Last Updated on 31 March, 2021 by Samuelsson
As the financial trading world embraced electronic trading, it has become possible to gain access to different markets across the globe. The rapid growth of the economies in the South American region is making the futures markets in that region attractive to investors and traders from all over the world. But can you trade futures in South America?
The simple answer is yes! With the help of international brokers, such as Interactive Brokers, TradeStation, and Charles Schwab — which offer access to foreign futures markets, including the South American market — you can trade futures in South America. What it takes is to open an account with any of those brokers and trade the South American futures markets you want.
In this post, you will learn the following:
- What futures trading is all about
- What you should know about the South American futures market
- Why you can trade futures in South America
- How to trade futures in South America
What futures trading is all about
Futures trading is the process of buying and selling futures contracts in any asset to either hedge against price fluctuations or speculate on price movement. A futures contract is an exchange-traded financial derivative contract in which two parties — a buyer and a seller — agree to exchange a specified quantity of a given asset for a presently agreed price on a future date. In essence, the contract gives the buyer the obligation to buy the underlying asset and, the seller, the obligation to sell at or before the contract’s expiration date.
There are usually two broad categories of futures: commodity futures, which include gold, crude oil, wheat, and other commodities, and financial futures, which include equity, interest rate, and index futures. There is also the volatility index futures. At expiration, commodity futures may be settled at expiration with cash or by physical delivery of the asset, while financial and volatility index futures are settled with cash.
While some participants in the futures markets, especially for commodity futures, are stakeholders in the respective asset industry who use futures to hedge their businesses and are open to settlement by physical delivery, the majority of futures traders are in there for speculative purposes — to profit from price movements.
When a speculator sees an opportunity in the market (a potential price movement in a particular direction) buys a futures contract, he holds it until the opportunity has played out. He then offsets the position before contract expiry. If this trader thinks the asset still has room for further price movement but the contract is about to expire, he can roll over the contract to the next one by simultaneously offsetting the current position and opening a new one in the next contract month. Eventually, when the opportunity has played out and the market has reached the profit target, the trader offsets the position.
Since futures are traded on exchanges, the contracts are standardized, and each futures contract size is set by the futures exchange it trades on. The contract size of a particular futures asset tends to be the same across different exchanges. For instance, the contract size for one standard gold futures contract is 100 ounces, and it is the same across different futures exchanges. So, if you are to buy one standard contract of gold, you will be in control of 100 ounces of gold, and if the price of gold moves by $1, the value of the position will change by $100 ($1 x 100 ounces). For a mini contract, the size is one-tenth of the standard contract size. There is also a micro contract whose size is one-tenth of the mini contract. Different assets are measured differently though. Crude oil, for example, is measured in barrels, and 1,000 barrels make one standard contract.
What you should know about the South American futures market
Some countries in South America, such as Brazil, Chile, Argentina, Bolivia, and a few others, are major exporters of agricultural and soft commodities, such as sugar, soybeans, bananas, cocoa, coffee, tobacco, beef, corn, and wheat. Others, such as Venezuela, are also major suppliers of crude oil. So, commodities futures trading is very popular in the region because most of those commodities are mostly traded in the futures market.
The importance of the South American market in the global supply of agricultural commodities is such that any issue that affects exports from South America normally affects the prices of the commodities in the global futures market. For example, dryness in South America disrupted Argentine exports and fuelled the rally in corn and soybean. As expected, both producers and consumers come to the futures market to hedge against fluctuations in the harvest, while speculators also try to benefit from the fluctuations.
While commodities are a key element of the South American futures market, they are not the only tradable assets. There are equity, interest rate, and Forex futures too, and the market has been steadily growing since the 1970s and 80s, attracting traders and institutions from around the globe.
Some of the major multinational futures exchange groups, such as the CME Group and the Intercontinental Exchange (ICE) have a presence in the South American region. Apart from them, the South American futures market is made up of a few local commodity, financial, and equity futures exchanges, such as the ones listed below:
The main exchanges in Argentina include:
- Mercado a Término de Buenos Aires
- Mercado Abierto Electrónico
- Rosario Futures Exchange (ROFEX)
The main local futures exchange in Brazil is BM&F Bovespa.
The only futures exchange in Chile is Bolsa de Comercio de Santiago.
The only local exchange in the country is Bolsa Boliviana de Valores.
Bolsa de Valores y Productos de Asunción is the primary security exchange in Paraguay.
The Uruguay Futures Exchange (UFEX) is the only local futures exchange in the country.
Bolsa de Valores de Lima, BVL, is the only local exchange in the country.
Why you can trade in the South American futures market
The internet has made the world increasingly connected, as one can easily interact with people that are thousands of miles away in milliseconds. With the advent of the internet came electronic trading, which has made it possible for one to place trade orders from anywhere with a few clicks and have your broker execute them instantaneously. The emergence of international brokerage brands, such as Interactive Brokers, TradeStation, and Charles Schwab, now extended the benefits of electronic trading by giving individuals access to various exchanges across the world.
These international brokers often work by partnering with the local ones in different countries to access the local markets. But in some countries, the brands are also participating members of the local exchanges. Whatever the method of operation, these trans-national brokers make it possible for us to participate in various foreign markets.
Trading futures in South America
Now that you know you can trade futures in South America, even as a resident of the US or Europe, how do you achieve that? Well, you have to first register with an international futures broker. After that, you select the markets or assets you intend to trades.
In this section, we will discuss the key factors you need to successfully trade the South American futures market, which are as follows:
- The brokers
- The assets
- The trading session
In the end, we will discuss the steps you can take when you want to start trading futures in South America.
Futures brokers to use
To trade futures in South America, you need the services of a broker or brokers that will connect you to the market. Two categories of brokers work in this regard, and they include:
- International brokers
- The local brokers
Online international brokers with a presence across the world, including the South American region, offer the easiest way to trade futures in South America if you are a retail trader. However, there are not many such brokers. The popular ones are as follows:
- Interactive Brokers: Interactive Brokers is, by far, the most popular broker with cross-border services, with a presence in over 184 countries. With the broker, you can trade the futures market in the South American region.
- TradeStation: TradeStation is another popular international broker that offers futures trading. The broker is present in over 156 countries across the globe, including most of the South American countries, such as Argentina, Brazil, Bolivia, Chile, Peru, Uruguay, Paraguay, and others. With TradeStation, you can easily trade both commodity and financial futures assets in the region.
- Charles Schwab: With a presence in most of the South American countries, such as Argentina, Brazil, Bolivia, Chile, Peru, Uruguay, Paraguay, and others, Charles Schwab can offer you access to most of the futures markets in the South American region.
The job of local partners
These international brokers often partner with the major local brokers in the region to access the local futures markets. The regional players are banks and big financial institutions that are registered brokerage members of the respective futures exchanges in the region. These local partners help to link their international counterparts to the markets. In some cases, the international brokers are, in themselves, participating members of the exchanges.
The assets to trade
The South American futures market allows you to speculate on a vast range of asset classes, including commodities, Forex, bonds, interest rate, equities, equity index, digital assets, and more.
- Commodity market: The South American market is mainly known to supply commodities, especially agricultural commodities and softs, such as corn, wheat, palm oil, cotton, and others. These are traded on the futures exchanges, such as BM&F Bovespa, Mercado a Término de Buenos Aires, Mercado Abierto Electrónico, Rosario Futures Exchange (ROFEX), Bolsa de Comercio de Santiago, Bolsa Boliviana de Valores, Bolsa de Valores de Lima, and the Uruguay Futures Exchange.
- Equity market: The South American market has a vast offering of equity index futures, as well as single index futures. These are traded on exchanges such as BM&F Bovespa, Mercado a Término de Buenos Aires, Mercado Abierto Electrónico, Rosario Futures Exchange (ROFEX), Bolsa de Comercio de Santiago, Bolsa Boliviana de Valores, Bolsa de Valores de Lima, and the Uruguay Futures Exchange.
- Bond market: Interest rate futures are also traded on some of the futures exchanges in South America.
- Digital asset market: The digital asset market is nascent, but many exchanges, especially the international exchanges, such as the CME Group and the ICE, operating in the region, are creating a futures market for Bitcoin and other digital currencies.
What trading session?
As you may have known, the time zone differs for different regions. The South American region is in GMT-3 time zone, and their markets are generally open from 10:00 AM to 5:55 PM GMT-3, which translates to 1:00 PM to 8:55 PM GMT (London Time) or 8:00 AM to 3:55 PM New York Time.
So, if you reside in Europe or North America, you can trade the market if you wish to. You may only need to wake a bit earlier than normal if you are in North America or retire late into the night if you are in Europe.
How to trade futures in South America: the steps to follow
If you want to trade the South American futures market, these are what you do:
- Study the market: Make out time to study the South American market to know what works and what doesn’t. The most important thing is to understand the factors that move the market and why they do.
- Choose the assets to trade: As you study the market, select the assets you want to trade. While there are many assets you can trade, it is important to specialize in a few — they could be commodities or equity indexes.
- Open an account with an international multi-asset broker: Open an account with Interactive Brokers or TradeStation. Go to the broker’s website and fill the account opening form: provide your details and answer some questions about your financial trading experience. You may be required to provide proof of identity and address.
- Start trading: When your account is approved, fund it and start trading. As you already know, futures trading is leveraged, so you should have a strategy for managing risk to avoid huge losses.