South African Forex Market vs Rest of Africa

9 February 2021
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AllAfrica InfoWire (Washington, DC)

Africa is emerging as the new frontier for forex trading. With over 41 currencies spread across 54 countries, the continent's broad retail and spots forex trading has massive potential. South Africa is leading the way with an extremely promising forex market.

The South African financial market is well organized and developed. For instance, the country is home to big banks like ABSA, Nedbank, and Standard bank. Moreover, the Johannesburg Stock Exchange (JSE) is the biggest bourse in Africa. In regards to forex, South Africa comes second to none.  Here is why.

South Africa has a Well-Organized Financial Market

South Africa boasts of the most robust and organized forex market. To put this into perspective, according to furtherafrica.com the retail forex market in South Africa rocketed from$14 billion to $21 billion between 2013 and 2016. Some of the factors that make the South Africa market appealing include impressive regulation of forex brokers operating in SA, geographical position, and liberal political views. Additionally, it has a good relationship with other global economies. As a result, the country has become a popular hub for forex traders and brokers. Financial markets in other African countries are relatively less developed.

Massive Number of Traders

South Africa has about 190000 traders, coming close to Nigeria, which leads with 200000 forex traders. Kenya comes at a distant third with about 50000 forex traders. The rest of the traders in Africa make up about 750 000, bringing the totals to 1.3 million traders. Well, Nigeria seems like it has a huge customer base. However, South Africans have a huge customer deposit. To be precise, South African traders' average customer monthly deposit is $742.04, while Nigeria is second with $514.42 worth of monthly deposits. Kenyan traders deposit about $363.56 monthly.

In 2019, South Africa's forex daily trading volume, including spot and CFDs, was about $2.21 billion. The total turnover for all fx instruments is a whopping $21 billion as per the Bank of International SettlementsSurvey of foreign exchange and OTC markets. Contrastingly, Nigeria's daily volume was $314 million per day, while Kenya's forex volume was just $192.66 million per day. What's more South African rand ranks top of most traded currencies in Africa and ranks 18th globally.

With these enticing numbers, South Africa has become very appealing to both traders and brokers. The country has recorded an increase in the number of brokers, especially from Europe. Also, homegrown companies partake in the highly profitable market.

Robust Regulation

Financial Services Conduct Authority (FSCA), the local regulator for non-banking financial institutions, has also played a major role in South Africa's forex market growth. It is one of the oldest reputable regulatory bodies with about 1000 registered financial entities under its name.

Initially, South Africa's forex market was not well regulated. As a result, illegal activities and scams increased. The regulator decided to enact strict rules to curb illegal activities. This culminated in establishing a new licensing regime. The new license requires the brokers to provide FSCA with data such as prices, transaction details and investors, and the area of residence. The data is meant to cut down illegal activities and ensure brokers treat the traders fairly.

FSCA regulatory requirements are relatively lower than other global regulators. This enables forex brokers to enjoy massive profits while minimizing operation costs. Consequently, many international brokers have expanded into the market to enjoy a favorable business environment.

Conversely, Nigeria, the second largest FX market, does not have regulations in place. Traders resort to using brokers who are accredited by FCA OR FSCA to avoid dealing with fraudsters. Kenya has performed relatively well in regulating the forex industry. It is one of the best markets for both traders and brokers. Capital markets authority, although in its initial stages, has established measures to regulate brokers in Kenya.

South Africa has therefore established itself as the best market for forex traders and brokers in Africa. The growing demand for fx products, robust financial sector, and existing regulations make the southern African country a beloved market for brokers. In fact, leading brokers around the globe, including Hot forex, FXCM, IG markets, and Capex, have set shops in SA. The brokers are basing their operations in SA to expand their network. To attract traders from SA a good number of these companies offer trading accounts in the South African rand, to such entities is often referred to as Forex Brokers With ZAR Accounts. A trading account in ZAR is the most preferred option in SA.

Apart from few countries like Kenya, many African do not have regulations governing forex trading. In fact, Nigeria, the second-largest economy in Africa, has no foreign exchange regulations in place. Comparatively, South Africa is way ahead of the rest of the continent.

Effect of ESMA Regulations on South Africa and Rest of Africa

Last year intervention measures by the European Securities Market authority significantly affected trading in Africa. Basically, brokers worldwide started looking to expand their bases outside Europe. Africa is one of the places they have found a favorable market to do business.

Thanks to the ready market and proper regulations, South Africa has proved attractive to the brokers. The forex brokers seek FSCA registration and use South Africa as a gateway to Africa.

With an increasing number of traders and demand for forex products such as Spot Fx, cryptocurrencies, indices commodities, and CFDs, more brokers will keep coming to Africa. The region allows brokers to provide bigger leverage and potentially make more profits.

Final Words

As mentioned, the regulatory framework in South Africa is well developed and organized. The trading regulations in South Africa are beneficial to both traders and brokers. These laws attract traders from other countries in Africa. In other words, traders in other countries such as Nigeria resort to trading with FSCA-regulated brokers due to a lack of firm regulations in their countries. In a nutshell, the Africa forex market is on steady growth. However, other countries must up their game to catch up with South Africa.

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