South Africa's financial market is said to be the most developed & organized in Africa led by big Banks like: Standard Bank, ABSA, FNB, FirstRand, Nedbank & local Stock Exchange (JSE) which is the largest stock market in Africa with daily trading volume of R23.7 Billion.
SA's local financial ecosystem is often compared to that of developed economies like: US, UK, Australia. On JSE, investors can trade equities of African Companies, Commodities, Invest in futures & options of major currencies of World & African Continent.
South African Rand is the most traded currency in Africa in terms of daily volume & it is also among 20 most traded currencies in the world. ZAR is traded more outside South Africa than in local foreign exchange market with offshore trading activity touching approximately USD60 billion in 2017 while domestic volume was around $21.4 Billion USD during the same period.
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It is estimated that, there are about 1,90,000 forex Investors in South Africa who regularly trade or invest in Forex & related instruments. Average monthly deposits by South African traders is largest in Africa with $740 USD/trader as per Trading Analytics Company CPattern's 2019 data.
According to Rahul from ForexBrokers.co.za, "South Africa is a diverse nation with high net worth individuals, educated & savvy investors trading in different instruments including Stocks/Equities, Forex, Futures, Options, Bonds, Commodities etc."
He Further added: "Until recently, South African investors didn't trade much on CFDs using leverage on Forex, Foreign Equities, Commodities like: Oil & Gold. But in the past 4-5 years, Global Retail FX brokerages have been opening in South Africa to fulfill the demand of local investors who were interested in investing in Global Markets. These brokerages give advantage of leverage & unified platforms for all instruments which is attracting many investors."
Impact of ESMA & Brexit on Retail FX Growth in SA
In March 2018, European FX Regulator ESMA had drafted new regulation for Brokers operating in Europe, which had put cap on leverage on CFDs, spread betting, and also prohibiting trade of Binary Option for Retail Investors. This has slowed the growth of leading Brokers in Europe, that were offering CFDs on Forex & Cryptocurrency to Retail Traders as market demand has dropped after this regulation & also profit margins from the spread has been affected.
Likewise, as the Brexit deadline is getting delayed, Britain doesn't appear to be reaching any favorable deal with EU post Brexit, many Brokers in UK are likely to be impacted with the Brexit as it will put restrictions on them to get clients in Europe. Also, these brokers are preparing for the impact of Brexit on GPB's volatility, like it happened during Swiss Franc Crisis.
All of this has impacted the growth of many leading brokerages in Europe. Many Leading Brokers are getting ready by putting some measures in place.
One of which is to expand in Foreign Markets where demand is growing & likely to grow in coming years. These new markets are mainly Asia, Middle East, Africa & Latin America where the Brokers are rapidly expanding their client base.
Secondly, getting regulated in favorable destinations where there is no such restriction on leverage on Forex & cryptocurrency currently like in ESMA and from where these brokers can target the new markets. More & more brokers are choosing to get regulated in offshore locations like Belize, Vanuatu, Seychelles, Bahamas, Gibraltar etc. and are registering their outside EU clients under these regulators instead of Europe.
In Africa, South Africa has also benefitted from this, as many ESMA/European regulated forex brokers are choosing to be regulated under South Africa's FSCA Regulation and opening local offices in South Africa. This is giving them access to large & organized South African Financial Market, and also provides them with a gateway to rest of Africa.
South Africa FX Advantage
South Africa is quickly becoming the leading destination for Forex Brokers in Africa, as it has strong local Regulation for Forex Brokers, organized financial sector & growing demand for Forex among investors. Plus, South African regulation also opens whole African Market for the brokers from where they can accept clients from anywhere in Africa.
Some leading European Brokers like IG Group, Saxo Bank, FXCM, Hotforex are already operating in South African Market, and have acquired license from SA's regulatory authority FSCA. These brokerages are becoming very popular among local investors.
Moreover, South Africa also has a developed IB/Affiliate Network, which brokers use to their advantage to gain new clients/traders. All of this is adding to the FX growth in South Africa.
Need for Investor Education
Even though the Retail Forex trading in South Africa is growing, so are the risks with it, explains Rahul.
A major risk with FX & CFDs is the use of high leverage, as investors trading FX & CFDs through forex brokerages generally tend to use high leverage. This increases their risk exposure even more than what it is. Biggest Risk of Forex Trading is the magnitude of losses that come with leverage, as leverage increases the exposure of loss to the investors. New investors often don't know about the risks of Leveraged Forex Trading and they end up losing their capital.
Another risk that has been growing with the rise in demand of Retail Forex Trading is the scams related to forex & cryptocurrencies.
There have been increasing number of incidents related to scams in the name of investments in Forex & Cryptos, where new investors became victims of get rich quick schemes which promised high returns in the pretext of investments in the Forex, Cryptocurrency, global markets.
These risks have made the need for Investor Education even more important, so that new investors can know about the difference between genuine & fake investment opportunities and can also learn about investment basics.
There are various websites & online resources for South African Investors, where one can learn about investment & forex trading basics; JSE has created complete resource on various investment instruments like Forex Derivatives Resource on its website, as well as courses & webinars.
New investors who are looking to invest in the Forex markets, should start by learning about the basics of investing in Forex & CFDs, educate themselves about its risks and devise a proper trading strategy only then they must consider investing their money. Most brokers offer demo accounts and investors can open a demo account with any of the regulated FSCA broker to test their trading strategy.