Why Forex Brokers Avoid Listing Peso Pairs

The intricate and unpredictable economy of Argentina is likely to keep the country out of the list of many international trading platforms. The peso has been exposed to extreme volatility due to inflation, currency controls, and change of policies. These aspects ensure that the brokers find it hard to offer adequate liquidity or sound pricing. To traders who are not Argentines, the risks of carrying a position in a currency that is subject to unexpected devaluation may easily exceed the possible benefits.

The government of Argentina has tightened its foreign exchange controls in recent years and this has rendered the peso even less appealing to global markets. The government has also put in place numerous levels of restrictions on the amount of foreign currency residents can purchase or sell. This will result in unnatural pricing differentials between the official and unofficial exchange rates that will pose massive uncertainties to the investors. International brokers will have to meet international transparency and liquidity requirements that are challenging to enforce in such a restrictive setting.

There is also concern among the financial institutions over the long history of Argentina crises in the economy. With every spurt of instability, there is a capital flight, currency substitution and monetary tightening. Such upsets render the establishment of a trading platform that would ensure constant market conditions in the peso pairs almost impossible. Consequently, even the most seasoned traders tend to trade on the better emerging market currencies like the Mexican peso or Brazilian real which is backed by increased liquidity and limited interventionist policies.

Profitability of selling peso pairs is also another significant factor regarding platforms. In most cases, a forex broker depends on trading volume to support spreads and efficiency of execution. As the Argentine peso is seldom requested by foreign traders, its presence on the list of the available pairs does not have any significant returns. The extra time it takes to hedge against currency controls, or even against a sudden devaluation, makes it impractical.

Image Source: Pixabay

Besides the volatility of the economy, the technical aspect of the trading peso pairs is also challenging. Thin markets are associated with more spreads and slippage resulting in expensive execution by both brokers and traders. There are also the unreliable local data and inconsistent reporting that have to be addressed in global platforms and can affect the pricing models. These operational challenges add to the risks that already exist due to the unpredictability in Argentina policy, which scares off brokers who would want to list the currency.

A forex broker seeks to deal around such restrictions using other methods. An interbank dealer that serves local customers can decide to provide synthetic peso pairs or indirect exposure by using dollar-based instruments. Although these approaches can be useful in accessing the market trends in Argentina albeit with little access, they also enable the brokers to evade legal issues. Nonetheless, these are still relative offers since there are not many platforms who are ready to take the risks associated with an economy which often takes a turn without notice.

The fact that most world trading systems do not accept the peso is an indication of a larger problem of financial seclusion. So long as Argentina continues to exercise heavy intervention in its foreign exchange market and is unable to stabilize its monetary policies, the peso will not be appealing to the global trade fraternity. Both traders and institutions still look at it as a currency that is not to be traded but one that is to be observed. Until the global brokers are able to regain long-term stability, it is probable that peso pairs will remain off the menu of many global brokers, and that they will instead stick to currencies that can be liquidated as well as forecasted.