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Foreign Exchange

Say g’day to the Australian currency market; retail FX thrives Down Under

Australian retail FX is booming, thanks to a healthy domestic market, the access it provides to fast-growing Asia and a friendly regulatory environment.

Domestically, the Australian retail FX market is larger relative to the nation’s size than many other countries, and growth expectations are still high, according to research firm Investment Trends. The firm adds that the growing market is still there to be won for retail FX providers.

The company’s inaugural Australian Foreign Exchange Report – which defines FX trading as taking a position on a currency pair to gain from currency movements, and does not include unleveraged currency conversion for overseas investment, trade or travel – estimates that 54,000 individual investors traded FX at least once in 2011.

That is a relatively large market, since even though FX traders account for just 0.3% of the Australian adult population, the relative level of penetration is much higher than in other countries – it stands at 0.14% in the UK and just 0.03% in Germany, according to Investment Trends.

Furthermore, as of December, a further 29,000 people who have never traded FX before intended to start trading in 2012.

Even though not all investors will act on those intentions, that next wave of traders is larger than in all of the other countries examined by Investment Trends, including the UK, which has a population nearly three times larger than Australia.

In addition to its growth, no single provider yet dominates the retail FX market in Australia. While IG Markets has a lead with just under 20% of the market, there are four other providers with market share of about 10%.

 
 Source: Investment Trends

Indeed, the report says the market is very dynamic. A third of current traders began trading within 12 months of the start of the study. The level of provider switching is also high – 28% of current traders have stopped using an FX provider within the last 12 months and continued trading with another provider.

“In this environment, market shares can change very quickly,” notes Investment Trends.

“Providers here need to be very active in exploiting market opportunities and plugging the gaps in their service offerings to protect or increase their share of the market.”

Base for Asia

Gerald Segal, CEO at research firm LeapRate, estimates that Australian retail volumes stand at $18 billion per day, or 9% of the global total.

However, he says Australia has seen tremendous growth and attention recently in its retail FX industry, not only because of the attractiveness of the Australia market itself, but also because of the increasing use of Australia as a base for the fast-growing Asia-Pacific region.

Indeed, he says it is no wonder that some of the world’s leading retail FX providers, including Saxo Bank and FxPro, have recently set up offices or in Australia or applied to fall under the regulation of the Australian Securities and Investments Commission (ASIC).

Segal notes rampant growth from both domestic operators – IC Markets reported volumes were up 83% in 2011, with more than four-fold growth in volumes from clients in Asia – and established overseas operators – the UK’s IG Group reported that Australia revenue grew by 43% in the second half of 2011.

“Clearly, Asia has provided the most growth to the retail forex industry over the past 18 months,” he says. “It seems as though Australia is being chosen as a preferred Asia base for FX firms.”

Segal notes that Australia is a stable country with a well-respected banking and legal system, with English as its main language. He adds, given the country’s multinational population, it is easy to hire people to provide sales, trading and customer service in all of the languages spoken in south-east Asia.

“And from a regulatory point of view, ASIC is a respected regulator yet regulations covering FX 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 ,” he adds.

Indeed, the minimum capital required to set up as an ASIC-regulated FX broker is A$50,000, plus 5% of assets held, compared with multi-million dollars in places such as Singapore and Hong Kong, while there are no leverage maximums for traders.

As Segal says, Australia really is FX friendly.

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