The b-book with no liquidity feed, the educational sector, affiliates and white label partners, and who succeeded early in Indonesia’s attractive but difficult retail FX market. We investigate with those at the leading edge of Indonesia’s FX industry and look at how to enter, and what clients want.
Indonesia. A vast country in South East Asia with over 255 million inhabitants, all of whom speak the same language and with a remarkably low median age of 28 years.
The country’s population is rapidly increasing, largely due to a very large percentage of the nation’s citizens being under 35 years old, and is expected to reach 269 million by 2020 and 321 million by 2050.
An ambitious desire exists among a large proportion of Indonesia’s working-age population to find independent methods of gaining wealth and financial independence in a nation which has a growing economy, an industrious and somewhat entrepreneurial youth among a backdrop of relative poverty and lack of formal employment opportunities.
Thus far, only one brokerage in Indonesia exists, that being Monex Investindo Futures (MIFX) established in 2000, which has a market share of approximately 32% of the entire Indonesian FX business, and is the only domestic market brokerage with any traction at all.
Bearing in mind that South East Asian nations have been areas of tremendous focus for FX firms over recent times, it is important to note that with most FX traders being between the ages of 25 and 45, Indonesia’s opportune positioning in terms of location, economic factors and demographics, is attractive indeed.
Even today, nearly 46% of Indonesia’s inhabitants live on less than $2 a day. The divide between rural and urban residents has been increasing as cities and towns expand. The rural population is declining, currently there are an estimated 119 million people living in rural areas as opposed to 122 million in 2007, yet urbanized areas are booming. 58% of Indonesia’s population live on the island of Java.
Indonesia is a mixed economy with both a strong private and government sector. The country has extensive natural resources, including crude oil, natural gas, tin, copper, and gold. Indonesia’s major imports include machinery and equipment, chemicals, fuels, and foodstuffs.
The country’s major export commodities include oil and gas, electrical appliances, plywood, rubber, and textiles. The South East Asian nation was on a rapid journey on economic prosperity during the 1980s and 90s however the 1997 Asian crisis put extensive and lengthy pressure on the country. Since the crash Indonesia has been building its domestic infrastructure and in 2011 rating agencies Moody’s and Fitch returned the title of investment grade.
GDP up from $1 trillion to $2.8 trillion in just three years, yet unemployment and opportunity-seeking still prevail
What is even more remarkable is that just three years ago , Indonesia’s GDP was $1 trillion GDP, however this figure has risen to an astonishing $2.8 trillion between 2013 and today. At the beginning of this decade, Indonesia was expected to become one of the top ten economies over the next ten years.
The opportunities for FX brokers in Indonesia were noticed about 13 years ago by Russian brokerages InstaForex, FXOpen, MasterForex, EXNESS, Forex4You and FBS.
At that initial and very early stage, these companies provided online and offline services from bases in Bahasa, Indonesia and usually operated via IB hierarchies (a master IB with sub-IBs in the region) and representative offices.
The pioneers were then followed by FXCM and Alpari, both of which established presence via local IBs.
What are the critical things to consider for an FX brokerage approaching Indonesia?
Two initial factors of importance are purely operational. Many introducing brokers in the region operate with a series of different Western FX brokerages, therefore are exposed to varying payment methodologies and costs associated with transferring trading capital to the client money accounts of brokerages outside of Indonesia.
Monex Investindo Futures has a distinct advantage here, as it banks locally and uses local merchant services providers. Many IBs in Indonesia have stated to FinanceFeeds that the cost of depositing funds is a critical point that Indonesian traders concern themselves with, therefore seeking the cheapest method of conducting transfers is a paramount consideration.
FinanceFeeds today spoke to one of the pioneering firms which succeeded in the Indonesian market, FXOpen.
Denis Peganov, Business Development Director at FXOpen today explained to FinanceFeeds “Initially, clients in Indonesia wanted any broker with an easy procedure of account opening, a local office and the support of the Bahasa language.”
Mr. Peganov continued to explain “Now as so many different companies have entered Indonesia they want everything to be standardized, and all possible bonuses, therefore it makes life hard there at the moment.”
“I am pretty sure that a lot of brokers exclude Indonesia during their campaigns as most of the traffic that comes from there (small Clients) are useless as they generate zero money in terms of deposits or turn over” – Denis Peganov, Business Development Director, FXOpen.
“Another important point is regulation” continued Mr. Peganov. “At the moment there is no legal way to have an office in Indonesia without a license, and the local license restricts leverage to a maximum ratio of 1:200 which is not interesting for retail clients, therefore in the end there are huge amount of all kind of companies, not all of which are brokers, some are white labels, affiliats or IBs, as well as a certain amount of locally based companies which are usually owned by ex-IBs of foreign brokers, all of them have some very small share of Indonesian market, and each Indonesian client usually has numerous accounts with many different companies” concluded Mr. Peganov.
Adam Reynolds, CEO Asia Pacific at Saxo Bank explained today to FinanceFeeds “Saxo Bank Group sees Indonesia as a very strong opportunity over the coming years, and are partnering with local organisations to be able to provide multi-asset trading to Indonesian clients across a huge array of markets and asset classes.”
“Saxo Bank Group has Sinar Mas Group as a strategic investor, and will work with them and their financial arms to access a very broad range of Indonesian clients. We see this sort of partnership as providing the best in breed technology with local knowledge and relationships to ensure we grow critical mass across Indonesia” continued Mr. Reynolds.
“Indonesian clients need to be sure they are dealing with licensed legal entities across all the different asset classes for their own protection. Saxo Bank is a licensed European Bank, and Sinar Mas Group is licensed in Indonesia, so together we provide a strong regulatory framework for clients to access both domestic and international markets” Mr Reynolds concluded.
Nicolette Yuen at Blackwell Global in Singapore is an expert in conducting business in the South East Asian region. Today, she explained to FinanceFeeds “Localisation is key in setting up in South East Asian nations. There is no one-size-fits-all solution, even with your general working model with regards to marketing and educational activities.”
Ms. Yuen concluded “It is important to have someone who has full knowledge of how to communicate with the people on the ground. This applies in the same way for China. Even with the country’s heavy investment in digital infrastructure, the Chinese quick adoption of web technology, and its fast-growing urban middle class, localisation still plays a huge part in the success of brokers there.”
Education performs a major part of the FX brokerage landscape in Indonesia. There are firms such as Belajar Forex, which appears and positions itself as brokerage, but is actually an educational resource which professes to teach investors how to trade the FX markets. In essence, this is a form of affiliate site which attracts novice traders with online courses, and then directs them to an ‘Open a Real FX Account’ section at which point they open an account with affiliated brokerages.
Opinions vary with regard to FX educational resources in the West, with polarization between university-backed online trading courses that are quite clearly bona fide, and the nefarious attempts to relieve novice traders of their cash by those selling a dream, and some miraculous and very expensive trading software whilst referring delegates to market makers which subsequently split the losses when the inevitable zero appears on the MetaTrader 4 front end, however in Indonesia, holding seminars and addressing groups of traders is commonplace, and an accepted method of onboarding clients.
FinanceFeeds consulted Ben Cohen, COO at Traders Education for greater clarification on this. He explained “The Indonesian market is a fairly new territory for many new and established brokers who decided to approach this young yet eager to learn population. Most firms open call centers in India or Manila (Philippines), yet the strong brokers in Indonesia put their efforts in local entities, mostly educational schools, classes or even trading rooms. In regions which are relatively new in terms of trading the behavior is being learned by others, usually in closed venues based on educational experience.”
B-book market making with no price feed alive and well in Indonesia
Today, FinanceFeeds spoke to a senior executive at an integration technology firm with regard to the structure of most of the domestic market companies operating in Indonesia.
Most certainly for those wishing to gain transparency on the type of order flow that takes place among certain brokers in specific regions, MT4 bridge integration and liquidity management companies are certainly experts in accruing such data.
It was explained to FinanceFeeds by this particular expert who is very familiar with the order flow mechanisms of South East Asia “I used to live in Jakarta some years ago, and from what I understand there is a market which consists mostly of b-book companies that do not connect to a liquidity stream or price feed.”
“Many companies are looking to operate a very cheap white label solution and act as the counterparty and market maker, therefore we do not have many commercial customers from Indonesia as they don’t really appreciate the costs of running a pure STP model and having the infrastructure to back that up and run it”
When asked whether white label partners in Indonesia simply pay the $5,000 for a MetaTrader 4 white label license and then do not connect it to a liquidity provider at all, the reply was “Yes, but some technology providers that offer white label partnerships also include price feeds and liquidity so sometimes they take a hit in costs to make up for it in volume.”
Major international FX industry figures focusing on Indonesia
The Indonesian market is also attracting some very highly qualified talent. Co-founded in Copenhagen, Denmark in 2013 by Mikael Breinholst, former Global Product Manager at Saxo Bank, Tradeworks now has established physical presence in the Asia Pacific region with an office in Singapore, therefore is well positioned to head into burgeoning Far Eastern markets.
The company also raised $500,000 from two strategic investos in Singapore, alongside Danish fund Innovationsfonden in April this year.
By partnering with Indonesian FX company Monex Investindo Futures, the increasing sophistication of traders in Indonesia will be catered for.
Speaking recently to FinanceFeeds, Mr. Breinholst explained “With Indonesia being among one of the biggest retail FX markets in the world, we are very pleased to be working with the biggest, and most successful broker in this market.”
“We have been active in the market for about 8 months now getting to know the market better and better. Tradeworks has an office in Singapore but despite Jakata being ‘just around the corner’ we soon learned that we needed to work with a local agent to help us navigate the Indonesian business culture. The agent we found is now our country manager” said Mr. Breinholst.
“Indonesia is a very unique market. Although the middle class in Indonesia counts as many as 90 million people there are still a large number of newbies in the market and the sales tactics at some brokers are unfortunately questionable at best” – Mikael Breinholst, CEO, Tradeworks
“We have been very careful in selecting Monex Investindo Futures as our local partner as they generally cater for the slightly more experienced traders. We are very pleased with their dedication and attention to detail” he explained.
Indeed this is a developing region and has a vast and youthful population, willing to make money, however it certainly has to be approached with trepidation and as much local knowledge as possible.#forex, #FX Brokers, #indonesia