Banking and FinanceIssue 01 - 2021MAGAZINE

Will forex trading in South America flourish?

The majority of the unregulated forex brokers carry out trading in the Asian subcontinent, especially in Southeast Asia

The majority of the unregulated forex brokers carry out trading in the Asian subcontinent, especially in Southeast Asia. Therefore, forex trading has just become overly competitive. Furthermore, there are only a few brokers in the US which have expressed their interest to put an enormous amount of cash in exchange for NFA regulation because the market is heavily regulated. The European subcontinent has been the hotbed for forex traders. However, the situation has changed after regulators such as the ESMA and CySEC have changed some of the rules and regulations for forex brokers.

Retail brokers have considered South America as a profitable market for forex trading with a large potential client base. However, incoming brokers find it difficult to enter the regions because they face a wide range of challenges and barriers. The region is different from the European subcontinent because it doesn’t operate as a bloc, rather with diverse rules, demographics and opportunities. Several brokers have forayed into the region with a hope to make profits and replicate their existing business, however, they have not demonstrated full success.

Today, the developing markets are able to see lucrative opportunities in investment, since Europe, Africa and Southeast Asia are the biggest contributors to the forex rise. It is reported that close to 60 percent of the beneficiaries are countries in those regions, and there has been a steep trend in the markets owing to low investor confidence over volatile prices of various commodities. These commodities include gold valuation, oil prices and real estate. The prospects of the coronavirus vaccine are still trailing, some countries are slowly picking up pace in their economic activity. That said, naive traders foraying into these markets, small scale brokers and limited physical interaction due to social protocols are considered to be exhaustive factors that could deteriorate the growing trend in forex and lead to financial crises sooner than expected.

It is important to understand South America to grasp the knowledge on why brokers have historically found it difficult to sustain in the region. Foreign brokers have operated in the region through known contacts, country managers or people and the contacts aren’t made overnight. In addition, even large foreign brokers have found it difficult to sustain in the South American market because of the shortcomings in marketing efforts, which often do not properly cater to the existing demographics. Sebastián Rivas, co-Founder and Managing Partner at Latam Forex Solutions, told the media, “Although we speak the same language there are notorious cultural differences between countries in Latam. To settle successfully in this region, you need to understand this is a process that will take a while to give results. We specialise in shortening that process.”

Different economies are compelled to adhere to different means of compliance due to irregular forex regulation policies in South America. While the market in the region is still robust, there is a strong potential to carry out business and make a profit. The higher ceiling is mired in challenges of diversity and market penetration. Several brokers have committed a similar mistake over time and have struggled to understand the regions’ as an autonomous sector, which needs more planned strategies.

The first step for incoming brokers to flourish in South America is to make stronger contacts because the challenges can prove to be daunting despite abundant availability of resources. If anyone wants to enter the South American market, using the correct personnel can assist them to understand and get insights of the market seamlessly.

Risk and competitiveness
A company known as Latam Forex Solutions can assist anybody to outsource their business and conduct a successful marketing campaign. The company has perfect knowledge about its customers and has an on-the ground experience for more than a decade. The company has been successful in hiring country managers, ramping up sales, building relationships, providing education for clients and has the potential to assist people to achieve their long-term goals. Latam Forex Solutions is operated by Co-founders and Managing Partners, Federico Jelen and Sebastian Rivas. Both people are famous in the South American market for their good relationship management and proficiency in the region. They have strong knowledge about the forex market and have served senior roles in the forex segment for more than a decade.

The marketing plan is specially designed for the South American market, making it the perfect intermediary for new brokers who are looking to make profits and learn at the same time in the region. The retail forex brokers have always expressed their interest to tap beyond the European market amid stringent regulation over the past few years. The situation has led to a surge in fresh interest in the South American market, making the correct personnel and plan more vital than ever. People are expected to understand the company’s strategies and solutions in promoting their business and help embark on a fresh journey seamlessly. Furthermore, the company is believed to be proficient in lowering entry costs and optimising time through strategic agreements and a flexible marketing approach.

There is less competition among local brokers in South America than in Asia or Europe. However, if people’s brokerage converts the traffic through a call centre in countries such as Israel or Cyprus, then it might be tough to compete with brokers that actually have some local experience. Capitaria is the only large forex broker that is headquartered in South America. The other players with a local presence are: XTB, Saxo, Admiral Markets.

Brazil has majority Portuguese speakers and there are economies such as Suriname where Spanish is not spoken largely, However the population of South America is estimated to be around 630 million and if we separate the non-Spanish speaking clients, there will still be 400 million potential clients. The market in South America is comparatively smaller compared to other regions due to the level of internet penetration. Not one South American economy is highly developed. For instance, in economies such as Mexico, there are only 45 percent of the population which access the internet. However, the growth has been exponential, as the rate was below 20 percent a decade ago, while economies such as Argentina and Chile have online rates corresponding to Europe.

It is believed that the clients from South America are less well off than Europe. Therefore, a client may onboard more clients at lower costs, while the earnings per client tend to be smaller too. However, the cost per acquisition is lower than other economies. Thus, a broker may onboard more clients at lower costs, while the earnings per client tend to be smaller too. The operating expenses are lower in South America than countries such as Israel, Cyprus or any other EU economy.

The brokers in South America can operate without any kind of regulation, which is much easier than it could be in Europe. Furthermore, a broker can serve clients from South America through ASIC licence, therefore, the continent is less dependent on ESMA policies. Uruguay and Chile are believed to be among the most popular countries for forex brokers.

CFD Forex provider Infinox forays into South America
British CFD provider Infinox has entered into the South American marketplace by launching forex futures trading in the region. The development will pave the path for Brazilian investor access to S&P 500 Micro futures. The platform has been selected by the country’s B3 stock exchange. The B3 stock exchange has been considered as a market maker for the hugely popular equity futures contracts, which allow investors affordable exposure to the S&P 500 index. The new development has also paved the path for B3, which was the world’s third-largest derivatives exchange by volume two years ago to trade micro futures contracts that track the S&P 500 index of large-cap US companies in their home market.

Robert Berkeley, CEO of Infinox, told the media, “The scale and potential of Brazil’s untapped market is truly exciting. Brazilian investors already trade over $70 billion per day on just two futures products, so the arrival of S&P 500 Micro futures is a gamechanger. Earlier this year Infinox took the strategic decision to use our high levels of liquidity to diversify into market making for established and successful exchanges like the B3. We blazed a trail by enabling Brazilian investors to trade forex futures, and we’re now proud to offer them access to the S&P 500, one of the world’s best-known and most highly traded equity indices. We have more than a decade of experience in our home market, and now have a presence in 15 countries. We pride ourselves on providing competitive trading conditions and premium client service, and look forward to unlocking US equity futures trading to a new wave of ambitious Brazilian investors.”

Surge in middle class household is driving forex trading: World Bank
South America is considered as one of the emerging markets for forex companies. According to the World Bank, the middle class in South America grew by 50 percent in the past decade. The expanding middle-class population in the region has corrected a market flaw such as lack of net worth among the forex companies which have kept them away from entering the forex market in the region.

The appetite for risk assets and alternative investments also improves as the income among the people surges. Therefore, the demand for forex trading is growing steadily in the region seamlessly. The deep penetration of the internet has paved the path for forex firms to enter the South American marketplace seamlessly. Currently, 70 percent of South American households are now exposed to forex trading because of the advancement in internet connectivity. However, there are forex trading firms that are providing offline and online trading platforms because they have a long-term view of the market. Forex trading sites such efxto have contributed towards the market’s development by building a good reputation with customers through face-to-face meeting and understanding the dynamics of the market.

Brokers are opening offline offices in South America because of the growing demand for forex investing opportunities. The early forex traders in the region were bustling while providing forex investment knowledge, which is vital to establish a customer base and also avoid regulatory issues in accordance with the global forex trading environment.
The demand for forex trading in South America has also spurred due to volatility and weakness in stock and other investment products apart from the middle-class expansion, awareness and penetration. Forex trading is also gaining momentum in the region because a growing number of the population knows that alternative investment opportunities exist. Most of the South American nations still have a long way to go in getting along with regulating the financial segment.

Forex companies are striving hard to work with authorities in order to assist industries to follow regulations which are followed in Europe where the forex industry is blooming. The forex companies are attracting budding markets such as South America because of the saturated developed markets.

The future of forex market
The pandemic has brought the world to a standstill; however, the sudden instability of the market has not wallop the forex trading segment. Instead, it motivated the traders to carry out more trading. In fact, the crisis has pushed the majority of traders to use online methods to complete their transactions.

The pandemic outbreak may have compelled various industries to halt operations or shut down, however, it has have driven the forex markets to be in a better position. The forex trading segment can be solidified by tightening security. The developers are working harder to ensure that forex trade security is guaranteed so that it can manage fresh traders in the future. In addition, current and interested traders must understand the forex market trend to succeed in the future.

The forex market is expected to flourish more than it is now. Many people believe that it’s impossible, but the reality is that the demand for forex trading is surging. There are people across the globe who has only heard about forex trading. Therefore, one thing is clear that people must be provided with the knowledge of the forex market and trading so that they understand and earn money in the future. It is suggested that people must try the demo forex trading platform which is provided by companies such as Olympic trade. Once people learn about forex trading, then they can go through various analysis, trade ideas, systems, strategies and expert advisors.

The retail forex market has established itself strongly in the majority of the economies and it has become extremely complex for brokers to produce a perfect combination of its geographies. There are many brokers that have embarked on operations without setting up a call centre and it may push the brokers to set up a local office in one of the South American economies and expand its presence in the continent. The strict regulations will also affect the market participants, which is expected to attract more conservative traders. However, the unregulated forex traders will also remain popular because some traders will value the cheapness and the flexibility of trading over the comfort of being safeguarded by the law.

The new marketing technique will do the job, enriching all those who are willing to develop their own to get a richer strategy to earn money smartly. Forex trading will still remain in a high-risk speculative activity in the midst of fresh developments with huge earning potential and high probability of loss.

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