Last year, we expanded our FXIC event series to Santiago, Chile. Despite the country’s relatively young age, they have become one of the most established financial centers in the region. We see a significant opportunity for international brokers to develop the Latin American market, rather than simply targeting specific countries that have begun emerging. The retail FX market there is relatively consolidated via money managers and fund managers that are looking to get FX exposure and effectively incorporate FX into their strategies without the counterparty risk of working with local players lacking the sophisticated monetary controls commonly found in the EU, US and Australia.
Those international brokers targeting Latin America need to be aware of local banking regulations that make it difficult to get money out of the country. It’s not so much about which countries to target, but rather which countries to avoid targeting. In countries like Argentina and Venezuela, you are going to have trouble transferring funds out, whereas Chile has much more progressive financial legislation.
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The FX market in general is tiered, and this extends into the retail market. A broker’s business model will determine which types of clients they target. A high cost model built around premium support and tools will require larger account balances, so there will be client segments that simply aren’t profitable to target. The Latin American market currently tends to have 3 client segments – money managers, high net worth, and low balance/high maintenance clients. If you’re targeting the mass-market retail trader there, you need to have a model that supports low balances with significant customer support requirements. In my opinion, there are only two countries in the region with large enough retail FX markets to justify dedicated targeting from international brokers, Chile and Mexico. However, this is changing every day – if you compare today’s market to just last year, there’s been material growth.
Speaking about the growth in Southeast Asia, I am referring to Malaysia, India, China, etc. When you’re targeting that region, the traders tend to be less sophisticated – EA traders, people that are strongly attracted to promotions, etc. Promotions are very successful in these markets, so if you have the regulatory structure and business model where you can offer high leverage and aggressive promotions, SEA should be a high priority.
We see a lot of offshore brokers growing rapidly by running frequent promotions and marketing them aggressively. Local partnerships are also very important, as business still tends to happen face-to-face, sometimes with deposits being physically handed to IBs. The market fragmentation in this region leads to very different IB structures than many brokers may be used to from their business elsewhere. Working with someone that knows the region well is critical to successful expansion into SEA.