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Like we said recently about Dubai, a hard part of analysing this industry is missing things on the ground.
Prop trading in Brazil provides another example. For instance, one prop firm – Axia – was set up in the company back in 2017. This would make it one of the oldest firms in the industry.
There was also a major case in the industry last year. Atom, which was a publicly traded firm, was taken to court by the local regulator, the CVM.
The CVM argued – and won the case – that Atom was effectively offering illicit brokerage services.
This case is a long-winded one but the main point centred around how the offering was structured.
Atom was offering real accounts at the funded stage, but where the amount a trader could lose was close to or less than the amount they had paid to get a funded account. If they went below that limit they also had to pay back the firm the loss and pay again to get a new funded account.
This effectively meant that Atom had no downside risk because the fee covered what the trader could lose as margin and, if the trader went below that amount, they had to pay it back.
At the same time, Atom was also marking up commissions that it was charged on real trades.
As a result, the CMV was able to argue, not unconvincingly, that Atom was effectively just running an unregulated brokerage business. This was actually very similar to some of the claims that the CFTC made against My Forex Funds’ ‘instant funding’ accounts.
The thing that’s interesting about this case is it does not appear to have set a precedent for the wider industry, because most firms don’t structure trading this way. Atom was giving people live accounts. Almost all other props don’t do that.
So has it stopped anyone from operating there? Nope.
“I would say you are having one firm start every month locally,” said Rodrigo Mariano da Rocha Founder & CSO of Brazilian legal firm Fin+. “And that is a very conservative estimate. [Prop trading] has become a real craze in Brazil, the market is booming.”
Other data suggests that’s the case. For example, in the Atom case, the CMV found that some clients had repurchased challenges 10x(!). Local tech provider Nelogica is making a push into the industry and PropHub – a B2B provider – is also based there. One prop firm, SabioTrade, appears to have been named purely with the Brazilian market in mind.
Milen Marinov, Chief Product Officer at Paytiko, also said the company is working with at least 100 prop firms doing business in the country.
Data that Fin+ shared with TradeInformer also showed the uptake among Brazilian traders. The key points being…
- Average spend is $800
- Average challenge buys per firm is ~3
- Traders use an average of 2.2 firms
- 60% of clients are Gen Z or millennial
On the Google ads side, FTMO has run almost 60 ads targeting Brazil in the last month. For FundedNext the figure is closer to 100.
As we’ve seen recently with XTB and FBS, the Brazilian market is a weird one. Like the US, it has a local exchange that tends to cry and curb OTC trading products.
What’s interesting about the Atom case is none of the simulated activity was prohibited. It was almost all related to how the company structured ‘real’ trading.
Like the rest of the world then, it seems Brazil sits in the gray area where simulated activity is ok because it’s no regulated. And as the stats above show – there’s lots of appetite for the product.
