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One of the key questions Forex broker CEOs are always asking themselves is: Where to Next? Yael Warman from Leverate takes a look at a few of the areas where Forex brokers are looking to increase their footprint.
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Geo-Expansion – A World of Possibilities
For FX firms in the Western hemisphere, the marketplace is becoming a crowded area. With so many new companies entering the forex world, new business possibilities are becoming harder to find. In addition, FX firms are facing increasingly steeper acquisition costs, and are looking for ways to increase revenue other than setting up a franchising system.
In this article, we want to provide you with three possible areas of the world which you may find to be of interest when considering your future expansion plans. This is by no means an exhaustive list, but rather three of the more intriguing geographical possibilities.
The Asian-Pacific market is without doubt the first area worth your consideration when it comes to expanding your business. The market leader in terms of growth is most certainly China, but other countries such as South Korea, Indonesia, Singapore and Japan provide interesting possibilities.
In the case of China in particular, the unparalleled economic growth that the country has recently enjoyed has created a vast subset of people looking for new and exciting investment opportunities. The entry requirements for FX traders are relatively low, and with extensive internet usage, there is no issue in reaching a large amount of potential customers in an easy way.
The major challenge to breaking into the Asian markets is undoubtedly the fact that the Asian culture is very different to a Western one, thereby providing a challenge to businesses who attempt to simply port their practices from one continent to another. IN the case of China, the challenges are also technical, given the blocking of Google in the country by the Great Firewall of China, which causes issues in websites, apps distribution, push notifications and more. In order to make it in the Asian markets, it is crucial to employ local experts who can provide localized advice in ensuring a seamless transition.
The Middle East is a relatively recent convert to the idea that the forex market provides significant returns for investors, taking time to abandon a historical reliance on real estate and equities. Having said that, this particular sector is now thriving due to a low yield environment and an insatiable investor appetite.
Comments made by Tod Van Name, global head of FX and commodities electronic trading at Bloomberg, support the idea that this market is growing rapidly. He says, “The number of users of FXGO, our electronic trading platform for FX, increased by 30 per cent in the Middle East in 2015. By comparison, our global user base increased by 16 per cent year on year to over 10,000 users.”
In addition to the above, the region also benefits from its location in between the European and Far Eastern markets, enabling traders to catch trading hours in all the major currency markets. The recent creation of the Dubai Gold and Commodities Exchange (DGCX) also aided in creating investment opportunities, and a low risk appetite is pushing investors towards forex.
The major challenge in this region is the current liquidity crunch. The volatile oil price has heavily affected the forex market, and with almost all currencies pegged to the USD, banks and other financial institutions are facing issues with conducting USD transactions. The lack of market regulation is also proving to be a major challenge.
Another emerging market in the world of forex is Russia. It’s a market that is only about 20 years old, and again has gained increased popularity as time has gone on. There are a number of local forex companies offering trading opportunities, as well as international companies.
The major advantage in Russia is due in part to an undertaking unique to the country, whereby situated in almost every city is a forex trading course/school, many of which provide free tutelage. This should come as music to the ears of companies looking for expansion opportunities, as a welcome stream of potential new customers will emerge each year.
The major issue faced in Russia is the complete lack of state regulation. This can mean that companies are often facing suspicious customers, and a new name in the marketplace can find it nigh on impossible to provide the level of trust required by a new trader. It also means that businesses face the unnecessary knock-on effects of political turmoil within Russia itself.
These three markets offer businesses enormous potential for growth, but each comes with its own unique set of challenges. A large amount of research is required, but for businesses prepared to do the necessary groundwork, the rewards are vast.