Forex brokerages which compete in the increasingly fierce established markets are increasingly looking to expand their reach into new, exciting and emerging markets, a requirement in a business which is constantly evolving in terms of regulation, competition and the effect of local economic factors.
With the Eurozone being home to London’s institutional FX trading sector and Cyprus’ plethora of retail brokerages, all of whom have targeted regions outside Europe over recent years, with a large degree of success in acquiring large numbers of clients from the Asia Pacific region, and the Middle East.
As 2015 brings about even more changes in the FX industry as the year began and Switzerland’s national bank removed the 1.20 peg on the EURCHF pair, creating tremendous volatility and exposure to negative client balances, the need to spread further afield has gained another reason to add to the existing concerns about client acquisition costs, regulatory expense and fierce competition.
Latin America. and in particular, Mexico, has begun to garner interest among major brokerages, liquidity providers and technology firms, as demonstrated by the presence of some of the industry’s large and renowned names which were present at this year’s FXIC forex industry conference in Mexico City, where the discussion centered on how to adapt the execution model to suit today’s challenges of risk management and client engagement, as well as how to enter the largely untapped Mexican market.
One brokerage, Guardmark Capital Markets, has gone a step further than approaching Mexico from the familiar FX industry hubs in Cyprus, Australia and Britain, by actually basing its entire operations in Mexico City.
LeapRate spoke to Guardmark Capital Markets VP Jonny King at the FXIC conference in Mexico City hosted by Shift Forex in order to detail the finer points of operating in Mexico and gaining a successful business in a region which holds great hope for the industry in times ahead
What was the ethos behind your establishment of an FX brokerage in Mexico, and how do you attract a loyal client base that can sustain the business?
Mexico is one of the largest economies in the world, and Latin America in general is booming. We discovered that this is not only a good place to live, but also a great place to do business. We feel that we are extremely well placed with our presence alone, however, we believe with our culturally diverse team, including professionals from right here in Mexico City, our extensive set of products and platforms, and our extreme attention to support will allow us to build the trust and loyalty needed in our industry
Operating a retail FX firm in Latin America is a pioneering effort. How does GuardMark Capital Markets set itself apart from other brokerage firms that are now beginning to show an interest in Latin America, but are not here yet?
Becoming one of the first established brokers in Mexico, has both its advantages and challenges, but we believe that GuardMark will be recognized and appreciated by its clients for having foresight to offer a complete brokerage solution to its growing marketplace.
One thing we have focused on is making sure we have a number of products (over 10,000), platforms and liquidity (top tier banks and non-bank feeds) available for the absolute beginner, along with more advanced solutions for larger, and more experienced clients. At the end of the day, we pride ourselves for being able to service the smallest of retail customers, the big hedge funds and everyone in between. We provide the best solutions for everyone, which sets us apart.
How popular are automated trading systems in Latin America, and how can an external automated trading system be capitalized, ensuring enough margin for profit?
Trading leveraged financial products could be considered fairly new to Latin America. Offering or introducing automated trading alternatives to our clients will be incredibly attractive simply because in today’s world people are busier and these systems and strategies will not only allow the client to be more active but it will also increase our flow which is what we all want. What we believe is equally or more important than technology and liquidity is to give our clients access to extensive education about the inherent risks and rewards that exist.
Do you consider the loyalty of Mexican traders to be beneficial in that the customer lifetime value is longer than in other markets, thus the cost of client acquisition and retention is lower?
We’ve seen traders that are extremely experienced, ones that are just getting started, and several with varying different philosophies and strategies but the loyalty within the Mexican culture has always been evident. Even with a population of 130 million, Mexico has very tight-knit communities (everyone knows everyone), which we believe will be a huge benefit for client acquisition and retention. We trust that our clients will want to tell their friends, family and associates about their positive experiences with Guardmark.
What trading tools and systems are preferable in Mexico, and how does trading behavior differ from that of retail traders in other markets?
We are offering a full suite of solutions to the Mexican market. With our growing list of platforms (we currently offer 7), our back-office solutions for IB’s and white labels, our successful managed account services and several different education systems and tools we will soon be able to determine what is preferred by offering for such a wide variety of services.
Our experience with Mexican traders has shown that they are no different than any others, meaning they are all different. As time goes on, we are certainly prepared to see some cultural differences in trading behavior and our way of gauging this will be to go out and proactively talk to these traders. We will be doing this by inviting people into our offices to focus on trading education. This sort of approach will help us react to any major differences in the market here more quickly and efficiently.
How do you view the advantages or disadvantages of operating a B-book brokerage in Mexico?
The positives and negatives of B book business should not be significantly different in Mexico. B booking sometimes gets a bad name across the industry, and there are reasons for that. Essentially on a B book model, when you go long, or buy into a currency position, your broker, is taking the other side. I.e. if you buy a eur/usd Contract, the broker is selling it to you. This can create an inherent conflict of interest as when the client wins, the broker inherently loses. The pros and cons are fairly transparent: The client gets a tighter spread, and faster execution.
However, there are also limitations on B Book type accounts, maximum account sizes, trade sizes are limited, and of course, the natural conflict of interest that occurs. We currently operate on a STP model as we believe this eliminates any conflict of interest. These accounts can incur slippage, and execution may be slightly slower, but ultimately you are not trading against your provider. We hope to educate the Mexican and LATAM market to the pros and cons of each. A dealing desk model (b-book) is generally for smaller account balances and those that are very cost sensitive.
Are liquidity providers keen to attract Mexican brokerages to drive Latin American order flow to them, in order that they may bring clients via IBs from other nations in the region?
It has been our experience that liquidity providers are always keen to attract new business. Flow is what is most important in our business model so we have made our IB and White label programs very attractive for traders. We believe that there are many IB’s and traders here that would be grateful for the opportunity to start their own brokerage especially with our turn-key solution that is priced to encourage people to make the leap. As the market matures, opportunities will reveal themselves, and we are positioned to capitalize.
What is your development plan for the year ahead?
Our development plan for this year is aggressive across the board. We have been working on adding new feeds for more specific needs, we are continuously integrating new platforms to offer a broader range of front-end solution to our clients, we are expanding our business into new regulated territories and we are engaging in events and marketing strategies that will put Guardmark’s name on the map – globally. Our mission is to never stop developing so we can continue to provide the best liquidity, technology and support in the business. It may sound ambitious but we have the team to do it.