Foreign currency trading is the world’s largest financial market. According to the Bank for International Settlements, the currency market has a daily transaction of $6.6 trillion. The main markets, London and New York account for 50% of daily currency turnover. Markers are also well established in Australia, Japan, and Switzerland. In other words, forex trading is prevalent in Europe, Asia, the United States, and Australia. Africa, on the other hand, has trailed behind in forex trading.
While forex trading is increasing, it still accounts for a modest portion of the worldwide forex market. In reality, Africa’s forex traders account for barely 5.5 percent of the global market. This implies that there is enormous growth potential, which has drawn the attention of international forex brokers. XM, Forex Time, and IC Marks are some of Africa’s most famous foreign trading platforms.
The four key elements that have contributed to the expansion of forex trading in Africa are listed below.
According to Statista, Nigeria currently has a 47 percent internet penetration rate and is expected to reach a 65 percent penetration rate by 2025. According to the African Forum of Utility Regulators, Kenya has the highest internet penetration rate at 87.2 percent . With increasing internet connectivity, the popularity of forex trading among African traders is expected to rise.
Small traders worldwide may now access money markets that were previously too opaque, expensive, and heavily regulated for anybody other than major institutional players, provided by online brokerage firms and trading apps like Pepperstone and OctaFX. Since their introduction to the market in the previous decade, trading apps with sleek interfaces that share elements with online gaming and gambling have claimed to make buying and selling FX simple. There are few credible estimates of the total number of retail dealers.
Brokers’ Zealous Marketing:
Forex trading is heavily promoted in the mainstream media and online, attracting a lot of attention from Africans. Brokers aggressively target young people on social media, providing zero-fee trading accounts with local currency as the basic currency. Seminars and public awareness campaigns are just adding to its popularity. Tickmill, for example, has grown by 27.4 percent in Africa alone. Without a doubt, Africa’s foreign exchange will skyrocket in the following months. Some FX apps and digital brokers operate in a legal gray area, similar to online gambling enterprises, which have increased significantly across Africa and many other emerging nations. Many are based on Caribbean islands or in Cyprus, which are low-regulation areas that have historically welcomed brass collar financial firms looking to operate globally without scrutiny. Thus enabling them to avoid rules that would otherwise prevent them from providing brokerage services in many nations.
COVID 19 Outbreak:
As the coronavirus wreaked havoc worldwide, many individuals were forced to stay at home due to curfews and lockdowns. Unemployment as a result of the business shutdown exacerbated the problem. As a result, Africa has seen an increase in traders as people explore ways to make money online from the comfort of their own homes. People have also had plenty of time to learn and trade currency. Furthermore, forex is incredibly accessible because it is open 24 hours a day, seven days a week.
Zimbabwe is dealing with structural issues. Only a fraction of its population has access to the internet, cash shortages are so severe that depositors sometimes sleep in bank lines, and despite having one of the best education systems on the continent, unemployment is so intense that frustrated millennials have been seen selling tomatoes in the streets while dressed in university graduation gowns. At the same time, the country is home to many intelligent young people eager to explore rapidly expanding industries such as cybersecurity, cryptocurrency, and coding. Trader-mentors aim to nurture that skill and keep young individuals on the right side of the law.
Europe’s Strict Regulations:
The European Securities and Markets Authority (ESMA) issued new FX retail trading regulations in 2018 (https://trustedbrokers.com/ke/education/introduction-esma-regulations-2018/). The restrictions, for example, limit leverage to a maximum of 30:1. It has also implemented negative balance protection and prohibited the use of binary options. As a result, several brokers in Europe, one of the world’s largest forex trading centers, have seen profits decline. Small brokers are already stretching their horizons internationally in search of easy earnings.
Although the applications and brokers promise “forex trading,” most investors only skim the surface of the currency markets by using a riskier product known as a contract for difference, or CFD. A CFD is essentially a directional wager on how a currency will perform – easy to understand but hazardous to execute. Forex markets are complex and occasionally unpredictable, and if the market turns, an unlucky trader might quickly lose their entire capital.
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Ken is a Quantitative Trader with experience in investments, quantitative finance, financial modelling and algorithmic trading in Global Investable Markets (GIM). He enjoys using Bayesian Statistics, Time Series and Machine Learning in developing Robust consistent Alphas in Equities Market, FX, ETPs and Derivatives instruments. He enjoys deep dives in understanding High Frequency Trading infrastructures and improving how the African financial markets work. He holds a Bachelor's in Actuarial Science from Strathmore Institute of Mathematical Sciences : An Executive Program in Algorithmic Trading (EPAT) certificate in Algo Trading from QuantInsti : A current MSc student in Financial Engineering at World Quant University.