“Q3 2012 was a quarter that most FX brokers would like to forget…” wrote Forex Magnates in their quarterly market report, repeating the sentiment from the Q1 and Q2 2012 versions of the industry status. Growing number of brokers, battling to survive in what finally starts to feel like a bubble. Over-saturation of the European and over-regulation of the US trading environments has made brokers search for creative solutions. Most have turned to new technologies and increased product basket to appeal to new market segments, some have streamlined operations as in the recent closure of IG Market’s Portugal office, yet others are expanding as is the case with the new Swissquote Malta office to become more accessible to the global trader. One thing is certain – succeeding as a broker in 2013 and beyond will require creativity, bravery and a pioneering spirit as geographic diversification is rapidly becoming a critical success factor.
What Are The Options?
Latin America, Asia and Africa seem to be the sources of growth for brokers in the medium term, each representing great potential but not without challenges.
Saxo Bank was the first broker to announce last month its entry into the South American market by acquiring long-standing white label NVN Securities, Uruguay. Regulatory peculiarities are the stumbling block for brokers in Latin America, and FXCM is the only other global player there but through an affiliate office (FXCM Chile), rather than an actual branch.
South-East Asia has also become an attractive destination for brokers with countries like Malaysia, Singapore, China and India all experiencing significant growth in terms of participating brokers. While Singapore, with its liberal taxation and regulatory regime, is aiming to compete with Australia and Hong Kong for financial dominance in the area, its small population of just 2 million has made brokers think twice before actively investing the island. China and India, on the other hand, offer massive growth opportunities, with language and infrastructure being the key hurdles for newcomers.
The Case for Africa
Africa is the next underdeveloped territory, geographically speaking, and has caught the attention of the “big guys” with Saxo Bank, IG Markets and Markets.com all setting offices in South Africa in 2012.
With rich natural resources, physical proximity to Europe and growing middle-class population Africa’s opportunities could be seen as the low-hanging fruit, yet political turmoil and poor infrastructure present major access challenges. South Africa has long been the entry point to the continent at large with multinational corporations across all industries using the South-North approach to seize the green pastures of the land of black and gold.
This is not surprising as South Africa is the largest economy on the continent and according to a 2010 survey found to have the most sophisticated financial market and the second-lowest effective business tax rate out of 14 developing countries surveyed. Even the recent labour disputes in the mining industry making international headlines and causing billions of dollars in lost production are seen as a short-term blip to South Africa’s growing standing in the global economy.
The JSE All Share and Top-40 Indices reached yet another all-time high last week (1 November) at 37,377.32 and 33,239.18 respectively.
The FX industry has been surprisingly slow to identify this opportunity but this is soon to change with the first major FX expo in Africa – South Africa Forex Expo 2012 – only four weeks away. Top international brokers including FXCM, ETX Capital, Hantec Markets and GKFX are taking part in the milestone event, whose organizers – Cape Town-based events management agency The Event Studio – announced the addition of Swiss MIG Bank as Diamond Sponsor last week.
“We are very excited to have an industry leader like MIG Bank on board and look forward to welcoming all the top international brokers to this first-for-Africa event”, says Jeni Kostova, Expo Director. “Africa is a robust, thriving market which has withstood the recession and alternative instruments like CFD’s and futures have long enjoyed popularity with local investors. FX, options and spread betting are showing tremendous growth at this point and we are confident that the expo will deliver unmatched ROI for exhibitors looking for growth in the near future.”
Exhibitors are equally enthusiastic. “FXCM is excited to be a part of the South Africa Forex Expo as we are always looking for new ways to venture into new regions where we may not be known and form new partnerships with local businesses”, says Brendan Callan, President of FXCM European Operations. Moshin Jameel, CEO of Tradenext shares the sentiment: “With only 6% of the population in South Africa currently investing in the stock market and disposable incomes on the increase with a greater affluent middle class, there could be a sharp rise in investments in equities in South Africa over the next few years”.
Introducing brokers and fund managers from across Sub-Saharan Africa have registered to attend the two-day event pleased to finally have a platform to engage with the market leaders of the industry. While face-to-face interaction is “the African way” for doing business and setting up partnerships, IB’s and white label entrepreneurs holding African passports find European-held events inaccessible and overseas brokers reluctant to travel to Nigeria, Ghana or Angola.
South Africa Forex Expo 2012 will be their first and most highly anticipated opportunity to meet with leading technology providers like Leverate, Integral, xFSOL, Markets Pulse and Spot Option.
Retail traders from all walks of life have been pre-registering for the event in numbers and Jeni expects more than 5,000 visitors to the exhibition hall. Broker comparison is the most often quoted reason for attendance by pre-registered visitors both traders themselves and active introducing brokers. “I work with 7 international brokers”, says Hilgard Human – a Durban-based IB, “and this event will certainly separate the boys from the men. It will give us a clear indication of which brokers are serious about working with us and where we should focus our energies going forward”.
Featuring an interactive Forex Lounge, agenda jam-packed with presentations by top international analysts and an industry-first African Forex Magazine the event caters for the entire spectrum of clients from novice traders to investment mangers and brokerage entrepreneurs. South Africa Forex Expo 2012 takes place at the prestigious Cape Town International Convention Centre on 7 and 8 December 2012, just as South African investors receive their annual Christmas bonuses to close a hard year on a high note.