Report

Preface

• As a professional global forex media and data platform, WikiFX wishes to show the industry the current changes in China's forex margin market, the status of brokers' operations and the characteristics of Chinese investors through in-depth field market research, with a view to providing references for international brokers operating in China. Meanwhile, we also want to help Chinese investors fully understand the forex market. To this end, we have collected some representative stories of Chinese investors in the hope of striking a responsive chord with people who are advancing silently on the road of investment.

CONTENT

• Part I Development Background of Forex Margin Industry in China

  1.1 Overview of China’s Financial Market

  1.2 Development Environment of Forex Margin Industry in China

• Part II Development Status Quo of Forex Margin Brokers Operating in China

  2.1.1 Historic Events of China’s Forex Margin Market

  2.1.4 Layout of China’s Financial Institutions on Forex Margin Industry

  2.2 Business Construction of Forex Brokers Operating in China

  2.2.2 Customer Acquisition Ways of Forex Brokers Operating in China: Broker Classification

  2.2.8 Obstacles and Features of China’s Forex Margin Industry

• Part III Research on Investors in China's Forex Margin Industry

  3.1 Industry Data

  3.2 Overview of Chinese Forex Investors

  3.3 Overview of Chinese Forex Investors: Classification

  3.3.4 Trading Behaviours of Chinese Forex Investors: Amount of Deposits

  3.3.8 Forex Investors' Trading Practice in China: Trading Platform

  3.3.15 Forex Investors' Trading Practice in China: Access to Information

  3.3.19 Forex Investors' Trading Practice in China: Expectation for Future

• Part IV Stories of Chinese Forex Margin Investors

  4.1 How Investors Began Trading Forex

  4.3.2 EA Scams in Forex Market

• Part V Development Prospects of China’s Forex Margin Industry

  5.2 Market Development Differs from Regions. East China Leads China’s Forex Market

Part I Development Background of Forex Margin Industry in China

• China, located in the east of Asia and the west coast of the Pacific Ocean, has a land area of 9.6 million square kilometers containing rich natural resources, and a population of more than 1.4 billion, making it the world's most populous country. China, with Beijing as the capital, adheres to the path of socialism with Chinese characteristics, implements the political system of the Communist Party in power with the participation and cooperation of other parties. Due to the rapid economic growth, China has become the world's second largest economy, a member of the G20, and one of the permanent members of the United Nations, and its international influence continues to rise. Since China joined the WTO in 2001, it has gradually opened up the domestic market, and the influx of large amounts of foreign capital has made China a world factory and "made in China" has become a label. At present, China is facing the severe challenges of manufacturing upgrading and industrial transformation, and the high-tech industry is rising.

  The Renminbi (CNY), issued by the Central People's Bank, is the legal currency of China, and the fifth set of RMB is currently in circulation in the market. In 2016, the International Monetary Organization (IMF) included RMB in a basket of special drawing rights (SDR) and it became the fifth currency after the US dollar, Euro, Japanese yen, and British pound. At present, China implements a regulated and managed floating exchange rate system based on supply and demand, with reference to a basket of currencies. And it further expanded the floating range of the RMB against the US dollar after 2014. The market mechanism exerts a further influence on the formation of the RMB exchange rate. A strong economy has created a strong currency. From 1994 to 2015, the real effective cumulative appreciation of the RMB was 98.6%. Although the exchange rate fell below "7" for the first time due to the Sino-US trade friction in 2019, it is predicted that the RMB exchange rate in 2020 will remain stable and rise ranging from 6.6 to 7.1 with the long-term positive economic trend and stable balance of payments surplus as strong support.

• 1.2 Development Environment of Forex Margin Industry in China

  China, as the world's second largest economy and the largest trading country, its global influence has been growing and it has become one of the potential competitors of the superpower. According to the data from World Economic Forum, China ranked the 28th in global competitiveness in 2019. Its significant advantages lie in its huge market and stable macro-economy, as well as its outstanding ability in innovation and technical communications.

Part II Development Status Quo of Forex Margin Brokers Operating in China

• 2.1.1 Historic Events of China’s Forex Margin Market

  According to WikiResearch, China’s forex margin industry has experienced several rounds of opening and halting for the past 30 years. In the 1980s and 1990s, forex margin business was introduced into the mainland from Hong Kong, which was banned by the government in 1994 due to the huge losses caused to a large number of investors. From 2004 to 2008, the forex margin business experienced a round of barbaric growth, but was finally banned again in 2008. The internal cause was that the powers and responsibilities of domestic regulators were not clearly stipulated and that there were insufficient relevant laws and regulations on self-regulation, and so on. The external cause was that most Chinese investors invested blindly due to the lack of basic forex knowledge and trading skills. Their risk prevention consciousness was weak and risk control ability was insufficient.

• 2.1.4 Layout of China’s Financial Institutions on Forex Margin Industry

  According to WikiResearch, many large groups in China explore the forex margin market by investing. Ping An Bank made strategic investments in Etoro, and WorldFirst, Saxo and KVB Kunlun were respectively acquired by Ali, Geely and CITIC Securities. Guotai Junan even obtained the forex license on November 19, 2018 and has been authorized to conduct interinstitutional forex business by the state. Although Guotai Junan is currently unable to provide personal forex trading business, it indicates that China’s forex market is gradually advancing.

• 2.2 Business Construction of Forex Brokers Operating in China

  The registration place of a company is generally located overseas, such as the United Kingdom, Australia, Cyprus, or the Cayman Islands, etc. The registration fee is from thousands to tens of thousands. Forex platform technology companies can help to build the official website, which may cost thousands to tens of thousands.

  MetaQuotes no longer sells MT4/5 main label since 2017. Brokers can choose the white label platform, whose fees range from US$5,000 to US$30,000.

  Select LP (liquid provider) to set leverage and transaction fees. Control risks and bridge system. Assist security broker to monitor and hedge risks.

  Choose offshore or onshore supervision. Many small and medium-sized brokers choose offshore supervision, which is relatively loose. Onshore supervision has extremely high requirements for the capital scale and standard of registered companies.

  Product updating is important for brand promotion, such as building a CRM system, submitting automatic deposits and withdrawals online, setting agent ratings, automatic commissions, and employee management, etc.

• 2.2.2 Customer Acquisition Ways of Forex Brokers Operating in China: Broker Classification

  The customer acquisition modes of China’s forex margin market are mainly divided into three types: Type I brokers generally adopt the mixed mode of IB and direct customer. The customer contribution under these two modes is basically the same. Type II brokers focus on the local market and continually develop a large number of IBs for market promotion. Type III brokers are mostly large brokers that entered the Chinese market from 2008 to 2018. With years of popularity in the market, they have stable customers and relatively abundant capital, more willing to promote online to attract direct customers instead of relying on IBs under the premise of maintaining the brand. At present, China’s forex brokers have limited access to customers due to the industry regulation and development restrictions. Most brokers rely on IBs to acquire customers.

• 2.2.8 Obstacles and Features of China’s Forex Margin Industry

  According to WikiResearch, the biggest barrier for international brokers to conduct forex business in China is policies and regulations restriction, and limited customer acquisition mode. Compared with other forex markets in Asia, China has a huge forex margin market, and Chinese forex investors usually deposit much funds and trade actively, presenting a remarkable market potential. However, individual investors are short of investment awareness, which makes the investor education a key breakthrough point.

Part III Research on Investors in China's Forex Margin Industry

• 3.1 Industry Data

  The WikiResearch team went on field trips to ten cities across the country and interviewed 60 investors to collect first-hand information. Meanwhile, 1,000 copies of questionnaires were released online with 991 valid ones received. The purpose of the survey is to showcase the characteristics of China's forex market and investors, and to help them understand the current status of the market while serving as a reference for international brokers operating businesses in China. However, due to limitations in survey method and sample errors, the overall picture of Chinese forex investors is yet to be revealed, and further research still needs to be conducted.

  In view of the fact that there is a lack of data on China's forex margin market, the industry data in this section derive from field surveys and the valuation model. We hope for your kind understanding if there are any deviations. This section is intended to show forex brokers and investors the scale and changing trends of the market. The data does not include information about illegal platforms such as operators of financial scams and Ponzi schemes.

• 3.2 Overview of Chinese Forex Investors

  According to WikiResearch, forex margin investors in China are largely male between 26 and 45 years old. Despite being less active in forex margin trading, Chinese women are still a group that cannot be ignored. Due to the fact that forex investment in China is unregulated more often than not, Chinese women know little about it and are relatively conservative. We believe targeted investor education activities may help expand the female-investor market whose great potential should not be underestimated.

• 3.3 Overview of Chinese Forex Investors: Classification

  Although China's forex margin industry has opened up several times, investor education has not been enough. Investors - mostly grassroots - usually accumulate experience through years of investment. "Spending money to buy lessons" has become Chinese investors’ ticket to the forex market. The WikiResearch team paid visits to 60 investors and divided Chinese investors into four categories - namely professional investors, beginners, advanced investors and those who commission IBs to invest in forex. According to WikiResearch, most investors are at the advanced stage of forex trading, accounting for up to 47.5%, while beginners and professional investors make up only a small proportion. It is worth noting that professional ones comprise 27.1% - much higher than beginners do. This shows that the training of China's newbie investors has been quite slow in recent years.

• 3.3.4 Trading Behaviours of Chinese Forex Investors: Amount of Deposits

  The amount that over 50% of Chinese forex investors deposit is between 5,000 and 50,000 CNY each time, with 30.9% of them making a deposit of 10,000-50,000 CNY. Those who deposit less than 1,000 CNY account for 12.7%, which shows that mini accounts have a relatively good user base.

  According to WikiResearch, more than half of Chinese investors hold positions of no more than 150,000 CNY, with 31% of them holding positions of less than 10,000 CNY. Far less investors hold positions of over 150,000 CNY. In general, Chinese investors are more conservative in margin trading.

• 3.3.8 Forex Investors' Trading Practice in China: Trading Platform

  With 94.9 percent of the market share, MT4 trading software has enjoyed an absolute advantage in China. Comparatively, MT5 users make up 14.1% and those softwares developed by brokers account for 10.1%. WikiResearch found that the advantage of MT4 is that locked position is possible and trading experience can be offered, while professional investors prefer MT5 and the availability of MT5 is one important standard for them to evaluate the professionalism of a broker.

  The penetration rate of APP trading terminals in China is much higher than that in Southeast Asia, Japan and other countries. More than half of investors use two types of terminals for trading, which can meet the trading needs when staying at home or going out at the same time. According to WikiResearch research, Chinese professional investors prefer to use the PC terminal for transactions, while novice investors mostly use APP transactions. Many brokers therefore increase their marketing budget for APP downloads as an effective way to make headway into the market of new user.

• 3.3.15 Forex Investors' Trading Practice in China: Access to Information

  Chinese foreign exchange investors mainly obtain forex-related information online. According to WikiResearch, information media, WeChat, QQ and self-media are the three mainstreams of information acquisition channels for Chinese forex investors. Among them, information media website users account for 69.7%. In addition, social platforms such as WeChat and QQ have become information dissemination methods with Chinese characteristics. Chinese forex investors join local WeChat groups or QQ groups of forex investment through their friends' introduction or active search to establish local contacts and meet professional investors. Investors and practitioners will share investment experience, display investment results, exchange real-time information in the group, solve doubts and answer questions, so as to build an influential group.

• 3.3.19 Forex Investors' Trading Practice in China: Expectation for Future

  During the interview, the WikiResearch team found that forex investors with more than 3 years of investment experience generally recognized forex margin trading. Many professional investors switch from other products to forex investment, and such investors are extremely loyal once they enter the market. Some investors said that they became unstoppable once they start forex investment. It can be seen that for investors who love trading, the charm of foreign exchange margin investment should not be underestimated.

  Overall, Chinese forex investors are positive about the future development of forex margin trading. More than 55.6% of investors will continue to increase forex investment, 37.3% of users will keep their trading volume unchanged, and only 7.1% of users will reduce their forex margin investment in the future. According to WikiResearch, the volatility and downturn of the real economy and global turbulence are more likely to stimulate investors to increase their investment in forex margin, and the market may usher in small growth in the future.

Part IV Stories of Chinese Forex Margin Investors

• 4.1 How Investors Began Trading Forex

  “At the time I was seeking a job as a fresh graduate, I saw the trainees openings for an investment company. Afterwards, I was trained as a trader, traded with a demo account, and participated in demo trading competitions. I was tricked into becoming a trader in the name of job vacancies. The company and I mutually bore 50% of the funds for forex trading. Due to the limitation of lot sizes, I was unable to withdraw. So I turned from an employee into a customer.”

  “I heard about this before but didn't understand it. I searched for “I want to trade forex” online, and then some search results of platforms were displayed. These platforms were well packaged and seemed to be of regulatory compliance. Their forex specialists would reach me and gave further recommendation on investments. Then I became addicted to forex trading gradually.”

  “A friend of mine introduced a professional investment guru to me, saying that I could double my profits by following his lead. After that, I was added to their QQ group and WeChat group. As a forex beginner, I would listen to their investment advice each time I made deposits and withdrawals. They would show you the highest yield ranging from 80% to 100% - very attractive.”

• 4.3.2 EA Scams in Forex Market

  WikiResearch found that in addition to various fraudulent platforms, EA (Expert Advisor) scams are also very common in the forex market. The EA scams are classified as follows.

Part V Development Prospects of China’s Forex Margin Industry

• 5.2 Market Development Differs from Regions. East China Leads China’s Forex Market

  Northwest China The regional development of forex margin is dominated by Shaanxi with many forex investors in its capital city, Xi’an. Most of these investors are better educated since many educational institutions are based there. They tend to be more rational in trading and focus more on learning techniques and knowledge.

  North China With good performance of forex margin market and high penetration rate of EA trading. Beijing investors are relatively rational and mature, and have extensive access to information. There are more high-net-worth investors in Shanxi who would make large amount of deposits. Asset management and technology agents are welcome, and education for investors is yet to be improved there.

  Southwest China The forex margin in this region is in the developing phase with low popularity and the education of investors needs to be further improved. Investors' deposits are relatively small. Overall, investors’ casino mentality is more obvious. There are many forex and cryptocurrency Ponzi schemes in Chengdu, of which some clients have certain knowledge, but their appetite for risk-taking prompt them to chase quick returns by calculating the life cycle of Ponzi schemes.

  West China West China has the largest forex margin market among all regions. The majority of high-net-worth investors are in Zhejiang which boasts a large customer base and a large amount of deposits. Traders in Fujian are more active and prefer capital raising. Investors in Shanghai are generally mature, independent and good at learning. Investors in Shandong have a higher acceptance of forex margin trading. However, these investors are more likely to be scammed by various financial pyramid schemes .

  South China Guangzhou and Shenzhen have a large investor base, and a relatively mature forex market. There are few educational resources for local investors in other provinces and cities, where investors mainly learn about forex by themselves. There are many financial Ponzi schemes in Henan, where investors have little awareness of protecting themselves from scams. There are more ethnic minorities in Guangxi, such as Yunlin County, Bobai County. These investors have abundant capital and tend to trade forex together within the same ethnic group. It is easier to open up the local market by networking more with local connections.

  East China Leads China’s Forex Market Northwest China The regional development of forex margin is dominated by Shaanxi with many forex investors in its capital city, Xi’an. Most of these investors are better educated since many educational institutions are based there. They tend to be more rational in trading and focus more on learning techniques and knowledge. Northeast China Forex margin trading is not popular in this region. There are relatively more investors in Harbin. They have weak learning consciousness while their gambler mentality stands out. Exploiting the Northeastern forex market may rely heavily on methods such as referrals, hierarchical rebates, etc.