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Why you should take notice of Africa’s exploding Forex Trading Industry

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  • Why you should take notice of Africa’s exploding Forex Trading Industry

    Forex trading has been on the rise in Africa lately, especially in South Africa and Nigeria.

    With the ever-higher penetration of the internet, advances in technology, as well as increased competition among different brokers, it is understandable that this market would become more accessible to individuals and investors in Africa.

    Why Forex Trading could have exploded in Africa

    Forex trading has seen a huge growth in recent years across Africa, with Nigeria and South Africa the two largest African markets although Kenya, Tanzania, Rwanda, Botswana, Namibia and
    Angola has all seen that surge in interest from the public.

    ESMA regulation

    Many new brokers are arrivals from Europe since The European Securities Markets Authority (ESMA) introduced new regulations in 2018 that limited leverage to 30:1, banned binary options, bonuses, and promotions, and made guaranteed negative balance protection for all customers mandatory.

    These rules had a major impact on the profitability of the industry in Europe, and smaller brokers started looking overseas to less regulated markets for easier profits.

    One of the main reasons why more African traders have started trading Forex is because anyone can start doing it. It does not cost a fortune, African traders have all the necessary information available, can learn how to trade Forex with the help of various educational sources.

    Lack of regulation in Africa

    Forex brokers are quite interested in the Nigerian market because of a complete lack of local regulation, as admitted by the Nigerian financial regulator, the Securities and Exchange Commission (SEC), itself in 2018.

    Unlike Nigeria, the South African financial regulator, the Financial Sector Conduct Authority (FSCA), is very active in regulating the local Forex market. It has already cracked down on criminal Forex brokers and instituted a new licensing regime, the Over the Counter Derivative Provider (ODP) license, for all Forex brokers.

    The Covid-19 pandemic


    The emergence and spread of Covid-19 on a global scale in 2020 have seen a surge of the Forex market with many new African traders joining, possibly due to uncertainty relating to employment and income security, but also because of lockdown measures confining people to their homes. Forex Trading may be seen as a perfect platform to provide an additional or alternative income.


    Things potential traders need to take notice of


    There are many pitfalls in Forex trading hence traders must watch out for scams.

    They should always be cautious against scam brokers, and using leverage higher than 1:20, especially with a new broker, since it may ruin your trading account if you are not careful.

    The South African Financial Sector Conduct Authority (FSCA) has warned potential traders to do proper research and check the backgrounds of brokers before signing up with them.


    What can be gained by the surge of the Forex market in Africa


    In general, the African Forex trading industry is similar to that of the rest of the world and continuously developing, as more people engage. South Africa is leading both the retail and online Forex trading market with the highest trading volume, which makes the ZAR very popular, a favorable fact to African traders.

    Business


    Political and economic conditions are driving currencies prices upwards or downwards despite the fact that the emergence and spread of Covid-19 had destabilized numerous African countries and weakened its currencies against major currencies such as the US Dollar. As these economies slowly reopen, some currencies are growing in strength again against major global currencies.

    It is easy to access the Forex market through a Forex broker and Forex can be traded 24/5 despite the time zone of traders’ residence. Trading can be done part-time, full-time, or as a hobby, and lockdown procedures confining people to their homes allowed lots of traders the opportunity to explore, learn, and apply new trading strategies.

    Brokers

    There are many Forex Brokers for African traders to choose from.

    African traders can start trading without a substantial amount of capital and can use leverage to open larger positions than what their initial deposit or account balance would have allowed.

    Traders may use hedging to limit the number of funds that they stand to lose in a given timeframe. They place complimentary trade orders along with multiple orders in opposite directions in which a price is moving, to try and earn greater profits by locking an exchange rate in place when opening a trade.

    One of the reasons why South Africa is taking the lead with a fairly high trading volume might be the fact that the South African rand is the 20th most-traded currency although the dollar is the dominating global currency.


    How African participation in the Forex market can influence its economy

    Participation in the FX market could unlock intra-Africa trade, which is often driven by SMEs. A dysfunctional foreign exchange market curbs SMEs’ ability to trade across the continent and alternative FX providers should design new African-centric systems to address these challenges.

    Heightened consumer confidence and disposable income are instrumental factors for sustainable economic growth. Such a solution promotes the use of local currencies for international trade and eliminates the use of US Dollars as an intermediate currency.

    Trading opportunities

    African investors can trade through CFDs, by using JSE currency derivatives or engage in forex spot trading through regulated Forex brokers.

    The African trading market is not limited by excessive laws and regulations hence traders have as many opportunities as anyone from anywhere else in the world.

    During 2020 many companies saw the loss of revenues and shares; economies were hanging on by a thread and situations have caused havoc to countries’ local currencies in the fight to remain strong against the prevailing US Dollar.

    This influx of African traders in the Forex market is worth having a look at as it may be some kind of a turning point for many native currencies against the US Dollar.

    This increase may also open up ways for investments in other financial markets as African traders explore other options also associated with trading Forex, including other financial instruments.

    Commodities

    Commodity exchanges trade mainly in primary products rather than manufactured products, and since Africa is mainly an agricultural continent, African farmers stand to benefit from an increase in involvement on commodity exchanges both on the continent and worldwide.

    Crypto

    Interest in cryptocurrency, a form of digital currency, has been growing steadily in Africa and it is to grow on the continent because it is not bound by geography, is internet-based, and not regulated by a government.

    What does the future hold for Forex trading in Africa
    As in the EU, stricter regulatory is also expected in Australia, so Africa can expect another wave of international brokers looking for more profitable markets – at least until such time that other African regulators follow in the FSCA’s footsteps.

    Traders and investors in Africa are also showing interest in online CFD and Forex platforms as an alternate investment instrument as these platforms offer a larger variety of instruments than local exchanges. Trade can also take place 24/7 with direct access to global markets.

    The popular CFD brokers in Africa are offering many options between instruments and platforms, fee structure, and market access. Much lower operational costs in Africa further motivates international brokers to set up their offices here.

    Since market regulation is the biggest challenge that may hamper the growth of the Forex industry in Africa, brokers often build trust among African traders with a South African FSCA license.

    Coupled with the offering of local support, local deposits and withdrawals, local currency accounts for traders of all types, a variety of trading platforms, and many assets to trade, they manage to attract many new traders to online trading.
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