FX in Thailand: FinanceFeeds investigation – Arb traders, High Net Worth retail customers and how to succeed post Boston and Fortress damage

Thailand is often regarded as one of the world’s most popular tourist destinations.

Whether it is young free spirits wanting to spend a few months ‘finding themselves’ after the arduous trials of two to three hours per day at a university so taxing that it requires them to concentrate for fifteen minutes at very occasional intervals before heading back to the west for a life of entitlement and government support, or whether it is retirees wishing to appreciate the beautiful coastlines and fantastic cuisine, accompanied by the genuine courtesy of Thai culture, this is what Thailand is viewed as in the Western hemisphere.

Mention highly sophisticated electronic trading and multi-product proprietary execution systems in the same sentence as the nation which is renowned worldwide for its coconut milk-infused flavors and relaxing vistas, and an apoplectic look of confusion on the face of any seasoned FX industry executive would be more than justified.

Until now.

Along with most of South East Asia, the opportunity for genuine, good quality business in Thailand is now appearing, and the dark old days of an unenlightened and large consumer base being fleeced by a small number of local profit-and-loss merchants who split client losses is beginning to wane, giving way to an opportunity for good quality prime of primes to provide liquidity and technology feeds to local brokerages that look after well organized high net worth funds, as well as direct retail customers who are building their own trading systems.

A very different approach is required across South East Asia to that of China, Thailand is becoming a region of importance to mid-range retail brokerages as well as liquidity providers.

South East Asia, as opposed to China, it is a bit more diverse. For example, the use of messaging medium must be specific to that region. In Thailand for example, if a broker attempts to contact clients via WhatsApp as they can do in Malaysia, those clients will not know that they are being contacted. There is a feature in Telegram, there are examples where the leads arrive but there is no way of actually onboarding the contact as a customer. It is absolutely not a sort of mobile CRM in the way WeChat is in China, hence this must be considered carefully.

Just a few years ago, when MetaTrader 4 was in its heydey and warehouse brokerages across the world were reaping the rewards provided by an uninitiated retail customer base, Thailand had no mobile messaging facilities and there was no way to contact customers other than to hold physical seminars. Those days are long gone, as are the days of being able to foist a profit and loss system of execution and revenue onto Thai traders.

FinanceFeeds has spoken this week to several brokerages and prime of prime brokerages that have entered this region and are beginning to view it as a vital part of the growth of their business.

One particular firm, based in Asia, that provides liquidity to retail brokerages, explained to FinanceFeeds “We consider Thailand to actually be of greater value as a potential customer base than Indonesia or Malaysia, two emerging markets which are a focus for many firms these days.”

“Unlike a few years ago, there are more high net worth traders in Thailand now than ever. Many of these traders are highly sophisticated and they will know whether a brokerage is b-booking their trades, and will want a specialist service so that they can be sure how their trades are being executed” he said.

Another executive within an institutional firm in the region explained to FinanceFeeds today “Many traders and trading groups in Thailand that are at the high net worth end of the scale are professional traders and have developed their own systems, therefore they just need a GUI (Graphical User Interface) which means that they need a website to connect their system to, and many ask the broker to subsidise the development of a GUI that will connect to their system to allow traders to deposit so that they can manage funds.”

On this basis, FinanceFeeds considers that adaptable systems which allow local firms to develop their own environment (such as that provided by Saxo Bank) would be very welcome in Thailand.

“In my experience” he said “these particular traders are trading their own accounts and the average initial deposit is $100,000. Some of them also have clients whose portfolio they manage, which is attached to these proprietary accounts via multi-account management software.”

FinanceFeeds asked a retail brokerage in Cyprus which has entered the Thai market and onboarded a series of direct customers in the region as to the volume traded by Thai traders with deposit balances of over $100,000. “Most of the more experienced traders in Thailand are doing around 5,000 lots throughout their entire duration as a trader” he said.

“This is actually a valuable type of client because they are not gamblers at this level. Thai traders that have invested time and effort into the development of their own trading systems and are effectively proprietary traders in their own right are not interested in high leverage, lack of providence or a quick exit from small MetaTrader 4 white label brokers with no price feed who think (quite wrongly) that they can make a quick exit with client funds” said the broker.

“I have found that there is one universal truth, that being that this level of trader is the top of the food chain in our sphere. They do not gamble and blow their accounts quickly, they have decent sized accounts, and are very sophisticated” he continued.

“I can give you an idea” he said.

There is a very sophisticated strata of traders in this region, starting from $100,000 minimum deposit, who build their own black box systems and know how a Prime of Prime works and how to analyze the execution of their trades. Around 25% are arb traders so that is consistent world wide, however in Thailand most of the arb traders are trading the DAX

Trust and a hope that history does not repeat itself is a major consideration for many Thai brokerages and retail customers. The demise Boston Technologies/Boston Prime and Fortress Prime, along with the funds of their customers, did not help the confidence of investors in Thailand, as that was a region of importance for both firms.

Fortress Prime did not even have a genuine price feed from an aggregation of bank prime brokerage relationships as is expected of a Prime of Prime, and was effectively holding money on account and b-booking the entire flow. This has left an unpleasant mark on the landscape among Thai traders and brokers and as a result they are very analytical when probing the execution methodology of any firm that they choose to work with.

Who are they?

In terms of age, FinanceFeeds research details that most high net worth traders of the type described by the firms that we spoke to are between the ages of 30 and 50 years old, as they have grown up with technology and FX is not something new to them. Many of them combine their order flow as a mix between trades open for a very small amount of time to leaving trades open for quite a while so it is great for them as the liquidity provider cannot pull the plug, or at least there is a minimal chance of this occurring. Many brokerages we spoke to in South East Asia and in Cyprus have begun to consider Thailand to be a more interesting region than Malaysia and Indonesia, Indonesia being a region which has been populous with FX brokerages since 2003 when Russia’s FXOpen entered the market, as well as having its own home-grown brokerage, Monex Investindo, which holds over 30% of the Indonesian retail FX market.

API connectivity welcome

Unlike in mainland China, where API connectivity to outside sources is illegal and results in the government’s internet system blocking an entire company’s operations, API connectivity is favored in Thailand.

FinanceFeeds spoke to a brokerage in Cyprus that is currently signing a proprietary trading firm which will establish connectivity to the firm’s liquidity via API.

“API connectivity is not a thing of fear to these people as they understand how a PoP works, therefore once a broker can show them that its offering is straight and that it can provide them what they want, there is a long term client fostered from this” he said.

On this subject, it is important to ascertain whether Thai firms that operate via this method are very harsh when it comes to negotiating the cost per million on price feeds and integration technology.

FinanceFeeds has found that most drive a very hard deal, however if a brokerage is competitive and has low overheads, it will be possible to meet this requirement and still remain competitive.

“We start at $10 per million” said one prime brokerage in the region. “We can do this as we do not have very high operating costs, and as a result, if a deal needs to be done, we can take it down to $8 per million to start with and then go lower should large volume be traded. This way everyone wins” he said.

In terms of capitalization of market connectivity and trading platform on top of that, there are solutions today that will take this down to as low as $1, such as oneZero’s ecosystem model which was launched last year.

On this basis, the new ecosystem model that is being looked at by integration companies is a good method, with Andrew Ralich, CEO of oneZero having explained how $1 per million is achievable, dedicated to the retail sector is a welcome solution to access to prime of prime liquidity and fostering deeper relationships, as well as keeping the hosting costs down significantly.

 

Bearing in mind the likelihood of an absolute reconsideration of regulatory frameworks for OTC derivatives in many Western European jurisdictions, South East Asia has become a very interesting focus for most retail firms, and for those not able to commit resources into establishing correctly inside China, Thailand may well be a good premise.