Why the rise of binary options is not “fake” in China

Yael Warman

This is a guest editorial by Nicc Lewis, Chief Marketing Officer at Leverate I am going to state some facts first, and, I am going to end with what you should do with these facts. In the middle, I freely admit, there will be some conjecture that logically connects the facts. The conjecture may be disputable, […]

china

This is a guest editorial by Nicc Lewis, Chief Marketing Officer at Leverate

I am going to state some facts first, and, I am going to end with what you should do with these facts.

In the middle, I freely admit, there will be some conjecture that logically connects the facts. The conjecture may be disputable, but the facts and advise are both solid.

Over the past few months we, at Leverate, have seen a huge rise in demand for Binary Options from brokers and potential brokers targeting China from within the region. There is a known risk that at any moment the Chinese Government could decide that Binary Options do not fall under their understanding of Financial Trading and shut down the Binary market overnight. Yet demand grows. Not only has demand from brokers grown, the trading volume is also growing from month to month at break neck speed.

On the FX side, mainland China is littered with MT4 “fakes”. Many of these copies are written in some backroom by a couple of programmers. The front end is a straightforward copy but like most “fakes”, there is little quality to stand behind them. The “fakes” run on a B Book only basis and are designed for quick and short term profits for the broker and programmers. Needless to say that they have a terrible reputation. Serious brokers are distancing themselves from the “fakes” by making a big deal over their full STP stance.

Who are brokers trying to attract?

In China, Introducing Brokers (IBs) rule the roost. Many of the IBs are also their clients’ Money Manager. In some cases, they will actually pool their clients’ funds and trade on their behalf. The rapid rise of disposable income in a culture that has a history of mistrust coupled with naivety in Financial Trading means that investors rely on their Money Manager.

Market Making may be riskier, but it is ultimately more profitable for the broker. This is where I believe that Binary Options and my conjecture come into the picture.

IBs do not view binary options with the same distain as the “fake” MT4s. Binary is 100% Market Making, but seemingly more legitimate to the IBs. Many run algorithms or robots with high volumes on Binary that they know are risky but come with the possibility of high and quick reward. From the broker side, Binary checks all the boxes: inexpensive (start up and running) costs, high rewards from Market Making plus the legitimacy of an international technology provider.

Leverate extends asset class diversification
Leverate’s Andy Zhang and Ted Lee speak to FinanceFeeds CEO Andrew Saks-McLeod in Hong Kong about counterfeit MT4 platforms

For the last piece of conjecture, I am going to assume that you, the reader, are an international broker looking at the Far East as a new market. So, what should you do with the fact that Binary Options are growing exponentially in China?

First impressions count – always! So step number one, make sure your platform works in mainland China. Sounds simple but do not take this for granted. We, at Leverate, have had to invest heavily in a blend of acceleration from London and local services to enable BX8 (and our FX solutions) front and back ends to run as smoothly as in Europe.

The second part is making sure that your platform is fully localized (front and back). This is not simply a matter of good quality translation, but also offering local indices like A50 and CSI300 and the ability to trade in Yuan. The last part of localization is mobile. There is a high prevalence of mobile usage in China, especially iOS. There are also many issues with Google and the Great Firewall of China. We have written extensively about this before – you are welcome to read up.

People who know me often hear me say: “We are all in the people’s business!” This is more commonly quoted as: “Businesses do not do business – people do.” Gaining access to IB networks are critical for success in APAC and even more so in China. I have already mentioned the culture of mistrust in China and how vital the personal connection is. The best way into to China is to simply hire well; hire someone local with experience and connections. You will never conquer China from a remote desk, you will need someone on the ground.

The second part of attracting IBs has to do with understanding how the network runs. Networks are multi-tiered. A Head Office will be spread over a province and have a number of Master Agents. Each Master Agent will control an area with Agents on the ground in a city, or town who are front facing with the investor.

Each level takes a rebate from the trades and needs the ability to see what they are doing and down the chain. You will need to have a reporting system and dashboards for them to manage their network. You will also need some kind of Money Management system. One way is to use Social Trading where each Money Manager has their own network within a network and therefore not exposing their traders to rival Money Managers.

APAC and in particular China are rapidly growing markets. They are attractive and lucrative to those who can adapt and think local.

Photograph: The Bund, Shanghai, China. Copyright FinanceFeeds

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