choices when it comes to finding a local Italian forex brokerage. In fact, most of the forex brokers that are currently serving Italian forex traders are based in other EU member states such as Cyprus or the UK. This includes eToro, CMC Markets, ActivTrades and Plus500, which are all big in the Italian market.

Local Italian brokerage houses – are there any here?

In terms of local forex brokerages, Fineco bank appears to be the only local financial institution to provide forex trading in the country. When we previously conducted an analysis, we identified two providers in the country, FinecoBank and IWBank. However, it appears the latter has stopped offering forex trading.

To learn more about the industry we spoke to eToro, a social trading brokerage, who is one of the main forex trading providers in Italy. For the firm, Italy takes up 5 per cent of its registered users, which equals around 55,000 users out of the brokers 9 million customers worldwide.

Speaking to us recently, Edoardo Fusco Femiano, Italian Market Analyst for eToro said: “The forex trading environment in Italy is still very active. We are observing a new generation of young, college graduated, traders, highly determined in starting the trading journey with the aspiration to become professional traders.”

“In terms of the net worth per capita, Italy is still one of the world's richest countries in the world. Therefore, at eToro, we believe the country has a strong potential. Education has been and remains the main driver for the industry growth, in Italy as well as woridwide.”

Trading in Italy

With little competition in the local Italian forex market and large international brokers dominating, is it worthwhile for new brokers to start up their operations in the country? It all depends on demand, and, as highlighted by Femiano, demand for forex trading in the country is linked to sector patterns.

“I believe we have to look at the trend from a general perspective. forex is the typical beginner’s trading instrument, due to low margins and the possibility to apply scaling and position sizing techniques to small portfolios. Therefore, forex trading demand is highly tied to the sector's general tendencies,” Femiano added.

How do Italian Consumers Trade?

Historically, Italy is thought to be a more conservative trading market. The most commonly traded currency pairs are G10 currencies – EUR, USD, JPY, CAD and GBP, according to the trading activity on eToro. However, which currency pairs traders flock to depends on volatility.

Furthermore, Italians are more interested in trading stocks, such as the US FTSE, and showing an increased interest in social trading. Copy trading, as the name suggests, allows traders in the financial markets to automatically copy positions opened and managed by a chosen investor.