Foreign exchange trading is the largest financial market in the world. According to Bank for International settlements, the forex market daily turnover is $6.6 trillion. London and New York, the largest markets, accounting for 50% of the daily forex turnover. Australia, Japan, Switzerland markers are also well established. In other words, forex trading is pretty much popular in Europe, Asia, America, and Australia. However, Africa has lagged behind in forex trading.
The Growth of Forex Trading In Africa
Here is the good news. Over the recent past, the continent’s forex market has experienced seismic growth. According to a survey by Forexsuggest, all brokers in Africa have experienced a median growth of 21, 35%. Avatrade alone recorded a 20.2% growth in Africa from 2019 to 2020.
Currently, South Africa and Nigeria are the biggest markets in Africa. However, Kenya, Botswana, Namibia, and Rwanda Tanzania markets are also growing steadily. The total number of forex traders in Africa is about 1.3 million, with a majority in South Africa and Nigeria. To be specific, there are 200000, 190000, and 70000 traders in Nigeria, South Africa, and Kenya, respectively.
While forex trading is on the rise, the number represents a small fraction of the global forex market. In fact, Africa forex traders represent only 5.5 percent of the global market. This means there is massive growth potential, which has attracted international forex brokers. Some of the popular foreign trading platforms in Africa include XM, Forex Time, and IC markers.
Reasons For Forex Trading Growth In Africa
Below are four main factors that have contributed to the growth of forex trading in Africa. Let’s delve right in.
1. Increasing Internet Penetration
According to Statista, Nigeria has a 47% internet penetration and is poised to attain 65% penetration by 2025. Kenya boasts the highest internet penetration at 87.2%, as per the African Forum for Utility Regulators. With the growing internet connectivity, forex trading popularity is poised to grow among African traders.
2. Rigorous Marketing by Brokers
Forex trading is highly advertised online and mainstream media, drawing serious attention from Africans. Brokers are aggressively targeting young people on social media, offering trading accounts with zero fees and local currency as the base currency. Seminars and awareness programs are only making it even more popular. For instance, Tickmill has recorded a 27.4% growth in Africa alone. Without a doubt, foreign exchange will grow tremendously in Africa in the coming days.
3. Covid 19 Pandemic
As the coronavirus ravaged the globe, many people were confined to their homes due to curfews and lockdowns. Unemployment due to business closure only made the situation worse. As a result, Africa has experienced an explosion of traders as many people looked for avenues to make money online from the comfort of their homes. Also, people have had a lot of time to learn and trade forex. What’s more, forex is very accessible since it operates 24/5.
4. Strict Regulations in Europe
In 2018, The European Securities markets authority (ESMA) introduced new forex retail trading regulations. For instance, the regulations limit leverage to a maximum of 30:1. It has also created negative balance protection and banned binary options. As a result, many brokers have seen contracting profits in Europe, one of the world’s biggest forex trading hubs. Small brokers are now expanding their horizons overseas in a bid to make easy profits.
Foreign Exchange Regulation in Africa
In Africa, forex trading is largely unregulated. For instance, the Securities and Exchange Commission (Nigeria financial regulator) admits that they do not have a regulatory framework for online trading. This poses a significant problem because it is hard for traders, especially rookies, to differentiate legit and unscrupulous brokers.
The Regulation and State of Forex Trading In South Africa
South Africa is the largest and most organized foreign exchange market in Africa. Moreover, the South Africa rand is the biggest traded currency, with its daily volume amounting to about $72 billion. As per CPattern, SouthAfrica traders are most active, with an average monthly deposit of $742.04. Nigeria and Kenya follow with $514.42 and $363.56, respectively.
Forex Trading Regulation Framework
The financial regulating body in South Africa, Financial Sector Conduct Authority (FSCA), has an active and well-laid regulation framework. Essentially, it has cracked down on fraudulent brokers, including by providing new licensing to all forex brokers. The new license, Over the counter Derivative Provider (ODP), requires all forex brokers and OTC derivative firms with a physical presence in South Africa to have the new license. ODP enables FSCA to continuously access all transactional data, including price, leverage, investors name, instrument types, and underlying asset. The regulation is designed to protect clients from fraudulent activities.
Kenya Forex Trading Regulation
Kenya introduced Finance Act 2016 to make the market transparent in the wake of reports of fraudulent activities. The regulation mandates the Capital Market Authority (CMA) to regulate forex trading in Kenya. It is no wonder that Kenya is one the fastest growing foreign exchange market in the region. In fact, two local companies, Scope market and EGM securities have already set shop in Kenya.
Nigeria Forex Trading Regulations
While Nigeria is among the biggest forex markets in Africa (only second to South Africa), it is largely unregulated. As a result, most traders have resorted to using foreign brokers. Ostensibly, the trading regulations are work progress by the central bank and security exchange commission.
The Future of Foreign Exchange in Africa
As mentioned, Europe has strict forex trading regulations in place. Likewise, Australia’s ASIC is also establishing strict regulatory measures. International markets will likely camp and set up operations in Africa. In fact, in October 2020, Pepperstone (an Australian-based forex broker) became one of the latest entrants in the Kenyan forex trading market.
The forex market has massive growth potential. However, until dependable regulations are put in place, it is imperative that retail traders do their due diligence and treat the forex brokers with caution. The regulating bodies in Africa should also develop a solid regulatory framework to shield retail trades from illegal activities and fraudulent brokers.