There is a particular frustration among Argentines that their counterpart in more open economies has not experienced with as much force. The impetus to be part of international market expansion to holdings associated with the performance of international companies, and commodity prices, is head-on with an infrastructure of capital controls, foreign exchange restrictions, and domestic investment limitations, that periodically has been tightened until it is nearly closed. This dynamic of aspiration versus restriction has made CFD trading platforms not just a handy substitute for local investment choices, but a viable solution to a problem which the home financial system was generating, but not resolving.
The functionality of what these instruments offer in the Argentine market is more relevant than the common retail trading offer. The contracts, whether on a US equity index, a commodity, a currency pair, or a combination of all, are located outside the reach of the Argentine banking system and are settled in foreign currency by a trader with an internationally regulated broker. That structural externality is not a luxury for the investor whose early experience in finances involved having to jump from place to place to deposit money at banks that were actually frozen, and whose first-hand experiences with economic history in Argentina with currency restrictions has made it impossible to overlook the actual risk profile.
Despite the financial sophistication needed to responsibly use leveraged derivative tools, the learning curve that trading CFDs requires has not prevented Argentine involvement in such trading in a way that could be thought of. A financial problem-solving approach that translates to the research approach required by responsible CFD trading has been honed by Argentine investors who have spent many years trying to understand the implications of a dual exchange rate system and how to calculate the real purchasing power of the various options for converting dollars, as well as the practical aspects of maintaining offshore investments in the face of changing regulations. The difficulty of the instrument seems more manageable to those who already have a lot of financial complexity in their daily economic lives.
It is important to highlight particularly in Argentina that the financial desperation that economic instability causes can have a negative reaction to the amplification that leveraged positions grant. However, when investors are trading CFDs as a way to offset the negative effects of inflation on their investments, they might be tempted to trade with high leverage to earn enough to beat the inflation rate. This is because that orientation leads to position sizing decisions that the responsible risk management frameworks would not support, and those Argentine traders who have realized this particular temptation in their own decision-making and have acted in a way to avoid it are more likely to have more lasting practices than those who let the economics of the positioning drive their leverage decisions.
The importance of broker selection is even more critical in Argentina than in the rest of the retail trading markets in Latin America, heightened by the particular weaknesses that capital controls put in place. If traded by an unregulated offshore broker that has the same kind of withdrawal restrictions or account closure practices as the less reputable part of the international broker world, then there is little that the trader can do if the trader has funds in such a brokerage account. Being exposed to no regulatory oversight in their home market and having no reliable regulatory structures abroad can leave traders with little practical recourse, but the need to participate in trading dollar-denominated instruments can call for actions that go against their better judgment.
What CFD trading has brought to Argentine investors who trade responsibly is an easy link for them to enter into the global markets that their own financial system was not offering them, nor was their government’s periodic restrictions on foreign exchange access. The platform is not in perfect condition, the risks exist, and the regulatory landscape demands constant monitoring. Within those limitations, the access it offers serves a real need that the financial system in Argentina has not been able to satisfy.
Ethan Rogers