At the beginning of a new year, we assess in this series of articles what are the expectations for trading companies to operate in different parts of the world and how will the volume of demand and competition among companies be in the new year.
We also review the strengths and weaknesses that distinguish the field of financial intermediation from other investment activities.
Africa
Africa is on its way to becoming a new growth story in the field of Forex & Online CFD trading. In the recent decade, the sector has developed from being negligible to a high growth industry thanks to the continent’s high youth population ratio, high mobile penetration & technological improvements.
According to a market analyst, “Africa’s demand for CFDs & Forex trading is growing rapidly and will continue to grow over the next few years”.
Africa has an estimated 1.3 million traders of which 390,000 are in Nigeria & South Africa, which are Africa’s two largest economies.
The growing trend in trading demand is visible in many African nations, mainly – South Africa, Nigeria, Kenya, Egypt, Tanzania, Namibia, and Angola; where there has been increasing interest in trading forex & CFDs among beginners investors.
Even the experienced investors & traders in Africa are now showing their interest in online CFD & forex platforms as an alternate investment instrument overstock, options & futures trading in local exchanges as these platforms offer more variety of instruments than local exchanges, are open 24/7, and offer direct access to global markets.
South Africa & Nigeria are leading the demand
South Africa is the market leader in Africa in terms of daily FX trading volume. The SA market is highly regulated with over 1,000 registered financial entities under market conduct regulator monitoring the sector & educating the investors. This has had a positive impact on local investor trust & demand.
Other major African economies like Nigeria & Kenya are much behind in terms of volume & demand.
Nigeria is the second biggest Forex market in Africa with 200,000 active traders & a daily forex volume of around $315 million USD and it is likely to increase even more in the future.
Kenya had an estimated daily average volume of around $192 million USD with 50,000 active forex traders.
There is also a significant increase in demand among other African Nations mainly Tanzania, Botswana & Namibia as per Google Trends.
To tap the growing interest & demand, many new brokerages are opening in Africa – both of local & foreign origin.
The popular CFD brokers in Africa are offering wide options in terms of choice of instruments & platforms, ease of use, low fees & global market access. They are offering platforms on Mobile, Web & Desktop for opening, monitoring & closing trades and along with living market, news feeds inbuilt in all their platforms.
Foreign Brokerages are eyeing this growing demand
Strict regulatory measures in Europe, Australia & UK, have led the FX & CFD brokers to look for other locations to set up operations; and Asia & Africa have become their major priorities.
European Securities & Markets Authority (ESMA) in 2018, put forth regulations in Europe limiting the leverage & restricting the marketing of CFDs, citing financial risks to the retail investors. Similar restrictions were imposed by UK’s FCA & Australia’s ASIC. The objective seems to consolidate the Forex landscape to a few brokerages that put more focus on institutional clients with experience in trading CFDs & FX.
This move has significantly increased operational & compliance costs for FCA, ASIC & European regulated brokers & also affected their profits due to lower trading volumes; so, these brokers are looking towards new markets in Africa and Asia, where there are lesser restrictions for now, and huge growth potential.
In Africa, the growing demand and the much lower operational costs have motivated many international brokers to set up their offices here and get regulated with local regulators like FSCA & CMA.
The biggest beneficiary from these events in South Africa, as it has a solid trusted regulator i.e. Financial Sector Conduct Authority (FSCA); and foreign forex brokers that are regulated with FSCA are able to target clients from other African countries through their SA regulation, while some of these brokers are also reportedly giving their European clients option to register under
South Africa’s FSCA to offer higher leverage.
Due to the unavailability of local derivative regulations in many African countries, brokers often build trust among African traders with their South African FSCA license, and by offering local support, local deposit and withdrawals, local currency accounts for traders of all types, variety of trading platforms and many assets to trade including CFDs, stocks, indices, and commodities; this has attracted many new traders to the online trading.
Market Regulation is a challenge in most African countries
Market regulation is the biggest challenge that may hamper the growth of the FX industry in Africa.
Most African countries don’t have a local regulation for forex and CFDs and this has made the environment unsafe for investors and traders in these countries. Also, Ponzi schemes, variety of scams have hurt the investor sentiment.
In terms of market regulation, South Africa’s FSCA is the most trusted market regulator in the continent.
South Africa is the most mature market for FX in Africa with strong regulation, although it is not on par with European regulators like ESMA & FCA or Australia’s ASIC.
There have been some improvements & new reforms recently by FSCA in terms of their new licensing scheme which are in line with international standards like – mandatory transaction reporting for OTC derivative providers which aims to organize the CFD providers; so, the sector seems to be moving in a positive direction.
While most other countries in Africa lack a dedicated market regulator, which is a challenge for investors in the region.
In East Africa – Kenya’s regulator CMA (Capital Markets Authority) which is controlled by its Central Bank, has recently started regulating the FX sector. As the regulations are new and relatively untested with only 2 regulated brokers as of now, there is a lot of scope for improvement.
Tanzania, through the Central bank, is also gradually tightening its regulations by aiming at more transparency in Forex transactions. Recently it cancelled the licenses to many bureaus in a move to bring down those who broke laws, but the online FX industry is still unregulated.
In West Africa – Nigeria, which is the second-largest FX market in the content is still unregulated when it comes to Forex trading. The Securities and Exchange Commission of Nigeria may be in the process of setting up a framework in the future which appears from its public notice back in 2018, although it is unclear for now. Until there is proper regulation, traders in Nigeria are at their own risk for their fund’s safety & broker’s conduct.
Most African countries are in various initial stages of formulating the regulations, with the exception of South Africa. Hence, scams are more prevalent in countries where the markets are still unregulated.
Lack of education and awareness of the risks involved; is also a limiting factor to the growth in the sector. Pyramid schemes that are marketed to bring in easy returns for investors have created heartburn to investors and hurt the sentiment bringing a bad reputation to the industry.
To counter the lack of awareness, major market regulators & their regulated brokers in the region have started offering educational resources on their websites, which are free of cost for all investors. This should help more beginner investors to understand the risks involved and to trade responsibly.
Many investor awareness seminars and communities have started springing up and it should help the retail investors & raise overall awareness.
The future looks bright for Africa & for Forex, but only time will tell how the story unfolds!
from:Fazzaco