New and emerging markets are always matters of interest for retail FX firms, keen to capitalize on a new and willing client base.
Just as important as the location is the approach, an important combination in which BMFN CEO Luis Sanchez has vast experience.
At today’s FXIC Latin America conference, hosted by Shift Forex in Mexico City, LeapRate spoke to Mr. Sanchez, who was joined by BMFN partner Borden James, and the company’s VP Service and Support, Bernardo Martinez.
Mr. Sanchez has long since championed the cause of entering Latin America, and explained that when a broker wants to come to Latin America, they always think that there are many barriers of entry, ranging across many things.
“Who goes to Latin America?” asked Mr. Sanchez. His explanation conveyed an interesting perspective that he has noted among many firms. “International Brokers who want a representative office there. They currently do not see Latin America as a potential new market, because they compare it immediately with their best markets, which are often in Asia.”
“Based on this, most brokers just say no, this is not the right time. They need to understand that the culture in Latin America is completely different to the culture in any other region. Management has to be from the local zone” he continued.
Mr. Sanchez began to detail the necessary structure of a brokerage in the region. “Finding a professional to run the business locally who has global experience is very difficult, and at the same time, brokers from overseas do not trust a representiative that they do not know based here in Latin America. Brokers do not allocate many resources, and they expect results in a very short time.”
“When the broker then hires a manager or representative in Latin America, the employee starts to do the business but the broker will often not support the representative who is trying to do the business as much as they help representatives in other regions, even in developing markets. For example, if a sales representative finds an IB in Latin America and tells the broker that he needs $20,000 to conduct marketing activity in Latin America, often the broker will consider this high, whereas if a Chinese IB requests $100,000 then often this is never called into question, therefore, brokers often pay 4 times the cost for other regions than in Latin America.” said Mr. Sanchez.
Location and the demographics of the region are important considerations. Mr. Sanchez stated that “Latin America is composed of part of North America, all of Central America and all of South America, which embodies many nations, many different business environments, economies and cultures. When a broker considers Latin America, it must be a case of where in Latin America.”
“It is the same as saying “We are going into Europe.” Britain is part of Europe, but is home to the world’s largest institutional FX business in the world, whereas Italy and Portugal are also in Europe, and there is pretty much no FX presence there at all” he said.
“When a broker approaches any market in Latin America, there is one commonality that must be considered at the outset. Education. This applies to all nations in Latin America.”
“Brokers, in order to gain loyal clients, should invest in educating traders and potential investors. Business is done in Latin America with the shake of a hand and a look in the eye; this is a sign of giving commitment and the word of the customer, in return expecting a long term business with the broker. This, when considering the very low entry costs, is a solution to the high acquisition costs and churn rate in other markets.”
“When providing a comprehensive education system to traders. The broker should look carefully at the way potential clients are taught the entire structure and all of the caveats of FX trading. They need to understand where the broker is located, how secure is the regulatory environment, and if the nation is secure or insecure, thus assessing the value of the regulation. They need to understand the difference between all of the types of classifications such as futures, CFD, spot FX, commodities, and also the differences in the types of platforms.”
“The internal process of the brokerage should be explained as part of the education, insofar as where the trade goes when the broker executes it, and what is the cost of this, and that all costs vary according to which brokerage provides which additional services” stated Mr. Sanchez
“If valuable additional services are included such as webinars, courses, videos and continual consultancy and support with customers, then the client will pay more. In general clients are willing to pay more if they are receiving useful services which assist the trading process in return. Thus, a trader will happily pay 1.5 pips instead of 1 pip, to receive the tools to succeed as a better trader.”
“IBs have the same impact, and the IB must be trained by the brokerage, and provided with responsibilities toward customers.”
BMFN has created an enterprise solution which combines its Unitrader platform with an entire brokerage solution specifically for IBs, which is in use with approximately 5,000 IBs internationally, therefore this model model is understood clearly by Mr. Sanchez and BMFN’s founders.
He continued by explaining the need for investing in new and emerging markets: “Today, people see Latin America as another untapped market, as they did with other developing markets which now have established networks of IBs and representatives which funnel business to western FX brokerages. We have seen that everything can change in just one day, as with the Swiss National Bank’s decision to remove the peg on the franc, creating grave situations for many established brokers.”
“What if China closes the door on firms from overseas? Brokers need to explore other viable regions which are not saturated, whilst they have revenues from other markets, therefore mitigating the effects of an event like that, should it happen.”
Awareness and bringing the industry together is as important as ever, and on this subject Mr. Sanchez told LeapRate that “Participating in conferences which are at the inaugural wave of interest in any market is highly valuable, the FXIC today in Mexico City being no exception, and therefore there is value in conducting them more than once a year, in other Latin American countries.”
Combining BMFN’s global experience extends to the company’s expansion into the region which began five years ago, with an office headed by BMFN VP Service and Support, Bernardo Martinez.
Mr. Martinez today explained to LeapRate: “The FX business was booming three years ago, until the Mexican Banking Commission took away most of the business because of unregulated activity.”
“The companies which prosper are the ones which want to do things correctly, support the customer on a long term basis with a presence in the region, who are able to help establish a new non-bank regulatory body in Mexico to regulate FX.”
“Brokers need to extend the Latin culture of extending a hand and offering personal relationships to clients who are in their early stages as a trader.”
On these lines, Borden James, a shareholder of BMFN, decided to attend the FXIC Latin America Conference in Mexico in order to realize the true value of developing the Latin American market, which is coming to fruition.
“In conclusion, said Mr. Martinez, “Mexico is the future hub for FX. People are becoming more bourgoise and can afford to invest, and Mexico has the right environment to provide partnerships to FX firms overseas, as it is similar to the other North American nations in its approach, yet the Mexican business people fully understand South American business practices.”
“Charisma and hospitality will provide clients with sufficient support and education so that clients can begin the new FX era in Latin America.”
Photograph from left to right: Luis Sanchez, CEO, BMFN. Borden James, Partner, BMFN, Bernardo Martinez, VP Service and Support, BMFN at the FXIC Latin America conference in Mexico City