ESMA ( European Securities and Markets Authority) has been quite harsh with EU brokers in the last couple of months. The extension on their restrictions of CFD trading as well as trader benefits has pretty much deleted all branding opportunities for Forex brokers. There are even restrictions on the marketing and selling of broker services in the region, therefore brokers are relying on already existing customer bases to retain their profits and keep a steady income source.
But like any other industry, customer bases tend to shrink if you don’t constantly update them and add more new ones. Therefore brokers are left with no other choice than to search for better markets all around the world. The best places a Forex broker from an EU country can go to is an English speaking country.
The USA is out of the question as establishing an office there is impossible both due to high costs as well as back-breaking regulations which would limit profits to a point where it is even useless to consider a branch there. Therefore brokers are looking for offshore countries. Places like Australia, New Zealand, and South Africa have come up numerous times.
South Africa is one of the emerging countries in terms of Forex brokers. Even if we look at the Google trends, we find that the searches for best Forex brokers in SA are rapidly increasing, which is a clear indicator that more and more people are becoming interested. A 56 million population who are all English speakers and interested in Forex is like a gold-mine for Forex brokers and their willingness to participate is a testimony to that. A large number of EU brokers have already applied for a license with the local FSCA (South Africa’s financial regulator) and are waiting for it to be approved. Most of those brokers are reliable and trustworthy, therefore an influx of brokers in South Africa is to be expected.
Furthermore, South Africa is in relatively the same time zone as Central Europe, therefore moving the whole staff to Johannesburg or Cape Town will not be an option as they can have outsourcing of support staff directly to their base in the EU while having an HQ in South Africa.
Australia is a juggernaut in terms of Forex trading. Their currency is a major one so it was to be expected. They have numerous years of participating in the Forex market now and have already established and sophisticated institutions.
However, an ASIC (Australia’s financial regulator) license is quite expensive for a broker. Sometimes pricing in the millions. And although there are profits to be had on the smallest continent, the initial price is often a deterrent for many willing companies.
New Zealand is pretty much the underdog when it comes to Forex trading. They do indeed have sophisticated financial institutions, but they are so secluded and small, that almost no Forex brokers are considering a branch there. However, if the situation becomes too desperate, they would have no other choice. Establishing a base of operations in New Zealand is relatively cheaper than Australia and in some cases could even be a better choice. The time differences between New Zealand and Sydney is so small, that having an HQ and catering to Aussie clients is a definite possibility. However, continuing to service EU clients may be a bit more complicated.
There were also talks that most Forex brokers would flock to the UK after Brexit, but that option was immediately dismissed, when it was found out that UK complies with pretty much all of the restrictions and rules made by ESMA, and will retain the same framework even after a hard Brexit.