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HomeFintechLive from iFX EXPO International 2017: The Move East
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Live from iFX EXPO International 2017: The Move East

The consistent pressures that have manifested themselves within the western world’s FX industry over recent years include fierce competition from firms providing similar products, demand from end users to keep the cost of execution down to a very low level, and regulatory turbulence that ranges from very expensive reporting responsibilities to perceived lobbying activities from the listed derivatives giants of London, Chicago and Frankfurt.

In total contrast to this dynamic, which has manifested itself at retail and institutional level with the banks curtailing counterparty credit to a degree which has made a mid market gap for liquidity become very pronounced, filled by equally competitive new entries into the non-bank institutional sector, the Chinese FX industry is free from such burden, and the enthusiasm and highly structured powerhouse that is now China, has led to some degree of concentration on South East Asia as a wider region.

Today, here at the iFX EXPO International 2017 FX industry conference hosted and produced by ConversionPros, the global vendors and providers of technology and liquidity to brokerages in various regions are looking closely at how they must, along with their existing and future clients, evolve their solution to take this into consideration.

FinanceFeeds was joined by Nicc Lewis, CMO at Leverate, who elaborated on this and how the move toward the Asia Pacific region has expanded beyond the efficient and developed powerhouse that is China.

“We have a strong focus in the East and are actively recruiting new clients in China, and have exanded in Malaysia, Thailand, Indonesia, Sri Lanka and the Phillippines” said Mr Lewis.

“Currently, Phillipines has very untouched and only just emerging market. Imagine if you could focus on a country where no products exist yet. This provides tremendous opportunity however it is a very long term strategy to build into a market that has only just begun to gain any awareness or entry into the FX market” said Mr Lewis.

“We think, and we also see that brokers that are based in the West are being squeezed so hard due to marketing cost, regulatory cost, restrictions on margins they can take and perhaps other factors that are common, will have to look outside traditional markets and those are the firms that are looking to move East” – Nicc Lewis, CMO, Leverate

What needs changing in order to localize?

“Retail firms that are looking to move eastward need to focus on one particular country to begin with, hire one local person with extensive knowledge and connections, and from there begin to adapt operationally. The eastern market is much more dominated by IBs and has a very B2B nature, so the first hire with the connections is the most important one and from there the company can expand” said Mr Lewis.

“The difficulties that some companies come across include providing local support and payments. We get asked alot how we can help in certain areas. Customer support is one thing, it need to be local therefore a small investment would be required in order to grow support services, and actually although there is a large dialog about payment channels, the payment segment is relatively simple if in house knowledge exists” said Mr Lewis.

“The more difficult stuff is the technology provision. We invested the hard work in local hosting where it is needed, so a broker can be up and running fairly quickly, and we can explain what to do with regard to website. For example, if a company is going into the Chinese market, it will need to have a site free of all Google and Facebook analytics, and instead the developer would need to put in the Baidu analytics.” – Nicc Lewis, CMO, Leverate

“Getting the infrastructure and localized staff in place is the first cornerstone” explained Mr Lewis. With regard to ensuring that the correct payment channel that has widespread coverage in a specific region is in place, if a company hires local specialists in operational positions, the knowedge would be with regard to which payment providers work in that region” he said.

Money management offering and IB solutions.

“Interestingly, establishing a brokerage in a relatively untouched part of the Far East, for example the Phillipines, is about allowing local companies start the market. Some brokers from Malaysia and Indonesia are crossing border and taking reasonably relevant knowledge with them. It is still too early for many Western firms to go there but as I mentioned earlier, that region will likely become an important market.”

“Currently, Indonesia is the second biggest market in the region outside Mainland China, but it has low value clients and is a notorious region for now outmoded malpractice such as bonus abuse with smaller retail brokers” said Mr Lewis.

“Malaysia is now a well developed market, and hassolid IB networks to provide ongoing traffic. Another good region is Thailand. It is important to consider that when a former low income nation has economic growth, even if it is based on tourism, the whole country then begins to achieve a growing income. When a developing country makes that jump toward middle income wealth, there is not an understanding of where to use that wealth which is where the portfolio managers come in using MAM accounts” – Nicc Lewis, CMO, Leverate

Mr Lewis considers that a simple way to achieve a low cost and straight forward means of establishing a type of portfolio management in new regions in the APAC area was to offer Social Trading and ringfence the money manager and his clients as a micro community where the leader is the master, and the others are copy traders, where the trades execute automatically according to the lead traders’s pattern. He can then give front end access to see how they are performing in the market.

“There is most certainly a lot of business from the east. It is a lower value but much larger volume and is growing, also the price people are wiling to pay for quality is growing. One of the most fascinating things about it is that China, for example, has no regulation but somehow the brokers themselves have realized that they have to show their clients that they are doing STP to gain the trust with traders, so its like self regulation.

“By contrast, in the west, the firms are being slapped down. Regulation in europe reminds me of the final scene in Clockwork Orange. In the end the final power will be to find the one trustworthy broker” said Mr. Lewis.

Concluding, Mr Lewis detailed that the selling points to a broker in the Asia Pacific region include good quality execution via a proper liqudity provider, no internalization at retail broker level, reliable technology and low latency. Inside China there is still a check on all data by the government-controlled internet system which creates a degree of latency but not to the same degree as from the outside, therefore whilst a delay exists, Chinese traders are keen to ensure that broker latency does not compound this problem.

“The Asia Pacific region is still very much a face to face business” he added. “There is a growing digital sector, and media is very good quality and widely distributed in China, the nation is massive on mobile and the users are all using the latest device” said Mr Lewis.

“I’ll leave you with this figure. On our corporate website, over 80% of the traffic in China is mobile. We learned in China to have a dedicated mobile website otherwise the main website will not be sustainable.”

Featured Images: Ben Richter, Head of Institutional Sales at Leverate, and Nicc Lewis, CMO, Leverate

Andrew Saks-McLeod, Head of Research and Analysis, ETX Capital
Andrew Saks-McLeod, Head of Research and Analysis, ETX Capital
With 25 years of experience in the financial technology sector, Andrew is a prominent international figure within the FX industry. His detailed research in editorial and televised form is often the central point of information for executives within all sectors of the global FX business.
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3 COMMENTS

  1. Sure you can temporarily rip off clients because you are new…..until they catch on and then you have the same problem as you had from the Western country. But this time, instead of regulatory burdens, you have trust issues with the locals.

    And these people can quickly form a mob mentality if they perceive an injustice and will often take the law into their own hands. You don’t want to be on the other side of that.

  2. South-East Asian countries have averaged a growth rate of more than 5% per year and a population of nearly 700 million people. If South-East Asia were one country, it would be the world’s ninth-largest economy. The region is very attractive to foreign investors and companies seeking to expand out of their country into an area where labor costs are still relatively cheaper. This is despite a recent trend of rising wage rates experienced in many Asian countries.
    During the last 3 years, the region experienced growing trading volumes along all asset classes with Singapore’s financial center leading the way. There is a very strong appetite for FX trading in South-East Asia, especially in Indonesia, Malaysia, and the Philippines. Also Thailand and Vietnam. This has also to do with demographics. Developing countries such as these, have a very large population in the 18 to 50 age bracket, which is when traders are most active. They may be looking to make a second income or to put their capital to work. At the same time there is an increasing and rapid adoption of the internet in the highly populous countries of the Asian theatre, which in the period between now and 2030 will start to experience a growth in internet penetration that happened in the West 20 years ago.
    Indonesia for example is the region’s largest country in term of population. Indonesia is known as one of Asia’s fastest growing economies and is becoming an economic giant. The country has all the characteristics a developing economy needs. It is rich in natural resources, (crude oil, natural gas, tin, copper, and gold) proximity to trading partners and a large population. Its major imports contain machinery/ equipment, chemicals, fuels and crops. The country’s major export commodities include oil and gas, electrical appliances, plywood, rubber, and textiles. The nation’s unemployment rate is at around 6% and the country has a labor force of 116 million people. Topped with a desire for online trading, Indonesians have been attracted to FX and as circumstances advance, the market is set for further growth. Forex has been endorsed by the local futures brokers over the last years. Investors have been looking for ways to earn money in a short period of time and forex was (unfortunately) mainly promoted as a get rich quick product. Few brokers witnessed this trend and started entering the market at around 2003. These companies offer on and offline support in Bahasa and generally had/have either a master IB (most of the times a…crook) or a representative office.
    However, promoting FX trading as ‘’making money fast’’ is not the way. Brokers do not allocate enough resources and they expect results in a short time. Fast and correct account opening and deposit/withdrawal procedures, good execution, people on the ground conducting educational and face to face meetings with existing and potential clients, online educational webinars are some of the most important ingredients in a broker’s recipe for success and long term business. Companies which flourish are the ones which want to do things properly, support the customer on a long term basis with presence in the region. The correct and hospitable approach will provide clients with support, education and confidence so that clients will stay with their broker long term. In any way you look at it, the Asian region is ripe for further growth. Some brokers will just surf the growing demand for FX business, while others will play leading roles in bringing in new trading opportunities to open-minded and eagerly expanding FX trading communities. It is a lively and huge scene. With the correct people, product and approach it can be very profitable for any broker who has a serious long term plan.

  3. The SE Asian region is ready for further growth. Some brokers will just test the growing demand for FX business (without proper plan and mentality) while others will play leading parts in bringing trading opportunities to excitedly expanding trading communities and clients. It is a lively and vast scene and with the correct people, product and approach it can be very profitable for any broker who has a solid plan.

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