Brazil: A Challenging Market for Forex and CFD Brokers

Despite its conditions as an emerging economy, which generates great attractiveness for investment, Brazil is considered a challenging market for Forex and CFD brokers, due to the restrictions that exist, and even the sanctions that have been given against companies that trade in currencies and contracts for difference, among other products. Let’s take a closer look.

Brazil: the largest economy in Latam

For the year 2021, Brazil’s GDP was estimated at 1.609 billion USD (figures by the World Bank). This represents a slight recovery, as it had contracted in the previous three years.

For this reason, its economy is the twelfth in the world, as well as the first in Latin America and the second in the entire continent, after the United States, according to the page Global Peo Services.

Its rise on the international scene started in the year 2003, it is due to the increase in the demand and the price of oil, coal and other minerals produced in the country, as well as some agricultural items, in addition to some reforms, which had a positive impact.

In terms of sectors, the primary represents about 5% of GDP. Its main items are sugar cane, soy, coffee, and orange (the world’s largest producer of all these). It is also among the most outstanding in cocoa, avocado, rice, sorghum, tomato, grape, apple, peanuts, rubber, palm oil, chickens and cattle (milk and meat).

In mining, iron production stands out (the world’s second-largest exporter), bauxite, copper, gold, manganese, tin, nickel, and precious stones, such as emerald, and topaz, among others.

It also leads the Latin American industry. This sector includes activities related to plastics, food, beverages, metallurgy, and textiles, representing 10% of the GDP. The rest is made up of the tertiary sector, where activities such as tourism stand out.

Investment opportunities in Brazil

Brazil is part of the group of emerging powers (BRICS), along with Russia, China, India and South Africa, which together represent more than 40% of the population and 20% of global investment.

And it is because of its potential and its diversified economy, that the southern giant is considered to have a great attraction to draw investors, both local and foreign. Although, according to the portal Santander Trade, the latter has decreased, going from 65,000 USD million in 2019 to 25,000 USD million in 2020.

In particular, the main investment sectors in Brazil are the following:

* Oil and gas

* Vehicles

* Financial services

* Electricity and energy

* Chemical products

* Paper pulp

* Information technology

* Food

·  Mining

* Transportation (cargo handling and shipping)

In this context, it should be noted that, at the Brazil Investment Forum (BIF), the IDB reinforced its commitment to paving the way for foreign investments and public-private partnerships. It is estimated that there are a wide variety of projects — in infrastructure, agribusiness, energy and technology– with the potential to attract more than 66,000 million USD.

Another interesting topic regarding investment in Brazil is startups. More than half of what happens in the region with respect to this type of start-up takes place in Brazil.

Just in 2021, 8 billion dollars were invested in the country in such technology companies (70 times more than in Perú), in different areas: finance, logistics, real estate, project execution, security, and sales in general. And there are already almost twenty Brazilian unicorns (startups valued at more than 1000 million USD).

Forex and CFD Trading in Brazil

As you know, CFD (contract for difference) is a financial derivative. In this agreement between two parties, it is stipulated that the seller will pay the difference that may exist between the value of an underlying asset at the time of the contract and its value at maturity.

Thanks to this, you can take advantage of long or short trades. These contracts allow you to speculate on price variations, without having to own the assets. In turn, they can be traded with stocks, bonds, futures, commodities, and currencies.

Now well, there are currently regulations regarding the trading conditions of CFDs, on the part of the European Securities and Markets Authority. In 2016, this entity issued a warning, because retail investors had expressed complaints about suffering losses. Among other things, leverage was limited.

In a particular way, Brazil bans CFDs. This refers not only to domestic companies or companies operating in the country but also to foreign companies that attract or seek to attract customers from that nation.

In this regard, the Securities and Exchange Commission prohibited Binance to offer its derivatives in the country, since it is not registered as an exchange house, and future contracts as well as contracts for difference can be considered securities, which is why you must have a license.

Similarly, the local government also restricted IQ Option from attracting customers in Brazil, imposing fines of 1000 reais per day, as long as this company keeps the offers in this regard. Even the sanctions for the company could lead to a temporary suspension of operations.

As for the foreign exchange or FOREX market, similar situations have arisen. More than three years ago (September 2019) a company that offered Bitcoin options was banned from trading. It was XM Global Limited, which according to Brazilian regulators was not authorized to operate in the country or deal with domestic customers.

Then, at the end of 2021, the Securities and Exchange Commission issued suspensions (some temporary, some permanent) against companies that were not authorized to conduct operations with currencies and other securities in the country. Among these are mentioned: 555 Markets, PO Trade Pocket Option, Gembell Limited and AJ Investments.

The purpose of these measures is to reinforce control over illegal currency trading, as well as prevent scams and other types of illicit activities.

Brazil: a challenging market for brokers

Does this mean that brokers cannot work in Brazil? Actually, it’s not like that. There are companies that operate perfectly in this country, as long as they do their business complying with the conditions established in the law and operate with the permitted assets. There are many other ways to invest.

On the other hand, this situation poses interesting challenges. In such a sense, brokers can see opportunities to reinvent themselves, offering alternatives, both services, products and assets to trade, as well as investment training programs, among others.

And at some point, all the conditions will be in place for these markets to operate freely, always within the framework of respect for existing regulations. In this way, investment opportunities will continue to be generated, in order to make the great economy of the southern giant grow even more.