For those of you who regularly follow our Forex Industry News posts, you’ve probably noticed that recently we’ve reported on the opening of an Australia office, or the receipt of ASIC (Australian Securities and Investments Commission) regulation, by a number of the world’s leading Forex brokerage firms including Saxo Bank, AvaFX, and FxPro.
At the same time, we’ve seen very good volume and revenue growth numbers from some of the leading domestic Australia-based firms such as Vantage FX, AxiTrader, Go Markets, and IC Markets (just announced volumes were up 83% in 2011, with more than four-fold growth in volumes from clients in Asia). And some of the foreign Forex firms with long-term presence in Australia – in particular the largest UK-firms – have reported nice continued growth in the country, such as IG Group, which last week reported that Australia revenue grew by 43% in the second half of 2011 (six months to Nov 30/11) versus the prior year.
So what is driving this migration toward Australia? We would divide our answer into three parts:
1) Importance of Asia region. Very clearly, Asia has provided the most growth to the retail Forex industry over the past 18 months. The most glaring example of that is Gain Capital (Forex.com), which until 2010 did roughly half of its volumes in its home market of the U.S., but by Q3-2011 was (amazingly!) doing nearly 75% of its retail volume is Asia. It seems as though Australia is being chosen as a preferred Asia base for Forex firms. It is a stable country with a well-respected banking and legal system, with English as its main language. Given a very multinational population in Australia it is easy to hire people to provide sales, trading and customer service in all of the languages spoken in southeast Asia. And from a regulatory point of view, ASIC is a respected regulator yet regulations covering Forex are much more lax than in other locations in the region (such as Singapore, Indonesia and Hong Kong), making it more advantageous to locate there .
2) Regulation is cheaper and more friendly. It is simply easier and cheaper to start up in Australia as an ASIC regulated Forex broker than in any other major financial center in the region. Minimum capital is just AUD $50,000 (plus 5% of client assets held), versus multi-million-dollar minimums in other locations such as Singapore and Hong Kong, although that is likely to rise to AUD $1 million soon. There are no leverage maximums for traders. ASIC has recently enacted new rules (effective March 31, 2012) regarding more stringent disclosure benchmarks for FX and CFD providers, but Australia remains very Forex-friendly.
3) Australia is a nice market. While we list this as reason # 3, clearly the Forex firms opening offices in Australia (mainly Sydney) and going through the process of ASIC regulation are indeed interested in the local trader. As IG Group’s numbers we refer to above indicate, the country continues to see nice growth in trading volumes, which by our estimation are at about $400 billion monthly ($18 billion daily), or about 9% of global Forex volumes.