How Argentine traders make 7% returns in minutes from capital controls

Argentinian traders found a new way around their government's capital controls — and the bond-trading technique is consistently netting 7% returns, Bloomberg reported.

The traders profit off the difference between the US-Argentine peso exchange rate and the government's new peso value. The official exchange rate of about 56 pesos to the dollar is stronger than the 62.35 per dollar rate offered by brokerages.

The trade consists of the exchange of pesos for US dollars, purchase of Bonar 2024 bonds, and the selling of the securities minutes later.

The sale uses the difference in exchange rates to net about 4,300 pesos in profit, or a 7% return, Bloomberg found.

Argentinian traders have found a way around President Mauricio Macri's capital controls, and their technique is netting a steady 7% return without breaking any laws.

The traders are profiting off the difference between the US-Argentine peso exchange rate and the government's new peso value, Bloomberg reported.

Investors use the term “MEP dollar” to refer to the buying and selling of bonds in different currencies. The official exchange rate of about 56 pesos to the US dollar is stronger than the “MEP dollar,” which stood at about 62.35 per dollar Friday.

The sole limit to the bond trade is a $10,000 monthly cap on dollar purchases. Some traders blew through their limit in one week, Guardati Torti trader Federico Grand told Bloomberg. The trade is nearly guaranteed to make a profit, but with central banks taking the expense through cash loss, the government is unlikely to keep the conditions that allow the trade to flourish.

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Here's how such a trade takes place.

An investor exchanges about 56,000 pesos for $1,000 at a bank.

The investor asks their broker to buy Bonar 2024 government bonds with the $1,000. The bonds traded at $45.56 as of 12:25 p.m. ET Monday.

The investor then sells the bonds and receives roughly 62,300 pesos by using the weaker exchange rate. The trade nets a profit of around 4,300 pesos, representing a 7.4% return.

Though commission charged by the trade's broker lands at about 0.26%, the trade still brings a 7% or better return.

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