New player emerges on NZ forex block

London-based online CFD and foreign exchange trading outfit IG Markets is entering the New Zealand market where it will face off against its main global rival CMC Markets which dominates the sector here.

IG describes itself as one of the world's leading providers of Contracts for Difference and forex trading services.

Its New Zealand debut is the "logical next step for IG's expansion in the Asia Pacific region", says Australasian chief executive Tamas Szabo, who will be in New Zealand this week.

"Our market research has indicated that there has been a distinct lack of competition within the CFD and FX industry in New Zealand," he said.

The local market for CFDs, which enables investors to take leveraged positions in shares, currencies, commodities and market indices, is dominated by CMC Markets, which set up shop here four years ago.

Another firm, OM Financial, offered CFD products until the credit crunch made the necessary credit facilities difficult to obtain, and equity market regulators banned short-selling - one of the main trading strategies employed by CFD investors.

Szabo told the Business Herald the push into New Zealand came as his company was expanding globally.

"Basically we've grown significantly over the past 12 months and done quite a bit better than a number of our competitors from what we know," he said.

"We believe we have an offering which is going to be a very good rival to anyone who is here."

He thought IG's competitive advantages included the ability to provide New Zealand-dollar denominated products which removed foreign exchange risk from positions in overseas indices and commodities.

IG runs a "hybrid" model where positions taken by clients may be "synthetic" - established by matching transactions within its global client base - or where positions result in the actual purchase of securities on relevant markets.

CMC Markets managing director Chris Smith was surprised IG had taken so long to set up in New Zealand.

"There is a market here, and we've proved that. We've been here a long time."

Smith said IG was CMC's major arrival around the world and the two London-based firms offered similar products and had similar margins, "but they've never really seen any value in New Zealand where we've established a good brand".

He said IG's entry should be good for the overall market, "because it will increase the awareness".

CMC had established a strong market position with clients "well into the thousands".

He believed CMC had an advantage in its local office which allowed it to hold frequent courses to help clients understand the complex products.

GAINING MARGINS

* Contracts for Difference (CFD), a form of margin trading, are agreements to exchange the difference in value of a particular asset between the time at which a contract is opened and when it is closed.

* IG markets offers margins on shares from 5 per cent, allowing investors to effectively take positions worth 20 times the value of their deposit.