It’s been a couple of days since the close of the 6th edition of the iFX Expo in Hong Kong. The regional importance of Asia for the forex and CFDs industry has been growing for years. Arguably, one of the keys to the long-term success of the sector is hidden somewhere here, in the Far East.
But whether we choose to recognize it or not, the essential part of the long-term sustainability of the industry is market conduct. And after the regulatory clampdown in the US and the EU, we all know that Asia is next unless we do something about it.
Some might disagree with the statement above, and some might think that only fools hope for changes in the conduct of an established industry. If history is any guide, we are in the process of shifting to a new paradigm and, for the time being (the first month of 2018), that new paradigm is still not crypto.
Since its establishment, more or less at the beginning of the 2000’s, the retail forex and CFDs industry has thrived on the reliability of the asset class that is foreign exchange. Traders have been abundant, as interest in trading has been tied to a rising volatility trend for the most of the first two decades of the 21st century.
Although some years have proven to be a challenge when we speak about volatility, the long-term growth trend of the retail forex and CFDs trading industry is still on track. With the patterns of market moves shifting materially over the past couple of years, some brokers have been challenged to stay in business.
Amid a slowly rising trend of black swans, the impact of those was ultimately the reason for the demise of the industry in the US and Europe.
Black Swans and the Regulatory Backlash
The Great Financial Crisis (GFC) of 2008 wrought havoc across the retail trading markets. Particularly in the US, customer losses have forced the outright ban of CFDs and a massive constriction in the retail trading space. Ten years later, we have a tightly-regulated market that is appealing mostly to companies which have huge balance sheets and are in the majority of cases only publicly listed.
If we are to agree that the GFC and the resulting Dodd-Frank were the key reasons for the transformation of the retail forex industry into an oligopoly in the US, the Swiss National Bank crisis of 2015 did that for the EU.
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Merely months after some brokers went after negative balances, the European authorities have started intensifying their efforts to protect retail investors. Granted, those were exacerbated by some firms that proactively abused their EU-regulatory licenses and took advantage of ill-prepared regulators.
Circling back to Asia and the iFX Expo 2018, industry representatives shared their much-valued insight on the region. From fraudulent IBs to the steps which brokers in the Far East take to protect their interests, we will be sharing more in-depth knowledge of the Asian market in the coming weeks.
The overwhelming consensus amongst experienced industry executives is that the industry should care about best practices and technology providers, LPs and brokers should work together to educate the market.
Just like preventive healthcare is the cheapest and most efficient way to keep a population healthy, brokers and their IB partners operating in the region are the ones in charge of the long-term prospects for the retail forex and CFDs industry in Asia.
With wide-ranging online financial fraud in China leading to the ban of cryptocurrencies, the strategy which brokers operating locally should adopt is that of educating clients on time and making sure that they are fully aware of the risks they are taking when trading.
While I am not sure how realistic all of this sounds in practice, as an industry, we can take a cue from the overzealous approach of ESMA in Europe. While the time window for public comments is closing and brokers and their clients have about a week to submit their opinions to the European regulators, Asia is booming and the industry can take a pro-active approach.
We hope that you will stay tuned to Finance Magnates for the most interesting stories that we picked up at the expo and our extended coverage of the Far East market.
Quality: A Key Factor
An overwhelmingly positive opinion consensus about the event is that the quality of visitors has increased materially. As the market is becoming more educated, the number of individuals and companies that are becoming more interested in appropriate conduct is increasing.
Exhibitors shared with us that they had more productive discussions than in previous years. The industry is at a key crossroad in Asia – self-regulate, adapt and adhere to a set of rules and look after clients to make a sustainable business, or face tough regulatory scrutiny.