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The very nature of the retail FX industry’s global modus operandi ensures that new markets can be accessed by long-established brokerages, a feature of the business which has driven vast interest into entering rapidly emerging markets across Asia, the Middle East and Africa over recent years, with China having been the focus, often with successful results, of many firms.
With competition in the retail sector at an all time high, acquisition costs and regulatory demands ever increasing, there is a business need for all brokerages, regardless of their location, to look continually toward new regions.
Latin America is vast, varied and spans across North and South America, and remains a region which is largely untapped by the FX industry, despite its large, young population – until now.
Today, at the prestigeous Marquis Reforma in Mexico City, senior industry figures from a wide cross section of the world’s FX industry are discussing the necessary approach required to enter Latin America at the annual FXIC Latin America FX conference, hosted by Shift Forex, with the first subject of the day being a panel which focused on the advancement of FX across the region.
This morning, LeapRate attended the discussion, which was moderated by Jorge E Gonzalez of Entendiendo Forex.
The question on the minds of the delegates, many of whom had attended from the United States and Britain, centered around how brokerages and vendors could assist in the development of a fully integrated FX market in Latin America to tap into the opportunities and make it a sustainable venture.
Luis Sanchez, CEO of BMFN began by describing the overall perception from the overseas participants “Firstly, the reality is that we have several countries, which encompass many cultures. Those from the outside think that Latin America is all one market, and that all nations are the same. Take a look at Europe, for example, it has 27 markets, all of which are different. We have explained this in many panels and still Latin America continues to be viewed as one place” said Mr. Sanchez.
When asked whether the development of financial markets in the region is delayed by a long way, he said “I don’t think that Latin America is that far delayed. Certainly not as much as the perception from the outside.”
“South America is having a big moment now for talking about FX” continued Mr. Sanchez. “The main question is, where is the bottle neck right now? We have a big issue with education, and we havent made enough effort to explain what the FX market is in detail.”
“As a result, the FX business is often misunderstood in Latin America. Therefore FX is understood by many as a means of earning a monthly income. This is not the case, and therefore forming a whole education structure is important. The first thing to do is to establish in the minds of the clients is that this is an asset class and is an investment proposition” stated Mr. Sanchez.
Mario Saudino of Ikon Group, a retail FX brokerage with offices in the UK, Australia and the Far East, continued the discussion by explaining that “I believe that there is a lack of investment culture in Latin America, and there has been a continual lack of knowledge, not only about FX but in many other sectors.”
“The big issue is that we now need a full official regulator with funds kept in segregated accounts, and need to satisfy customer concerns that funds are kept with a bank rather than in a third party account. We have a problem with this at the moment, and I dont disagree with Luis, but the clients I have spoken closely to explain that often there are customer objections to opening a trading account which are along the lines of customers not wanting to invest because they know someone who lost money and believe that they have no recourse. There is no investment culture in that there is no stipulation for FX regulations or customer protection” continued Mr. Saudino.
As far as how the landscape in Latin America differs from that of the Asia Pacific, Luis Marino of IPG Securities stated that “The concept of IBs is growing rapidly in Latin America, however the model by which they operate needs to change. Last year, the authorities began to discuss the ending of relationships with unregulated IBs. This will encourage longer term IB relationships and encourage IBs to be responsible toward clients, thus engendering trust.”
Manfred Wagner of BelforFX added “There are two ways to gain clients: online and offline. On the offline side, IB business is very popular, rather similarly to in the Far East, as brokers with less presence in a specific country can rely on IBs for marketing, instead of spending on ineffective marketing campaigns.”
“If the size of a broker’s business does not warrant expansion by opening offices in other regions, the IB serves as not only the introducer, but also the imparter of knowledge. No broker wants IBs that are offering unrealisting things, there is nothing worse than having bad reputation therefore ensuring that IBs take a long term view. There is a differnece between making a fast buck, looking month to month, and a relationship based approach which appeas to the loyalty of Latin American clients” said Mr. Wagner.
Brokers need to regulate their IBs in Latin America, as this affects you and your market” enthused Mr. Saudino.
“The broker should take this seriously, because if there is no regulatory body that is strong, and it is easy to open an account for IBs, then brokers should consider it important and fundamental to control the IB’s business environment. If an IB simply takes commission and disregards clients, this will affect the brokerage, not the IB. Therefore if we are going to make the IB model significant and keep it as an essential tool for client acquisition, we need to ensure longevity, and this is the best way to do it” said Mr. Saudino.
We do not see FX as a speculatory product, our business is more a micro advisory environment in this region” said Mr, Marino.
“Currently, many investors are working with equities, therefore we are now aiming to position FX in the client profile. FX is a diversifying tool as an asset, which is a means of offering further things to a client” he continued.
Mr. Wagner picked up on this, stating that “For FX to be a viable asset class, we need to identify the potential cleints in Latin America. This is the only market where clients can start with no money. This is the only case, under our remit we must have, as Luis was saying before, there are clients who want to have management and who want to asses FX to see for themselves whether it is a viable asset class. One client may not be able to execute his own trades due to lack of experience, as a result money management is one option for those with a higher investment amount, whereas investment in education is the other for those with smaller investment amounts.”
Mr. Marino imparted his experience in a region where he has presence “We work with many money managers in Panama, however instilling trading discipline into a client is paramount for success and longevity in this entire region. Very few investment advisors are concerned about giving a good, deep profile to their clients. Many people try to introduce a client to a product, and it may be unsuitable, therefore it becomes a purely sales model. We need to have capitalized and well founded entities to avoid this, and to ensure that there is enough means to invest the time in ensuring a long term business model.”
With the demographics of local traders and their demands fully understood by these international industry professionals, the panel adjourned for networking, which resulted in IBs, liquidity providers and vendors exchanging valuable information with the four industry figures, as interest was clearly enthusiastic.
Photographs: Top right; industry professionals with extensive knowledge of the Latin American market discuss its emergence. Lower Left; Shift Forex CEO Ian McAfee introduces the 2015 FXIC LATAM Conference in Mexico City