INDONESIAN BROKERS

Indonesia is a country that can be quite tricky to pin down, considering it is of approximately more than 18,000 separate islands with a total land area of only 1,811,570 square kilometres. However, Indonesia’s population of 269.4 million people, 56% of which live in an urban environment, have in recent decades helped the country to become one of the driving economies of Southeast Asia. 

Indonesia’s stock market is relatively mature and dates back to 1912 when the Jakarta Stock Exchange JSX was founded. Eventually the JSX merged with the Surabaya Stock Exchange (SSX) in 2007 to become the Indonesia Stock Exchange (IDX), the primary stock market in Indonesia located in the capital Jakarta.

The IDX exchange lists stocks and equity derivatives among its products, in addition to also providing a listing service for bonds, mutual funds and exchange traded funds (ETFs). The IDX ranks as the 25th largest stock exchange worldwide by its 2019 market cap of $520.29 billion.

The main stock indices for the IDX include the IDX Composite that was formerly known as the Jakarta Composite Index (JSX) and the Jakarta Islamic Index (JII). The JII is a benchmark index of around 30 listed stocks that meet the standards of Islamic law, while the IDX Composite index includes all stocks listed on the ISX exchange. The IDX also contributes listed closing stock prices to the FTSE/ASEAN 40 index.

Forex traders might be familiar with Indonesia’s national currency the Indonesian rupiah (IDR). The rupiah is divided into 100 units called sen, although no coins or banknotes currently use that smaller denomination. 

The Bank for International Settlements (BIS) ranks the IDR as the 31^st most frequently traded currency in 2016, when it then made up about 0.2% of overall forex turnover.  The IDR does not rank individually among the most popular currencies maintained as reserves by central banks, according to data put together by the International Monetary Fund (IMF).

The primary Indonesian financial sector regulator is the Financial Services Authority of Indonesia or Otoritas Jasa Keuangan (OJK) in Indonesian.  This regulator was created in 2011 to take over the role of supervising and regulating Indonesian financial markets and companies, including banking and financial services firms.  Bank Indonesia, the Indonesian central bank, also sets regulations for the financial services sector.

In addition, the Indonesian Commodity Futures Trading Supervisory Agency, or the Badan Pengawas Perdagangan Berjangka Komoditi (BAPPEBTI) in Indonesian, operates under Indonesia’s Ministry of Trade. BAPPEBTI administers activities in the international trade sector that include multilateral, bilateral and regional trade, as well as exports and imports. 

Notably, BAPPEBTI also regulates forex and cryptocurrency trading in Indonesia. While there was once a ban on forex brokers operating in Indonesia due to fraudulent activity, it has now been lifted. BAPPEBTI authorised forex brokers also need to operate according to Sharia law since Indonesia is a Muslim country.

How to Trade in Indonesia

Traders based in Indonesia have several leading international forex brokers to choose from that offer services to Indonesian clients and have websites translated into the Indonesian or Bahasa Indonesia language.  Quite a few forex brokers are also based in Indonesia and submit to regulation by BAPPEBTI, although they may not have the breadth of services offered by the leading foreign brokers.

Nevertheless, if you live in Indonesia, then having a broker with an Indonesian office may be preferable since they have a local reputation to uphold with BAPPEBTI. It is also easier to litigate locally just in case a problem you cannot resolve amicably crops up.

Keep in mind that any broker based outside Indonesia needs to be strictly regulated in a respectable jurisdiction to be trusted. It should also keep client funds segregated from its own money for a trader to feel secure making a margin deposit with them. Brokers should also have a good general reputation with clients and an adequate product and service range for trading purposes.

The majority of online brokers will provide free demo accounts with virtual money traders can use for practice and to test strategies. Brokers also generally provide funded accounts where traders must make a minimum deposit to begin live trading. Brokers offering services in Indonesia should also provide Islamic accounts compliant with Sharia that have rollover swaps to suit Muslim traders. 

If having a broker’s website translated into Indonesian and customer support in that language is a priority, then be sure to look for those features when selecting among the available brokers. Virtually all online brokers already support communications in English, if that is sufficient.

The asset classes you can trade online via a particular broker can differ considerably. The majority of online brokers offer forex trading in some form, while certain brokers also offer contracts for difference (CFD) that usually allows for a broader range of tradeable assets.

When it comes to stock trading, the IDX provides a transparent and fair market in Indonesian equities, derivatives and other asset classes. IDX exchange trades will generally be executed in Indonesian rupiahs, and traders need to have an account with an exchange member who can input transactions into the official trading system known as JATS Next-G.

Biggest Opportunities of Trading in Indonesia

Indonesia is the largest economic in Southeast Asia and is ranked 16^th worldwide, but is anticipated to become the 4^th largest by 2050.

According to GOV.UK, the country offers considerable opportunities for businesses including:

• An emerging middle class that is driving strong domestic consumption.
• A population increasing by 4.5 million a year, with a growing proportion of working age people.
• An abundance of natural resources.
• Growing political stability following the introduction of democracy in 1998.

According to the World Bank, Indonesia scored rather well for starting a business, getting credit, protecting minority investors and resolving insolvencies, with its respective rankings of 33^rd, 44^th, 51^st and 36^th.

Biggest Challenges of Trading in Indonesia

As of 2017, Indonesia’s major trading partners are China, the United States, Japan, India, Singapore, Malaysia and Korea in that order, according to the World Bank Group.  The UK ranks much lower around 20^th as a trading partner, so the upcoming Brexit should not have much of an impact on the Indonesian economy.

Indonesia does not enjoy any particular currency stability regime, and the IDR has shown an overall weakening trend against the U.S. dollar after confidence in the currency was notably damaged due to a devaluation crisis in 1997-98.

Indonesia’s balance of trade numbers have fluctuated considerably over the past decade, and the county is presently running a trade deficit.  Indonesia’s economy can also suffer from trade wars or the imposition of tariffs on its goods, as well as when key trade accords fail. According to The World Bank, however, Indonesia had a rather low 20.2% trade to GDP ratio in 2017, which tends to insulate its economy somewhat to trade related disruptions.

The World Bank only ranked Indonesia 73^rd overall for the ease of doing business in the country. Indonesia also had even worse rankings for starting a business, dealing with construction permits, registering a property, paying taxes and trading across borders, ranking just 134^th, 112^th, 100^th, 112^th and 116^th respectively in those areas.

Summary

In general, traders and businesses might find the steadily devaluing Indonesian rupiah something of a challenge to cope with. The country was also not ranked very highly by the World Bank when it comes to the ease of doing business.

Those looking to trade through an online broker from Indonesia should find them competently regulated by either BAPPEBTI for forex brokers or OJK for other financial brokers.  Traders will also need to see if they offer a website and customer services in a suitable language, if English is not sufficient, in addition to making sure they are well regulated in their local jurisdiction.

An acceptable broker should also provide a good range of asset classes, have a good reputation, and provide market access through a respectable and easy to use trading platform. Finally, any honest broker should keep client funds separated from its own for added security in case of its insolvency.