SE Asia's derivatives trading explosion should make all FX brokers look long and hard - FinanceFeeds

SE Asia’s derivatives trading explosion should make all FX brokers look long and hard

Andrew Saks

SE Asia has been a region of importance for many years. FX brokers went in en masse, some got a bloody nose, some sold to Chinese firms. Meanwhile, exchange traded contracts for retail clients are at unprecedented highs and sustainable. Going on-exchange and multi-asset is the future for firms wanting to approach Asia.

The numbers don’t lie.

An old adage, but an absolutely valid one.

Last week,

The Taiwan Futures Exchange (TAIFEX) announced that it achieved a new record volume of 341,393,346 contracts in 2020, a 30.9% increase compared to 2019. Average daily volume (ADV) for the full-year also reached an all-time record at 1,393,442 contracts.

This result is yet another indicator that the retail trading sector, especially in South East Asia which is an epicenter of high volume market activity conducted largely by individual traders as a part time endeavor and via introducing brokers and money managers, is very much operating on a multi-asset basis, with exchange traded futures and equities at the very heart of the trading world.

Thus, it is clear that going down the multi-asset route is a long overdue natural progression for retail OTC derivatives brokerages if they want to onboard a new and large client base which has a longer lifetime value and requires a diversified product range.

TAIEX Options (TXO), the world’s sixth most traded equity index option ranked by the Futures Industry Association, increased 18.7% to 201,733,160 contracts in annual volume, setting a historical high. TAIFEX’s two other flagships saw even greater growth with Mini-TAIEX Futures (MTX) and TAIEX Futures (TX) increasing 101.9% to 60,051,670 contracts and 35.3% to 46,324,077 contracts, respectively. Strong market demand pushed MTX up to a record annual volume, averaging 245,109 contracts on a daily basis.

So what?

TAIFEX may well be a listed derivatives venue in a far flung region, and not part of the OTC FX industry, however it certainly should be, and can easily be.

This type of massive market is exactly what most FX brokerages have bent over backwards to attempt to onboard over recent years. Some managed to develop an under-the-radar Chinese introducing broker network, however most have returned westward with a bloody nose, their efforts to bring Chinese business and its enormous volumes to Western brokers largely having been in vain, as the challenges of navigating a closed market controlled by the Communist government has proven impossible for most.

It is quite simple. The Asia Pacific region remains the most important in the world, however OTC derivatives companies from outside the region are considered prestigious, yet the entry barriers are in many cases insurmountable.

Looking at these figures, and how sustainable they are once again highlights the importance for OTC firms of going down the multi-asset route.

TAIFEX had its record year since the exchange was established many years ago in terms of exchange listed futures contracts. There has been a constant interest in exchange traded currency futures which started in Asia. DGCX is a relatively new exchange which has a massive turnover in Indian rupee futures contracts, but now the whole Asia Pacific region is doing massive retail exchange traded futures volumes.

Surely the right move here is for OTC FX brokerages to connect to these exchanges and offer their clients in Asia a full range of listed derivatives?

FXOpen is big in south east Asia. We therefore asked Natalia Zakharova, Head of Business Development at the company to elaborate on her perspective regarding this matter from a retail FX brokerage point of view, and if it is worth going multi asset to regain the huge interest by Asia pacific traders that once was the case for western firms.

Ms Zakharova explained to FinanceFeeds today “I believe going multi asset is the main course of development for FX brokers. Expanding the instrument list allows them to attract new clients who are ready to trade futures and who might consider spot FX at a later stage. And at the time of the fintech boom it is quite easy to find the technical solution that supports multi asset trading.”

That is absolutely the right direction, and nowadays there are firms which will provide easy and comprehensive access to multi-asset derivatives trading via platforms and trading infrastructure that is designed specifically for this purpose.

Incorporated in Ireland, the company provides its solution via a specific model, which is the only sustainable method of ethical platform provision without conflict of interest, that being the company deploying the platform individually for each broker.

The need for brokers to go multi-asset without having to go to the extent of alienating their existing customers yet being able to bring on board better quality customers and more sustainable business is vital.

In terms of its reach, TraderEvolution Global Ltd serves a global audience, and to demonstrate the value of this, FinanceFeeds spoke to its clients who provided candid opinions on the importance of going multi-asset via this solution.

Singaporean Broker-Dealer UOBKayHian recently integrated TraderEvolution Global’s platform, about which the company’s Associate Director Augustine Ng said “Clients are getting more sophisticated in this data driven digital age, We chose TraderEvolution to allow us to fulfil these needs and ensure the scalability of our offering. The software provided by the team enables us to deliver multi-asset trading through different channels within one account – something that is essential to our clients. In addition, we were highly impressed with Traderevolution ability to develop flexible solutions to enable us to build a wide range of institutional offering.”

By deploying the platform on a per-broker basis, each broker can concentrate on bringing onboard clients from specific regions with specific requirements, and attach them to specific trading venues.

This particular multi-asset platform allows brokerages to offer ETFs, futures, options as well as CFDs and FX from one single account, as well as being able to differentiate brokers from each other, a matter of great importance at the moment.

Brokers can build their own panels across the front end of the platform, so that the user interface will appear native, therefore make the platform unique to each broker.

This is vital in assisting firms to maintain clients for a long time, without them being marketed to by other brokers with the same products on the same platform with a different logo.

This is a direction in which it is clear that the brokerage industry needs to go. Today, FinanceFeeds has discovered that DriveWealth, a Chicago based company which has a partnership with technology provider and market integration company CQG to provide multi-asset derivatives exchange access to MetaTrader brokers is about to purchase a US trading floor company.

The synergy is there, the client bases are higher quality and sustainable, and the technology and expertise is there.

It is time to go onwards and upwards.

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