The retail forex & CFD trading industry has grown exponentially over the past decade. The industry is expanding quickly in the emerging markets such as South-East Asia and Africa where there is a growing demand for investment products in global markets, forex and commodities.
Many international CFD brokers mainly from Europe & Australia have started to offer their services in these regions.
The three most promising and untapped countries in the SE Asian region are Malaysia, Vietnam and Thailand.
Most established forex & CFD brokerages, brands from overseas like Exness, Pepperstone, IC Markets, FBS etc. are trying to attract new clients from these countries using online advertising, social media marketing and my recruiting & building local IB network.
Region’s Impressive Trading Growth and Growing Concerns of Investor Safety
Singapore is the largest existing market in the region in terms of daily trading volume. While Indonesia, Malaysia, Thailand & Vietnam are emerging markets with an estimated of around 3 million CFD & forex traders.
However, it has not been a smooth ride for brokers intending to find a foothold in the SE Asian market. As most international CFD brokers have been reluctant to get regulated in majority of the SE Asian countries where they operate, partly due to lack of friendly, unclear & often complex regulations in some of the countries that doesn’t include all the instruments that these brokers offer.
Also, due to reason that many of these brokers prefer to operate offshore without legal obligation in these countries which reduce their operational costs.
In the aftermath of the spread of the coronavirus and resultant lockdowns, many new traders have started investing in forex and CFDs instruments. Many established brokers, such as Exness, reported that average volume from the region doubled when compared to 2019.
But this growth has raised many concerns of investor safety as many traders have lost their money with unregulated and offshore brokers abroad due to unsafe trading conditions and lack of regulatory oversight.
Even some of the most popular forex brokers that are regulated with ASIC, CySEC & FCA are still operating in SE Asian Market without obtaining local licenses and are offering unsafe leverage to their clients through offshore subsidiaries.
All of this causes a lack of trust among traders for this growing industry and many traders are reluctant to start trading through CFD brokers.
There is lack of awareness among traders about local regulation & licensed entities as often misinformation is spread about the legal status of the industry and brokers.
According to Trade Forex Malaysia, “This has raised alarms with the regulators in the region and they have issued alerts & warnings time & again last year. SC of Malaysia even added many leading brokers in their investor alert for non-compliance & operating without authorization.”
Below, we look into the state of retail forex, CFD trading & the regulations in Singapore, Malaysia, Indonesia, Thailand, Philippines, and Vietnam.
Singapore is the largest forex trading hub in SE Asia with most organised financial sector with mature regulatory framework. Singapore is also the third largest FX market globally after London and New York City.
The growth in the Singapore market has primarily been concurrent with the growth in Asian currencies such as CNY, JPY, and KRW. Foreign exchange swaps were the largest product class, accounting for around half of all trades.
All five of the largest global banks have their regional FX trading and sales teams based out of Singapore. The Monetary Authority of Singapore, which is the financial regulator of Singapore, has stepped up its efforts to maintain Singapore’s position as the go-to financial hub in the region.
MAS is working on strengthening the hedging and trading activities in the country. For this purpose, MAS has been involved in bolstering Singapore’s e-trading infrastructure.
Better infrastructure will improve price discovery for traders and help trade execution.
Traders will also be able to take advantage of better liquidity in the forex and OTC derivatives markets.
Recently, the MAS has widened the scope of the Securities and Futures Act to include OTC derivatives. Hence, financial institutions that are looking to provide such services will need to apply for a Capital Markets Services (CMS) license.
Currently, 91 brokers for OTC derivatives have already been licensed by the CMS in addition to 36 for spot forex contracts. More than 30 forex futures and options contracts are available for trading in Singapore-based exchanges.
MAS is working closely with industry partners to build a pipeline of professionals for the finance industry.
In Malaysia, CFD brokers are licensed to operate by the SCM Malaysia under section 377 of the Capital Markets and Services Act, 2007. A set of guidelines has been released by the government to regulate over-the-counter CFDs in Malaysia.
Currently, there are two brokers that are licensed by the SCM to operate in Malaysia. These are CGS-CIMB Futures Sdn. Bhd. and Phillip Futures Sdn. Bhd.
For retail forex trading, the regulatory framework of Malaysia is relatively uncertain compared to other countries in the SE Asian region. Even though trading physical currency through a licensed institution is definitely legal in Malaysia, it is unclear whether the same applies to online forex trading which is entirely virtual.
Electronic trading platforms are licensed by the BNM (Bank Negara Malaysia), but they do not cater to retail forex investors and traders.
The SCM has released a list of unauthorised forex and CFD brokers that are operating in the country without a license. Many popular foreign trading platforms & forex brokers operating in Malaysia such as XM, OctaFX, and eToro are part of this SCM’s list.
An offshore regulator in state of Labuan which is called the Labuan FSA has become one of the most prominent offshore destinations for global brokerages to obtain a license.
Labuan is legally a part of Malaysia and they offer financial regulation to international forex & CFD brokers but brokers can’t offer their services in Malaysia under this regulation.
Indonesia is considered to be the largest growth market in the SE Asian region. The forex and CFD markets are regulated by the BAPPEBTI. Currently, 66 brokers have been licensed by the regulator to operate in Indonesia.
Several foreign brokers have created local language or translated websites to cater to the people in Indonesia. The number of foreign brokers catering to this market is the highest in the world. Many have also created websites in the local .id domain.
One of the largest forex brokers in the country is Monex (MIFX). Monex has an approximate market share of 32% of the entire forex industry of Indonesia. It is the only local company that has a sizeable market share in the country.
Indonesia is one of the fastest growing economies in the world, with its GDP growing from $1 trillion to $2.8 trillion between 2013 and 2021. Apart from the growing economy, other factors that make Indonesia an attractive destination for forex brokers are demographics and location.
Russian brokers were the first to notice the opportunity and quickly moved to establish themselves in the country. Some of these brokers include InstaForex, FXOpen, Exness, and FBS.
These brokers opened local offices in Bahasa and operated using IB hierarchies.
The primary challenge faced by foreign brokers trying to establish themselves in the country is a way to make depositing funds cheaper. While Monex can use local banking systems, foreign brokers only have access to more expensive international payment systems.
Currently, only forex brokers that are locally licensed can have a local office in Indonesia, making it even tougher for foreign brokers to build trust in the market.
Thailand is another exciting destination for international forex brokers. The government of Thailand, through the Bank of Thailand (BOT) and the Securities and Exchange Commission (SEC), provide a solid framework for trading forex and CFD instruments.
A few decades ago, only large institutional players from Thailand were allowed to take part in the currency market. But now, this has trickled down to retail investors and traders.
Retail investors are allowed to invest in foreign securities. They do not need to go through a local intermediary in case their trading or investment volume is less than USD 5 million per calendar year.
There are also several types of local intermediaries that are available for Thai investors and traders. These institutions include securities companies, local banks, private funds, and derivatives brokerages.
Such investment or trading activities are conducted in line with the guidelines issued by the Securities and Exchange Commission along with the Bank of Thailand.
Brokers operating in the country are legally required to have a license from the SEC. Many popular international forex brokers such as XM, Exness, and FBS have been blacklisted due to failing to comply with this requirement. However, these trading platforms remain popular with Thai traders.
The Bank of Thailand, in 2019, announced further relaxing of the regulations governing the retail trading and investment market of Thailand.
As per these rules, institutional investors like mutual funds, securities companies, insurance companies listed on Stock Exchange of Thailand and brokers in Thailand Futures Exchange are allowed to invest in foreign securities without limit.
And retail investors in Thailand can send money offshore to invest in foreign securities through local intermediaries as per SEC guidelines. This new regulation may be a gamechanger for the future of the trading industry in Thailand.
Philippines is a growing hub of forex and CFD traders. Currently, there are no laws or regulations in Philippines governing the foreign exchange and derivatives market.
This has led to the proliferation of fraudulent brokers and agents in the country. In response to the outbreak, the Securities and Exchange Commission (SEC) had released a public service announcement in 2018 advising retail investors and traders to stop participating in the foreign Exchange Trading and to stop investing in foreign-registered investment platforms dealing in CFDs, Commodities, Indices or securities market. Public is encouraged to report any such company or platform dealing illegally.
However, there is no law preventing an individual or retail trader from registering with a foreign or international broker and trading forex and CFDs. Leaving traders going against SEC’s advice at own discretion & risk if they are investing with these platforms abroad.
These traders should be careful and only deposit money with brokers who are considered safe and regulated with top-tier regulators like FCA or ASIC.
Trading in the foreign forex market is legal in Vietnam only through credit institutions licensed by the State Bank of Vietnam. These institutions are the only ones who can legally offer forex trading and derivatives trading services in the international and domestic markets.
Representatives of the State Bank of Vietnam have warned retail traders and investors against using foreign trading platforms. This warning has come after several cases of fraudulent activities.
The State Bank of Vietnam has stated that it will not provide any legal protection to traders who are the victim of such fraudulent behaviour.
In fact, those participating in such activities may even be fined by the government.
But still it was found that more than 10 European CySEC regulated brokers have created Vietnamese language websites & are operating unregulated in Vietnam.
International Brokers Should Pursue Local Regulation
Most international forex trading platforms are conducting their activities without any local regulation in the SE Asian region.
Even though these platforms may be regulated by the top regulators in the world such as the FCA (of the UK) and the ASIC (of Australia), the fact remains that they are unregulated in several countries in which they are operating.
These trading platforms are also specifically targeting customers from countries in which they are unlicensed by providing their services in the local language and targeted online marketing efforts & IB networks.
To build trust with local trading communities in the SE Asian regions, a better strategy for these brokers may be to pursue licensing from local regulators.
Such regulation may open a pathway to corner high market shares in the respective countries and will also build investor trust in this industry and