The demand for retail forex trading is now quite substantial in Africa such that in some countries like in case of South Africa it is even comparable to and at par with European markets and surpassing many markets in Asia & Africa.
There are about 1.3 million forex traders in Africa of which highest numbers of traders and volumes generated are from South Africa, Nigeria and Kenya. There are 190,000, 200,000 and 70,000 forex traders respectively in these 3 countries.
South African Rand is among the highest traded currencies in world with almost $72 billion USD daily volume with almost 80% demand generated from outside SA.
Large and the well established global forex brokers are now operating and have gotten licensed in Africa. Additionally numerous homegrown brokers like CM Trading, Blackstone Futures have made their name locally and globally.
The forex trading industry and ecosystem has grown considerably and become stronger due to local regulations and government oversight on the retail forex market.
Africa’s Forex Regulations and Regulatory Frameworks
Local Regulations and regulatory framework for FX market are crucial for its growth in a given market. As it is with case in Africa. The local regulators are helping build trust among African investors.
The regulations are aimed at protecting investor interest, bringing transparency in transactions, promoting online retail trading activity and dealing with liquidity problems in African FX markets.
Growing retail participation and transparency in FX market would be helpful in easing currency market liquidity which most African countries deal with.
There are 3 major FX markets that are leading the Retail FX transactions and demand in Africa specifically in: South Africa, Nigeria & Kenya.
1) South African Retail FX Market & FSCA’s role
South Africa’s forex market is the most organized and largest in terms of volume in Africa which is $12.48 billion USD daily according to latest July 2020 SARB data.
SA Traders are the most active in FX trading in Africa with deposits of $742 per month as per CPattern which reportedly published the trading deposit figures of major brokers in 2019.
Retail FX and currencies are traded on local exchange JSE and through local retail brokers and banks.
SA has twin peak regulatory model in which SARB (South African Reserve Bank) acts as Prudent regulator on all financial institutions & FSCA (Financial Sector Conduct Authority) acts as the local market conduct regulator in SA that oversees conduct of the players in the financial industry and in forex market.
FSCA issues ODP (Over-the-counter Derivative Provider) licenses to retail forex brokers and it also works for investor awareness & protection.
Additionally the FSCA keeps check on market participants mainly its dealers/brokers ensuring they are transparent in their dealings with customers through their reporting system and if any irregularities & misconduct is found on part of a dealer, they take actions on bad players like with recent case of SA broker JP Markets.
There are 1000s of entities that are currently licensed by FSCA for offering various financial instruments or financial advice including the brokers offering derivative instruments for forex.
Many leading forex brokers are licensed in South Africa to offer Derivatives or CFDs on forex under Category I license.
Forex brokers in South Africa includes local SA brokers CM Trading, BlackStone Futures and international brokers Avatrade (Ava Capital Markets Pty. Ltd.), HotForex SA (HF Markets SA Pty Ltd), Tickmill South Africa (Pty) Ltd, ForexTime Ltd. among others.
2) Kenya’s FX Market and CMA
Kenya is the only other FX market after SA that currently regulates Retail Forex Trading and FX brokerages.
It was estimated that total daily FX volume in Kenya was around $192 Million USD in 2019 and Kenyan traders on an average deposited $363 each month with the online FX trading brokerages as per trading analytics data by CPattern.
Kenya has an independent local financial market regulator i.e.: CMA (Capital Markets Authority) that licenses, supervises, monitors activities of capital market entities including those dealing in stock market, forex market like – stock brokers, foreign exchange brokers, investment banks, investment funds, fund managers, securities dealers, depositories, money managers.
Apart from regulating capital markets, CMA also performs role of educating the Kenyan investors and plays part in ensuring their safety.
CMA issues licenses to Forex brokers under 3 regimes – Dealing Forex Broker, Non-Dealing Foreign Exchange Broker, Online Forex Money Manager.
There are only 4 brokers that are currently licensed under these regimes i.e.: –
- EGM Securities (FXPesa),
- SCFM Limited (Scope Markets),
- PepperStone Kenya,
- Standard Investment Bank Limited (Mansa X).
First 3 brokers hold non-dealing forex broker license and last one has FX money manager license.
3) Nigerian FX Market and CBN
Nigerian FX market is the second largest FX market in Africa in terms of volume, number of traders, average monthly deposit at online forex brokers.
Nigeria has over 200,000 forex traders who reportedly deposit around $514 per month with the FX brokerages. Nigeria’s daily FX volume was around 314 million USD in 2019.
CBN (Central Bank of Nigeria) regulates and licenses various banking & financial institutions in Nigeria including: FX exchangers known as Bureaux-de-Change (BDCs), Commercial Banks, Development Finance Institutions (DFI’s), Discount Houses, Finance Companies (FCs), Holding Company (HCs), Merchant Banks, Micro-finance Banks (MFBs), Non-Interest Banks, Primary Mortgage Banks (PMBs), Payment Service Banks (PSBs).
In Nigeria the Securities and Exchange Commission (SEC) regulates capital markets in Nigeria and licenses operators like auditors and dealers/brokers.
Online Forex Trading and Forex brokers are not yet licensed or regulated in Nigeria so it is risky for investors in Nigeria to trade forex online.
SEC in past had warned about risks of unregulated online forex trading to general public and investors where they raised concerns about advertisements in online and other media soliciting investors to invest in leveraged online retail forex trading.
SEC also made it clear that online FX trading is currently unregulated in Nigeria and until they develop a framework for retail FX investments, anyone choosing to invest in retail forex does so at his/her own risk which raises concerns for investor safety as they are left with no grievance redressal in this case and brokers may indulge in malpractices.
For investors safety, Nigerian traders have to do extra due diligence and take caution and only invest with brokers that are reputed in the industry and have a long history and have licenses with Top Tier regulators like FCA, ASIC, CySEC or FSCA.