Continuing our coverage of the emerging retail forex markets below is the 2nd part of our Australia retail forex market coverage. This time we interview Chris Reynolds the COO of Go Markets – one of Australia’s larges retail forex brokers.
More information about the Australian market, as well as several others, can be found in the Q2 2011 report.
Q. What is the current state of retail Forex trading in Australia?
Forex trading in Australia could definitely still be described as being a growth industry. Perhaps it was a little late in coming to the party, Australia is now full of people interested in trading FX. Up until around 2.5 years ago if people wanted to trade Forex they usually had to use a CFD provider, or open an account overseas. When GO Markets became the first serious broker to bring MetaTrader 4 to Australian retail clients in 2008, we saw a huge upturn in the growth of our business. Since then there have been numerous brokers open branches in Australia including IBFX and new, small brokers startup to try and capitalize on the growth. We have seen a large number of people moving their trading back to Australia as they now see Australian brokers as a viable alternative. Similarly, with the growth of Australian brokers, many international clients are now keen to open accounts here. The regulation is strict, which is a plus for many and with the new restrictions in the US and other countries global traders are keen to move accounts to Australian brokers to benefit from less restrictions on their trading whilst also getting serious protection from the regulator.
Q. Do you foresee the tightening of local regulations anytime soon in the retail Forex industry in Australia?
There are two potential sides to this being the tightening of regulations affecting brokers and the also the possible implications for traders. As Forex is still relatively new, it has perhaps sailed under the radar a little and only in the last year has it started to be more widely known. The severe tightening of regulations in the US may not be the kind of thing we see over here, at least in the short term, but I would expect to see some new rules to further regulate brokers. I would expect to see the capital adequacy requirements tightened, making it much harder for very small brokers to setup and operate. This is possible because the regulator here is keen to ensure that client funds are safe, especially in lieu of a problem highlighted by a couple of stockbrokers a few years back. I would expect that you will see the number of brokers decrease as new startup brokers struggle to have the necessary amount of capital, whilst the bigger brokers will be able to grow further. As for regulations that are impacting the trader such as those seen in the US and Japan including the capping of leverage and the introduction of the FIFO rules, it remains to be seen whether the regulators are concerned by these. The media is more concerned with the risk levels, and it is important for brokers to ensure we are giving the right amount of education and understanding to clients so they do not choose leverage unsuitable for them.
Q. Do you foresee Australia reaching the level of clients and deposits as the US and China?
The obvious answer is no because of the relative size of the population involved. Australia only has a population of around 21 million, so there are obviously going to be less potential clients out there. However, most Australian brokers are not restricted to Australian clients. At GO Markets only around 45% or our new clients each month are from Australia, meaning that the popularity of Australian brokers truly is growing globally. The level of clients trading Forex will continue to grow for a while here, but it is likely that it will remain lower than it previously was in the US. However, with the change in regulations in the US, and the relative openness in Australia, I expect that the Australian market is seriously closing the gap.
Q. What do you attribute the recent boom of financial trading in Australia to?
One thing that has set Australia apart from much of the world in the last couple of years is the relative strength of the economy. Whilst most of the developed world has been feeling the pinch of the global financial crisis, Australia has remained strong. However, it has not been immune, and two factors have likely made a big impact on the growth in trading by individuals, the first being the fall on the stock market. With the markets in an almost constant downtrend, and superannuation funds taking a beating many people would rather not trust their stockbroker to handle their future. Many people believe that they cannot do any worse, so have taken their money back and handle it themselves. This obviously leads to a big increase in online trading as people simply open account with online brokers rather than going to a traditional stock broker. Another big factor in Australia has been the strength of the local currency. Whilst some would argue whether that has been good or bad for the country it has certainly brought people’s attention to Forex. The Australian dollar moving above parity against the USD was big news and means that it is regularly mentioned on the news and in the media. The more coverage it gets, obviously the more interest people may have.
Q. Why should local Australians and international traders alike, trade with your firm?
GO Markets offer a pretty simple package to Forex traders. Many brokers offer numerous account types, with different spreads and leverages for each account. They may offer a range of different platforms making it tough to know which one to use. Rather than make things complicated, we have only one platform: MT4, with MT5 coming soon and all accounts have the same spreads and leverages on offer. GO Markets are a 100% STP provider meaning that there are no requotes, immediate execution and of course no manipulation on trading. We believe in offering no gimmicks to our clients and just giving them the tools they need to succeed and the things they really want. As a company just celebrating its fifth birthday we are a proven entity unlike some of the new players in the industry. We have offices in Australia as well as in the Netherlands meaning that our clients can get round the clock support in numerous languages and we will be further expanding later this year by opening up another office, in London subject to regulatory approval. By forming a global presence it means our clients will have experts on hand able to offer support and assistance whatever the time of day.
Q. Where does FX go from here both in Australia and Globally?
A lot could depend on if and when other international regulators choose to tighten things up. If all the major global regulators follow the CFTC there could be some huge changes in the industry. Whilst many people would be happy to carry on trading with reduced leverage etc., there may be many traders who would prefer to use an unregulated broker to get higher leverage or other benefits. This can of course have serious risks. If the FSA in the UK chose to tighten the rules but ASIC remained unchanged then we could see a further influx of Forex traders and even brokers to Australia. It is likely that with the growing popularity, regulators may sit up and take more notice of the industry and look to gain further insight with the assistance of larger brokers such as GO Markets, but until such a thing happens we could continue to see more and more start up brokers looking to capitalize on the growth without having the necessary capital and infrastructure to offer a safe and secure environment to traders.