e-Forex-Nov-23

Electronification rising amid turbulence: Taking a closer look at the MENA FX picture
REGIONAL E-FX PERSPECTIVE
THE STATE OF
RETAIL FX IN MENA
Low volatility, the crypto winter,
and high interest rate macro
environments: Retail brokers
have had plenty to contend with
over the past year. When we last
checked in with Mohammad
Isbeer, Global Head of Brokerage
Sales at Equiti Group, he noted
observing high retail trading
flows, particularly in the crypto
and DeFi space. Is this still the
case? “I’d say overall flows
haven’t dropped off, but they
certainly have switched from
speculative assets like crypto to
safe-haven ones like gold. Low
volatility across all asset classes
and macro uncertainty have
pushed flows that way,” he states.
Isbeer notes that gold has
accounted for over half of all
retail trading flows over the past
three to four quarters. As retail
interest in FX and CFD trading
remains high, the MENA region
has witnessed more retail brokers
emerging, leading to a highly
competitive sector.
“A lot of this rise is driven by
regulations opening up, like
the SCA licence in the UAE and
Jordan modifying regulations a
couple of years ago,” Isbeer says.
“Add to this existing centres like
Bahrain, and you have fertile
ground for retail presence.”
He’s quick to point out that while
regulations are weeding out
undesirable brokers, even fully
licensed ones face challenges
when getting business up and
running. For one, their choice
of LP is crucial. “The market has
seen some offers too good to be
true, and unfortunately, some
brokers have fallen victim to
them.”
“Checking whether an LP can
offer you Tier 1 access to prices
is the most critical thing,” Isbeer
continues. “If your LP can’t give
you that access, then what’s
the point of the relationship?
Regulation is important too. Every
credible LP is regulated in a Tier 1
jurisdiction.”
Isbeer also recommends brokers
check their LP’s balance sheet
strength and risk management.
“It boils down to security,” he
says. “What are their risk limits,
and how do they monitor them?
Any risk lapses on the LP’s end
will reflect poorly on the retail
broker too, costing them their
reputation.”
A loss of reputation in a crowded
market might spell the end of a
broker’s business. Add to this mix
increasing sophistication amongst
investors, and risk management
becomes paramount. Brokers
seem to be taking this into
account.
“Many brokers are working
towards reducing risk limits,
incorporating tools like smart
hedging to reduce their
exposure.” Isbeer also explains
that technology is playing a role
in trading strategies.
“EA activity continues to increase,
along with other auto trading
models,” he says. “Right now, I’d
say the direction is towards AI and
ML tool development, something
that is impacting how brokers
assess risk too.”
Mohammad Isbeer
Interestingly, Isbeer explains that
low volatility has given simple
strategies the space to become
profitable once again. He cites
the Martingale strategy as an
example of realising significant
profit over the past year. While
simplicity is playing well in FX,
reduced volatility has reduced
crypto demand in MENA.
“Institutional demand for crypto
is always present to a certain
extent because retail brokers
want them. We’re meeting that
demand, but overall volumes have
been sluggish,” Isbeer says.
Brokers are riding out the winter,
he explains, focusing on offering
those products via CFDs to their
clients, and managing their risk
appropriately. Isbeer is bullish
about the growth of retail eFX in
MENA.
“Regulation is only opening up
further, and we’re seeing several
EU and American institutions set
up base in Dubai due to this,”
he says. “Demand is increasing,
both on the retail side and
the institutional end. For now,
MENA continues to show great
potential, and I expect it to only
grow from here.”
38 NOVEMBER 2023 e-FOREX