Since becoming independent in 1957, Malaysia’s economic growth has been one of the best in Asia. From 1957 to 2005, real GDP grew annually by 6.5%. Since then, the country has continued to see impressive growth rates between 5-7%. The economic growth has led to a solid capital markets structure with local exchanges trading equities and derivatives. As the largest producer and exporter of Palm Oil in the world, Malaysian exchanges have partnered with commodity exchanges around the world to create and trade futures of local agricultural products.
Due to the penetration of equity and futures trading within the local market, the forex industry has also seen success in Malaysia. Forex trading was initially introduced to Malaysia in early 2000 with the advent of online trading terminals. Malaysians that were familiar with global products from the US and UK markets began to start trading forex with brokers such as FXCM, GNI, and Deal for Free. By 2005, brokers caught eye to the growth in the Malaysian market and began to market directly to the local market. Traders were attracted to the mini-lot sizes and vast moves in currencies. Brokers were attracted to $5000 minimum account sizes traders were willing to deposit to get started. This led to the arrival of many foreign brokers that were eager to do business in the country.
Among this wave of entrants, Russian and Eastern European brokers were well represented. They included FXOpen, Exness, and InstaForex. As can be imagined, there was also an increase of un-regulated brokers that were eventually exposed as scams that had targeted Malaysian traders. The most popular brokers though were from the UK and included ODL and Alpari UK. However, due to the lengthy account opening process caused by UK regulations, trading with UK brokers was primarily done by serious traders.
Along with foreign brokers that market to Malaysia, Forex Magnates estimates that there are currently around 150 IB’s doing business in the local market, a total of around 120,000 retail clients. Total volumes are estimated at $500-750 million/day. The low volumes in relation to the quantities of traders are due to the low typical account sizes.
Opportunities
Currently, there are plenty of marketing channels for forex brokers in Malaysia. The most popular are through trading forums where many new traders are seeing the potentials of becoming IB’s and are setting up websites to educate new traders. Aside from the traditional online marketing methods, social media has become an increasingly popular advertising tool for brokers. The country has 12 million Facebook uses which accounts for 70% of internet users. Also, smart phones are beginning to dominate the market with a current 45% market share. As such, there is a growing opportunity for forex brokers that are marketing social based and copy trader products.
Regulation
Due to the increase of scams and complaints to the government, the Malaysian central bank, Bank Negara has raided and arrested individuals accused of fraud. The central bank has also posted warnings about forex trading on its website and on January 2010 took steps to prevent traders from sending money outside of Malaysia. Since 2010, foreign brokers have decreased or removed altogether their physical local presence in Malaysia. Nonetheless, since Malaysia hasn’t acted as of yet to regulate the forex trading, the local market continues to grow. If and when they do act to regulate, the local forex scene is expected to change quickly. Depending on what laws are passed, IBs and affiliates may find conducting business harder. Or, higher growth could occur, as a regulated forex product could lead to increased comfort among traders with the asset class.
This article is an adoption of our much larger report on Malaysia in our Q2 Forex Market Report.
