Forex brokers have been consistently looking for the next big market to explore, which has led many to set their sights on Latin America (LATAM) in 2021.
However, the region is one of the more complicated to enter and presents plenty of opportunities and challenges for incoming players.
Over the past few years, the retail brokerage market has looked outside Europe. This was the consequence of sweeping regulation in both the United Kingdom and continental Europe.
Since then, brokers are looking offshore to set up shop. To do so requires more than time, patience, and determination. Here are five things you need to know about expanding into LATAM.
Countries with the Most Potential
LATAM boasts a wide range of countries, each of whom have different levels of regulations. As separate jurisdictions, there is no one-size-fits-all-approach.
Much like Europe, different countries have developed retail markets at different paces. The best options for incoming brokers are Colombia, Mexico, and Brazil.
With access to growing populations and a small market footprint to compete with, retail brokers have had the most success in these countries.
In particular, Brazil offers access to companies on the Bovespa Exchange, which is among the largest in the region. However, this market is also one of the tightly controlled in LATAM.
Chile, Peru, and Argentina are also known for their potential. Presently, Chile is home to the most brokers in the region. Peru and Argentina also have access to healthy, growing markets.
Finally, Uruguay and Paraguay round out the next best options for incoming brokers. Unlike the aforementioned countries, Uruguay and Paraguay each have more barriers to entry, though still offer retail brokers plenty of potential.
Regulations and Licenses
LATAM differs notably from the Eurozone in terms of a lack of cohesive regulation. Rather, each country is left to its own devices for policing its domestic markets, creating a complex web of jurisdictions and laws.
For example, each country possesses its own specific regulation, though none have a specific framework governing derivatives.
The forex market operates in a particularly grey area and is permitted across LATAM. However, brokers installed locally do not raise funds.
Instead, client onboarding is done mainly offshore and clients have become accustomed to this process.
The IB Market Myth
The forex introducing brokers (IB) market is very misunderstood in LATAM. There is a growing misconception that the region is home to an existing structure and formal IB market.
One of the biggest mistakes IBs make is showing up without any existing experience or training that’s tailored to the LATAM market.
Instead, IBs need to be well-trained in certain key issues that are instrumental in winning over clients. IBs need existing economical and marketing support from the broker so as to create a win/win scenario.
One area of emphasis that has been particularly lucrative recently are opportunities partnering with stockbrokers.
Many of these stockbrokers do not presently offer retail FX to their existing clientele, despite a strong demand for these instruments.
What are the Most Traded Products in LATAM?
It should come as little surprise that LATAM investors prefer the same instruments as the rest of the global market. This is a draw for incoming brokers who do not need to tinker with or change their offerings despite the difference in locale.
By and large, LATAM investors prefer forex majors, major US indices such as the S&P 500, Dow Jones Industrial Average (DIJA), gold, or CFD shares for US companies.
Shares trading is already well established and is viewed favorably among LATAM traders. This is expected given the wide scope of coverage these shares have across industries, making them ideal for newer and experienced investors.
Of note, LATAM investors are accustomed to free short selling of CFD shares. Additionally, cryptos are also very popular and are already a cornerstone offering among any retail broker in 2021.
Understanding the Role of PSPs
Payment Service Providers (PSPs) can make or break any retail brokerage. Over the past few years this relationship has improved, given the proliferation of options available on the market.
LATAM is no exception, with access to several different PSPs that are all available for funding trading accounts.
Regardless, LATAM investors still primarily rely on wire transfers to do the majority of their deposits and are frequently in excess of $2,000.
On average, first time deposits (FTD) in LATAM tend to skew on the larger side and often exceed $1,000. The biggest names are still Visa and Mastercard, though many investors have utilized e-wallets such as Skrill or Neteller.
More so than any other element of operations, PSPs are the most dynamic and should be researched ahead of time.
Many LATAM based companies also offer several other options for depositing. This helps forex brokers to achieve prompt results while making the deposit process faster and easy for clients.
Setting Up Shop in LATAM
LATAM has a host of benefits with specific nuisances that are not seen in other markets. While these may serve as a barrier of entry for IBs, the important takeaway is to respect the process and put in the time and effort to get your foot in the door.
“Compared with other regions, Latin America has lack of education regarding FX and the CFDs. This has stymied the amount of business the brokers have. As such, it is crucial for the retail brokers entering the Latin American market to create a prepared team who can ‘train’ their potential clients,” noted Federico Jelen, co-Founder and Managing Partner at Latam Forex Solutions.
The biggest pitfall for newer entrants to the LATAM market is a lack of prep work and short cuts. These will not work in a region that relies on trust and confidence.
More needs to be done to develop relationships than just meet-and-greets and seminars. Any successful partnership should focus on long-term and not quick profits.
According to Sebastián Rivas, co-Founder and Managing Partner at Latam Forex Solutions, “Establishing a market footprint in Latin America must be understood as part of a whole process rather than a market where you will get prompt and immediate results to cover your initial investment.”
“FX brokers are looking to develop healthy and stable business should commit to long-term forecasts and have a plan to cover all costs regarding installation (offices, personnel, taxes, etc.).”
Despite these challenges, however, LATAM continues to be one of the hottest markets in 2021 that is teeming with potential.
Learn what Latam Forex Solutions can do for you and see what the company can do to promote and kick-start your business in the region today!
Latam Forex Solutions is run by co-Founders and Managing Partners, Federico Jelen and Sebastián Rivas. The two individuals are well known in the LATAM market for their proficiency in the region and relationship management.
“Our company can help speed up that process in case you want to install your own office or also give an outsourced service avoiding the initial on-the-ground issues and heavy costs,” reiterated Mr. Rivas.