Although the Central Bank of Mexico (Banxico), the Global Foreign Exchange Committee (GEFC) and the National Banking and Securities Commission (CNBV) all provide regulatory guidance for forex brokers, none of them take full responsibility for the industry in Mexico. As a result, the safest way for the Mexican retail investor to access the forex market is through offshore brokers.
Attribution: Mexico News Daily
Regardless of the lack of regulation, Mexico is still 1 of the most vibrant emerging markets in Latin America. The forex industry continues to grow in the country because of the stability and liquidity of the Mexican peso and investor friendly policies from the government. Learn how to trade forex in Mexico with our guide to the basics.
Get Started with Forex in Mexico
In order to trade forex safely in Mexico, you should take the time to do business with reputable institutions. There are scams out there that can be easily avoided with a bit of research and due diligence. Here are the basics to get started with forex in Mexico:
- Internet. The better your internet connection, the greater your potential for success. Having the ability to execute your winning strategies depends primarily on the connection you have because many strategies require timely input. If you experience downtime or latency when it is time to execute, you can miss your opportunity.
- Broker. International brokers do business in Mexico. The Mexican government offers no protection if these brokers are unregulated. Make sure you only do business with a broker that has accreditation from a well-known international regulator.
- Bank. Accredited brokers should have no trouble connecting to reputable banks. Your broker will have a process for connecting your bank account. Follow the instructions and test the fluidity of deposits and withdrawals before funding the account.
- Funding. Once you see that you can deposit and withdraw your money when you want, you can think about funding your investment account fully.
- Interface. The trading interface that you choose may or may not be connected to your broker. It should be integrated fully into your setup and add no latency or downtime to your connection.
- Invest. If all of your working parts are flowing well together, you can begin investing in the forex market with confidence.
Mexican Forex Trading Strategies
There are many different kinds of investors who trade forex successfully. Pick the blueprint that matches your personality for best results. Here are a few common strategies used by investors:
Speculative Short Term Trading
Over the short term, investors can make money through high frequency trading strategies that trim small amounts of profit from the top of a trade. The aptly-named scalp is considered a speculative form of trading.
Experienced investors have the data and experience to invest only when they can predict price action. The fundamentals behind a currency are not very important in this timeframe, which is usually from less than a second to a few minutes.
Mid-Term Trend Investing
Chart patterns have a chance to develop more thoroughly in the mid-term, which could be from a few hours to a few days. Trend investors develop the skill to profit from these patterns that predict movement and price ranges.
If you want to do well in the mid-term, you should also learn how to interpret trend indicators like the Moving Average Convergence Divergence (MACD), Commodity Channel Index (CCI) and Bollinger bands.
Long-Term Position Trading
If you are investing in a position, then you are willing to hold an investment as long as it takes to achieve that position. This type of forex trading is more concerned with how macroeconomics affects the price of a currency. If you like to read about the way that countries interact with each other economically and politically, you may enjoy long term position trading.
Forex Trading Example in Mexico
The current MXN/USD exchange rate of 0.04430/0.04450 seems low. You buy Mex$120,000 to profit from a rise in the rate over the short term. You will need to have $325.01 cash in your brokerage account to hold a Mex$120,000 investment at a margin rate of 6.61%.
After 13 hours, the MXN/USD price is 0.04480/0.05000, a 3 point move. If you sell now, you’ll profit $36 [(Mex$120,000 x 0.04480) – (Mex$120,000 x 0.04450)].
Making Money with Forex in Mexico
Attribution: Yahoo Finance
With your core investment strategy in place, you can now pick 1 or more of the following financial vehicles to drive your investment activities. It is good to have a working knowledge of all strategies even if you choose to focus.
- Short selling: selling a currency before you buy it back and profiting from a lower price
- Contract for difference (CFD): a financial vehicle allowing an investor to profit from price movement in a currency without owning the currency
- Binary options: a speculative investment vehicle that does not directly track the price of a currency pair and offers a binary choice investment model
Best Online Forex Brokers in Mexico
There are many offshore forex brokers that allow Mexicans to invest. Always vet your potential broker for regulation. Here are our top picks for the best online forex brokers in Mexico.
Around the world, forex investors have a basic vocabulary for easy communication:
- Pip: a value that is usually pegged at $0.0001 and represents the tiniest fraction of currency allowed in the forex market
- Lot size: normally 100,000 currency units, the lot size is the size of the order with your broker
- Orders: the currency you want from the broker
- Calls: a contract that controls a currency and has a tradable intrinsic value
Moving Within a Developing System
Mexico is a stable financial system, but the country does not take any responsibility for its forex investors. You’ll be working from a relatively stable currency, but the research to find a reputable broker is your duty alone.
In general, any offer that sounds too good to be true probably is. No broker can guarantee profits in forex — successful investors study the markets relentlessly and practice trading strategies daily.
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