Malaysia is one of the ASEAN's initiators and its most important members. The Malaysian forex margin industry, with a long history, has gone through many difficult times over the years. Industry players there have also experienced multiple shake-outs, in which the fittest survived. With the increasing restrictions on the operation of forex brokers in Mainland China, plenty of brokers have decided to opt out. Malaysia has become their first choice for relocation without language barriers due to its large Chinese polulation.
Malaysia is one of the ASEAN's initiators and its most important members. The Malaysian forex margin industry, with a long history, has gone through many difficult times over the years. Industry players there have also experienced multiple shake-outs, in which the fittest survived. With the increasing restrictions on the operation of forex brokers in Mainland China, plenty of brokers have decided to opt out. Malaysia has become their first choice for relocation without language barriers due to its large Chinese polulation. WikiResearch, as a global professional forex media platform, intends to showcase the status quo of Malaysia's forex margin market through in-depth, on-site market research on the operating status of local brokers from two aspects: the business expansion model of entering other markets in Southeast Asia and even Asia by taking Malaysia as the operating center, and the exploration of business opportunities in the local market. In addition, questionnaire surveys of Malaysian investors have been conducted as a way to gain insights into their investment behaviors and attitudes. WikiFX has set up a branch in Kuala Lumpur in December last year in order to better serve local customers and provide more valuable, up-to-date data and information to forex investors worldwide.
1.1 Development Background of Forex Margin Industry in Malaysia
1.1.1 Regulatory Authorities in Malaysia
1.1.1 Overall Economic Environment
1.1.2 Overall Social Environment in Malaysia
1.1.4 Overall Technology Environment in Malaysia
1.3 Development Path of Forex Margin Industry in Malaysia
2.1 Forex Margin Industry Data: Overview and Statistics Range
2.1.1 Forex Margin Industry Data: Active Investor Scale
2.1.2 Forex Margin Industry Data: Trading Tools
2.2 Operation and Development Status of Forex Brokers
2.2.1 Operation Status of Forex Brokers: Market Strategy
2.2.2 Operation Strategy of Forex Brokers in Malaysia: Trading Model
2.2.3 Operation Status of Forex Brokers in Malaysia: Account Opening
2.2.4 Operation Status of Forex Brokers in Malaysia: View on Pyramid Schemes
2.2.5 Operation Status of Forex Brokers in Malaysia: Expectation
2.3 Typical Operation Cases of Brokers in Malaysia
3.1 Description of Forex Margin Investors Surveyed
3.2 Age Groups of Forex Margin Investors
3.3 Leverage Preferences of Forex Margin Investors
3.4 Trading Frequency of Forex Margin Investors
3.5 Attitudes of Forex Margin Investors to Brokers
3.6 Portraits of Malaysian investors
4.1 Higher Costs for New Brokers seeking Cooperation with the Mature Malaysian IB Industry
4.2 Chinese Teams’ use of Malaysia as a launching pad for a Wider Southeast Asian market
Malaysia, a Southeast Asian nation whose capital is Kuala Lumpur, adopts a federal system that features the co-existence of an elective monarchy, a constitutional monarchy and a parliamentary democracy. Malaysia, a capitalist and a founding member of the ASEAN, saw the rapid growth of its economy in the 1990s. It is also a multi-ethnic country with Islam being its official religion. The three major ethnic groups in the country are Malay, Chinese and Indian. The Chinese community accounts for about 23% of the population, which makes Malaysia the country with the highest proportion of Chinese except China and Singapore. Noticeably, the “Pakatan Harapan” opposition party won the Malaysian general election in 2018, which resulted in former Prime Minister Mahathir's return to office, ending the National Front's 60-year rule. This has brought the country many uncertainties in politics and economy.
Malaysia has two parallel and independent regulatory systems, namely the traditional regulatory system (Central Bank) and the Labuan International Business and Financial Centre (Labuan Financial Services Authority). The Central Bank of Malaysia's management for commercial banks is centralized and single. It is responsible for the unified supervision of national commercial banks (except offshore banks), and the other regulatory agencies do not perform regulatory functions. The Central Bank has a Securities Regulatory Commission (SCM), which is responsible for regulating domestic CFD business. The offshore forex margin trading is mainly regulated by the Labuan Financial Services Authority (LFSA) regulatory system.
Malaysia's rapid economic development began in the 1960s, and its GDP maintained a high growth rate of 6-10% per year for a long time until the Asian financial crisis broke out in 1998. Although Malaysia's economy has recovered rapidly since then, the GDP growth rate has stabilized between 5 and 6%, and often fall to 4.X% since 2015. At present, Malaysia ’s per capita GDP is second only to Singapore and Brunei among the ASEAN countries. The CPI and the economy are generally stable, but the growth rate of foreign investment and consumer retail sales have declined year after year. As the Mahathir government adheres to the economic development policy of “Malays First”, the attraction for foreign business has slightly decreased compared to that around 2000.
Malaysia is a Muslim country with a total population of 32.6 million, of which 69.3% are Malay and Aboriginal, 22.8% Chinese, 6.9% Indian, and less than 1% ethnic minorities. The Chinese have 70% of the wealth of Malaysian society. There are many differences in the lifestyle, work choices, religious beliefs, consumption and investment concepts between the Chinese community and the Malay community. It is worth mentioning that the urban labor force rate in Malaysia is as high as 77.5%, which means its urbanization has basically been completed.
The Internet and mobile Internet in Malaysia are well developed. Mobile phone users account for 96% of the total population, smart phone users 88%, and Internet users 80%. Compared with Japan, South Korea, and Vietnam, Malaysia’s Internet-related penetration rates.
The Malaysian foreign exchange margin industry has experienced multiple rounds of "restart" in the past 20 years. Holding a loose overall business environment, becoming affluence early, and having a high proportion of Chinese, Malaysia experienced the first round of brutal growth as early as around 2003. With the emergence of regulatory turmoil in Malaysia and the rise of the Chinese mainland market, the development of Malaysia's foreign exchange margin market stalled for a time. However, since 2017, another group of brokers have entered Malaysia and started operations, taking full advantage of the Chinese language, and using Malaysia as a "springboard" to cover the entire Southeast Asia region.
Through the field survey by the WikiResearch team, we found that the Malaysian forex margin market is far more complex and mature than expected. The data in this part demonstrate the situation of forex margin market in Malaysia, which is mainly based on the desk study and on-site interviews and surveys of brokers in Malaysia.
According to WikiResearch research, the overall scale of Malaysian investors has been relatively stable in recent years. Black swan events such as PTFX barely affected the local investment market. In 2019, the cumulative number of forex margin investors in Malaysia is approximately 2.5 million, with average monthly active investors up to around 292,000, accounting for 0.88% of the population. The number of monthly active investors in 2019 is 9% less than that of 2018. WikiResearch believes that the slight reduction in the number of active investors is related to the Ponzi schemes frequently happened in recent years, and the customers lost are mainly Malaysian Chinese.
With its mature and stable trading performance and all-English language environment, MT4 has become the most popular trading tool for local investors in Malaysia. According to the interview, trading tool used by most brokers is MT4. Advanced features are added to upgrade the platform, including customized interface, technical analysis, historical data import of other platforms, etc. to meet customers’ needs, thus improving the competitiveness of the platform. Only about 10% of brokers choose selfdeveloped trading tools to attract investors. However, due to its high cost and requirement for specific technology, the market share of self-developed tools is low in Malaysia.
At present, the forex margin industry in Malaysia is loosely regulated. The development environment is mature. It is convenient to establish a company and operate business. Most of the local brokers take Malaysia as the operation and sales center and expand business to Southeast Asia and Chinese mainland.
As an excellent transaction center, Malaysia has a large number of international forex brokers in addition to local forex brokers. Excellent market conditions provide more different market options for various brokers. At present, according to different customers groups, brokers in Malaysia can be divided into three categories: 1. Brokers operating business in Southeast Asia and other neighboring countries 2.Brokers focusing on the local Malaysian Chinese market 3.Brokers focusing on the local Malay market
According to WikiResearch survey, it is costly to develop Malaysian market. The investors enjoy trading with low deposit and bonus, while competition among IBs is fierce with various forms of commission and its large amount. Against such market background, brokers of STP model can hardly meet the market needs. According to the operation status of brokers in Malaysia, the forex market there is still led by market making brokers. WikiResearch holds that investors in Malaysia lack confidence in the forex margin industry due to the shock of Ponzi schemes. Making market is helpful for brokers to open the market in the near future, but harmful for the long-term development of the forex margin industry in Malaysia.
Currently, there is a slight difference about licenses selection among brokers in Malaysia. Some brokers take advantage of strictly regulated licenses to promote their brands and guide clients to open accounts with them. Meanwhile, some brokers hold that offshore license is the mainstream since high leveraged products are more popular among local investors. According to a survey, around 30 percent of brokers in the market choose to provide multiple regulations which cover a wider range of client group. Therefore, clients are able to choose different place to open their accounts according to various preference for investments and risks.
Relatively loose regulation has made the arbitrary development of pyramid scheme possible, since forex industry still belongs to the gray zone in Malaysia. Ahead of the trip to Malaysia, we presuppose that money games and the frequent accounts wiping out may cause investors to lose their faith in forex investment. Unexpectedly, over 60 percent of brokers believe that these won’t have much impact on the local forex market and even can promote it. Some Malaysian clients know the forex industry just through pyramid schemes and then gradually become forex margin investors through education. WikiResearch believe that the Malaysian forex market will be more mature and reasonable after trials.
Presently, around 60 percent of brokers plan to continually invest in the forex margin market. The whole market enjoys a bright expectation. Especially, some brokers are fully confident in the future performance of the local market in Malaysia. During the interview, most interviewees hold that there is still some gap between the Malaysian market and other mature markets such as those of Japan and UK, and emphasize the importance of investor education on the long-term development of Malaysian market. WikiResearch believe that the forex margin market in Malaysia will gradually become mature and nourish new development space with rising education awareness and improving level.
Differences exist between the clients of the international market and the Malaysian market. International clients pay attention to the professionalism and products of brokers and have high and comprehensive requirements. While the clients in Malaysia usually don’t care about the comprehensive level of a broker and have no clear concept about the STP or MM model. We summarize the focus point and operation strategy of various client groups, hoping to provide some references for brokers planning to enter the Malaysian market.
F r o m J a n u a r y t o F e b r u a r y 2 0 2 0 , WikiResearch launched questionnaires through different survey channels and received a total of 1,600 questionnaires, of which 500 were valid. Among them, 100 respondents were randomly selected for telephone interviews. The findings in this part are based on the analysis of the questionnaires from two groups of Malaysian investors. However, the limitation of research methods and samples may result in some deviations, so further research on the market still needs to be conducted. Since Malaysia is a multi-ethnic country, we divided investors into two categories: Chinese Malaysians and Malays. According to WikiResearch, the majority of these two groups are male, accounting for about 90%.
According to WikiResearch, there is a significant difference in age ranges between Chinese Malaysians and Malays. Chinese Malaysians in the 36-45 age group accounts for about 30% and the 46-55 age group accounts for 18%, while Malays are younger and more energetic with the majority of them in the 26-35 age group.
According to WikiResearch, 43% of Chinese Malaysians prefer leverages between 1:100 and 1:500, while 45% of Malays choose leverages below 1:100. The findings show that the leverage preferences of Chinese investors in Malaysia are consistent with those of brokers, but that is not the case with Malays. In reality, most Malays deposit an extremely low amount and prefer leverages of 1:500 and above as they take investments less seriously. In general, Chinese Malaysians are more mature and rational while Malays need further education and more trading experiences to establish stable investment habits.
There is no significant difference in the frequency of transactions between Chinese Malaysian and Malays. Investors, who make orders weekly, account for 67%. Generally speaking, Malays trade forex more frequently.
According to WikiResearch, it is normal for Malaysian investors, about 65%, to trade with multiple brokers. In the survey on the attitudes towards brokers, 58% of investors feel satisfied. They tend to go for brokers whose products and services are in line with their own needs after trading on different platforms.
Malaysia is a multiracial country, where forex investors are mostly Chinese Malaysians, followed by Muslim and Indian ones. Chinese Malaysians are quite different from their peers in terms of investment behaviors and mentality. They are relatively rational and active investors with rich professional knowledge and prefer to trade on their own. By contrast, Malaysian investors, mostly green hands, usually opt for small investments and follow-up trading, and unlikely to stick with the platforms. Many investors interviewed, however, were extremely cautious about answering the questions because of the financial environment in Malaysia, generally avoiding mention of their returns and losses. It is believed that with more education of investors, their confidence in the local financial environment will gradually recover and the market will become more mature and stable.
Given the country, with a federal system, has different state politics and laws, IBs, especially those in the Chinese communities, have managed to gain an influential position in the market. They can on the one hand acquire investors and attract investments in ways that are quite different from the normal ones, and on the other hand obtain protection from local governments. For new brokers, it costs them a lot to enter the Malaysian market, cooperate with these IBs at a price much higher than those of other countries, or obtain customers directly through online marketing.
Since 2017, more than 70% of new forex brokerage platforms in Malaysia are set up by Mainland Chinese teams, which has accelerated competition in the Malaysian forex market, especially the Chinese niche market. Such brokers have quickly integrated themselves into the local environment. They found best ways to conduct businesses in this country by even in the Southeast Asian regions by drawing on thier recruiting, marketing and operating experience. Some, however, succumbed to the temptation of “Money Game” and launched scams to deceive local investors and those from the Chinese Mainland, turning themselves from “legal trading platforms” to “Ponzi schemes”. The polarization will remain in Malaysia for a long time in the coming years. WikiResearch will continue to monitor closely this issue and also look forward to working with more outstanding brokers to protect investors’ interests and ensure the safety of their funds.