Spotlight on the LATAM Forex Market

Latin America (LATAM) is a region with increasing potential for broker operators and deserves to be on your radar. Let’s look at the reasons behind the growth and shine a light on the benefits of operating in the region.

The LATAM market first caught the attention of brokerage operators in August 2018 after the European Securities and Markets Authority (ESMA) adopted new measures for the sale of CFD products to retail investors. The new regulations called for much tighter limits on trading conditions and introduced the concept of Negative Balance Protection. These measures included changes to leverage and margin conditions for retail traders, severe limitations on promotions such as bonuses, and more inclusive risk warning texts.

Under article 40 of the MiFID regulations, ESMA adopted the following:

1. Leverage limits on the opening of a position by a retail client from 30:1 to 2:1, according to the underlying asset

30:1 for major currency pairs

20:1 for non-major currency pairs, gold, and major indices

10:1 for commodities other than gold and non-major equity indices

5:1 for individual equities

2:1 for cryptocurrencies

2. A margin close-out rule on a per account basis at 50% of the minimum required margin
3. Negative balance protection on a per account basis
4. A restriction on any incentives offered to trade CFDs
5. A standardized risk warning, including the percentage of losses on a CFD provider’s retail investor accounts

The measures were designed to limit trading risk to retail clients while allowing clients designated as “Professional Traders” to trade on different conditions and leverage levels.

Any regulation that safeguards client risk is positive, but adopting the new rules negatively impacted many brokers.

As a result, interest focused on other, less restrictive regions, and the LATAM markets caught much of the attention.

One of the gauges of the “value” of a market is the level of compensation introducers and affiliates can get for referring new business to brokers. Over the last few years, commissions on offer for the Latin American markets have constantly increased, with levels averaging close to the $500 mark and more for an FTD (First Time Deposit.)

One of the drivers of the LATAM markets has undoubtedly been the increase in internet penetration. The Latin American market is extensive, with over 400 million internet users as of April 2022. The region has a growing middle class with disposable income and an increasing interest in the world of online trading. In September 2021, El Salvador became the first country to adopt Bitcoin as legal tender. While it is still too early to measure the effects of that adoption, it is a testament to the fact that the region can be an attractive target for operators.

The growing number of payment processors offering services for clients from the region also points to the importance of the LATAM markets. FTDs tend to be higher than in other areas, averaging $1,000. This is good news for brokers, mainly those heavily reliant on affiliate sales to drive their FTDs!

Diversification should always be at the top of the list. In the case of the Latin American markets, it certainly makes good sense to evaluate your options for the region. Several major operators have exited the European markets and are focusing on alternative regions. The LATAM areas feature high on the list of alternatives. So if you’re wondering which region to investigate next, the Latin American countries deserve to be in the running!

No matter which region you concentrate in, we can help. Our plugins power some of the biggest brokers in the world. Get in touch with us today and see what we can do for your business with a no-obligation demo of the power of our YOONIT solution!