South America could be considered an anomaly to some extent. It is not a remote continent, shares congruent time zones with most of North America and trade links to most parts of the continent are good. Despite this, it is apparent that most forex companies and the technology firms which support them often eschew the region in favor of the Far East, Europe and the United States.
While South America remains unchartered territory to a number of companies, Cypriot forex broker Liquid Markets considers it an important target market and on that basis is planning its entry strategy.
Active Antithesis to the Stagnant Norm in Southern Europe
Liquid Markets’ journey into Latin markets began late last year, when the company began experiencing a rise in the number of client acquisitions from Portugal. This is unusual in itself given Southern Europe’s financial situation, however such was the demand that Liquid Markets established an office in Portugal’s capital city of Porto, headed up by ex-fund manager Goncalo Albuquerque.
Corporate strategy surrounding entry to South America is currently being discussed within the management team however CEO Nick Bang believes that the potential in South America is substantial due to the region being unchartered territory to most brokers. The company has plans to expand there and cites its experience in Portugal as a cornerstone in doing so. This could lead to an office being set up in Spain which would be a springboard to South America.
Mr Bang explained to Forex Magnates that “We have not yet expanded into South America. Liquid Markets has opened an office in Portugal for now and we are active in that market where we have some long standing important relationships but clearly from a strategic standpoint we’re looking to expand into South American markets in the near future and of course an office in a country such as Portugal and possibly Spain would be used a staging ground for a South American expansion.”
Better To Be The Leader Rather Than To Follow The Leader
Companies compete in the same territories and avoid others for a reason: demand. Therefore investing resources in establishing an office in a region which is not part of other companies’ plans is brave but comes with a risk that it may be a white elephant with punitive operating and logistical costs and insufficient gain. Mr Bang is of the view that this relative lack of competition, along with South America’s governments’ under-developed regulatory structure gives Liquid Markets a head start in the region as he believes that it is only a matter of time before FX becomes very popular in the region and if Liquid Markets is first on the scene, the move will bear fruit.
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This year, only Saxo Bank has concentrated any effort on South American operations, having opened an office in Uruguay’s Zonamerica which is a free zone in Montevideo, home to many financial institutions due to its favorable tax treatment. The office was opened in February and is headed up by Saxo Capital Markets’ CEO Luis Simoes Pereira. Saxo Capital Markets is an entirely new entity which was formed following Saxo Bank’s purchase of Uruguayan broker NVN Securities. It is still early stages for this venture, therefore its success to date is uncertain. It is also unknown at this early stage as to whether Liquid Markets will establish its own office, or enter into a merger/acqusition with a local broker a la Saxo Bank.
“The rationale is simple” concurs Mr Bang. “Over the last 15 years we have seen very strong growth in FX markets and associated volumes but most of that growth has come from Europe and the US, basically western markets. Over the last few years Asian markets have also seen strong growth and this is set to continue but clearly South America is as of yet a largely untapped market and it’s quite obvious that sooner or later margin FX trading will start being popularized in the region.
“Liquid Markets wants to be one of the first to be heavily involved in that market. We feel we have the experience and knowhow and most importantly we have the right contacts to be capable of building inroads into that market.”
Regulatory Challenges Less Important than Potential Regional Growth
On the subject of addressing the regulatory challenges in South America, working alongside government departments is not for the feint-hearted at the best of times, however financial restrictions have been imposed and lifted over the years as a large proportion of South America’s countries are not free market economies or true democracies. As an example, there is a restriction on the movement of local currency between Argentina and Uruguay. Therefore, it could be considered as somewhat infra dignitatem to go down this route, but on the other hand Liquid Markets views the potential struggle with the authorities as a small price to pay to gain presence in an emerging market rather than operate in a western regulatory comfort zone which is becoming a shrinking market.
When asked about the viability of operating under such conditions, Mr Bang stated “Now you are very right when you say that there are important regulatory challenges in the region, but frankly speaking in today’s financial world there are regulatory challenges everywhere, particularly in Western Europe, so if one is to compare apples to apples so to speak, we think it makes sense to target a portion of one’s strategic efforts towards a market which is experiencing strong economic growth as opposed to one which is not.”
Timescale and Operational Considerations
The company does not have a concrete date in mind for opening in South America, however this project is in its developmental stages. Mr Bang concludes “We are thus still in the planning stage as concerns South America and we’re progressively refining our understanding of the local legal / regulatory and technical considerations but it is our aim to be the first to develop a strong regional client segment down there.”
Altogether a bold and interesting move. Southern Europe is in financial dire straits, has low technology and damaged credibility due to a succession of failed governments and bailouts, yet Liquid Markets has acquired enough business to warrant an office in Portugal. South America is largely undemocratic, technologically sparse and FX is largely unknown, however its economies are on the up. Pioneering initiative is commendable indeed.