Monday, January 18, 2021

State of Online Forex Trading Industry in Africa: Report

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Elvis Adjetey
Elvis Adjetey is an experienced African journalist who has worked with top media brands in Ghana where he is based.
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Foreign exchange market is a popular financial market where global currencies are traded & it is the largest market in terms of volume even larger than world’s biggest stock exchanges combined.

In the recent years, retail currency trading where small investors can take part in the forex market for speculation is gaining popularity globally.

African traders have shown particularly interest in the trading instruments like forex, stock CFDs and Bitcoin even more than local stock exchanges in some countries. Most brokers & cryptocurrency exchanges operating in Africa have reported high growth, new user signups in retail trading in 2020 alone.

This has led to many global CFD brokers entering the region for the first time, and new frameworks are being formed in many African countries to regulate forex trading & cryptocurrencies, considering the risks and safety of investors.

Reasons for Online Forex & Crypto Trading Growth in Africa

In the last 2-3 years, there has been double-digit figure Growth in Africa especially in markets like Nigeria, South Africa and Kenya. It has been reported that there are more than 1.3 million traders in African alone.

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One of the main reasons for the growth of Retail Forex & Crypto trading in Africa is the low barriers to entry for investing in these instruments as compared to trading in regional stock exchanges. Plus, as these are global markets, so many African investors who are interested to invest in global markets can do so via these brokers, exchanges.

Another reason that has contributed to the growth is the availability of cheap internet data, and wide accessibility via mobile devices in Africa.

Foreign brokers are also targeting the Africa market for new users due to the high growth potential in the region. This has led to influx of so many brokerages in Africa like Hotforex, ForexTime, Pepperstone, FXPesa etc. which have regulated with regional regulators like FSCA in South Africa, CMA in Kenya.

The increase in competition among brokers has led to more instruments being offered by brokers, wider marketing which has led to higher market penetration & increase in user base.

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But the forex & crypto trading market in most African countries is still unregulated.

Africa’s Online Forex Trading Regulators and Licenses

Most of countries in African continent don’t have online forex trading regulations, legal framework governing this sector except for South Africa & Kenya.

Though, there are some talks of formalizing online FX trading, CFDs & Cryptos in some countries like Nigeria, Tanzania with proposed legal frameworks and studies being conducted.

In past, there have been announcements & warnings from SEC of Nigeria (Securities & Exchange Commision, Nigeria) saying “Online Forex Trading is unregulated in Nigeria and advising general public to take caution as it may be subject to abuse and anyone investing in FX will be doing so at own risk”.

And same was reiterated by BoT (Bank of Tanzania) in their past announcements on FX & Cryptos, in general there is no clear directive against Online Forex Trading in Tanzania and they have put restrictions on Forex transactions for anyone looking to invest abroad and investors are only allowed to use Authorized dealers for sending money.

Online Forex & CFD Trading is currently only formally legalized & allowed in two countries: South Africa & Kenya.

South Africa’s Financial Market Conduct Regulator FSCA allows forex trading as CFD (a derivative instrument) while Kenya issues 3 types of licenses for Online Forex Brokers.

FSCA in South Africa – FSCA (Financial Sector Conduct Authority) is a financial market conduct Authority that licenses and regulates financial entities/institutions in South Africa offering financial products, ratings & services which include Banks, Insurers, retire funds, Hedge Funds, Credit Rating Agencies, Capital Markets, OTC Derivatives Providers.

It is responsible for monitoring conduct, supervision of these entities and ensuring safety and education of financial customers. And it also plays role in financial stability in SA.

Online forex trading is licensed as Derivative Instrument or CFD. Forex Brokers need to register under the ODP licensing scheme launched in 2018. All forex brokers in South Africa offering Forex & CFDs must hold derivatives intermediary license and Forex Investment license from FSCA, and forex trading is offered as CFD instrument by these brokers.

Before 2018, Forex brokers were licensed under FSB predecessor of FSCA. They were required to move to new ODP license scheme with deadline of 2019.

Every forex broker is issued unique FSP Number and that can be verified from FSP Search on fsca.co.za, and broker has to be licensed under Category I to offer derivative instruments. Traders can also check broker’s license from FSCA’s ODP Search to ensure they are allowed to offer CFDs. There are 64 entities that come up in this search.

Trading forex or CFDs at foreign brokers unlicensed by FSCA is not allowed in SA. Nor Traders are allowed to speculate against Rand.

CMA in Kenya – CMA (Capital Markets Authority) is a financial markets regulator of Kenya that licenses, supervises and monitors activities of capital market entities. It also plays role in Kenyan Investor safety and education.

CMA started regulated Online Forex Trading in 2017 with the passing of The Capital Markets (Online Foreign Exchange Trading) REGULATIONS, 2017 under Capital Markets Act.

CMA issues 3 types of licenses to online forex brokers i.e.: Dealing Forex Broker (allowed to act as market maker), Non-Dealing Forex Broker (allowed to offer CFDs or derivatives and send order to market) and Forex Money Manager (offering investment advice and manage portfolio on behalf of clients). There are currently 4 entities licensed as Non-Dealing broker or derivatives broker and 1 as money manager.

Traders can check & verify the CMA licensed forex brokers from here.

CMA publicly warns Kenyan investors and traders against trading with unregulated brokers.

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