Rise of Online Trading in South Africa

In recent years, the African continent has embraced Forex trading. The growth of the retail segment was rapid. For instance, from 2013 to 2016 it ballooned from USD 14 billion to USD 21 billion in the subregion of South Africa alone. Similar trends have been observed in Kenya, Namibia, Angola, Tanzania, Rwanda, and Botswana.

One thing is clear: the public are increasingly interested in making a profit on the currency exchange. Today, local clients of brokerage firms may start with very modest deposits. There are even cent accounts for the most cautious.

Drivers of the Rise

Currently, 50 million people in the subregion use mobile internet. Around a third of the young generation is jobless, although the economy is slowly recovering. Thus, young people are often lured into Forex by social media advertising. Over the past few years, this has become more aggressive. The main contributors to the impressive spread are the following:

1. Internet penetration (currently roughly 50%, projected to reach 85% by 2023);
2. youth unemployment;
3. low cost of entry;
4. marketing.

International brokers are tailoring their offerings to the needs of the local population. For instance, accounts with the Nigerian Naira as base currency are now common. Accounts in US dollars, meanwhile, may include zero conversion fees. Instant depositing options are also available. Overall, opportunities for profitable online trading are only growing.

Brokerage Firms: Big Transition

Local traders use services of home-grown or global providers. The latter category is currently the biggest. Many of these companies are based in Europe. Their interest is partly based on the recent changes in EU finance regulations. These resulted in lower profitability for the industry.

Since 2018, it is no longer possible from brokerages to offer leverage over 30:1 on the EU territory. Moreover, as binary options and bonuses are also excluded, Forex is losing some of its appeals. The Nigerian market is yet to see any tightening, which is why so many brands are setting their sights on the African continent.

In the past, Europe was the largest Forex marketplace. Even though established companies can weather the storm, some brokers are switching regions. Here, Africa offers favourable conditions, given its moderate controls. To be precise, these are almost non-existent in Nigeria.

This was even acknowledged by its Securities and Exchange Commission (SEC) in 2018. The entity admitted that “until a framework for the regulation of online retail Forex trading is developed by the SEC, any person participating or engaged in such investment activity does so at his or her own risk.”

However, no controls have been introduced to date. This presents a challenge due to the rise of Forex fraud. Sometimes, telling the difference between legit brands and cybercrime websites is hard.

South Africa: Current Regulation

In South Africa, the situation is different. Here, FSCA (the Financial Sector Conduct Authority), has been actively cracking down on fraudsters. Besides, it imposed licensing for all Forex brokers based in the region. Under this Over the Counter Derivative Provider (ODP) licence, local brokerages are obliged to provide the entity with uninterrupted access to data concerning all transactions. For every client, this includes:

• instruments;
• underlying assets;
• pricing;
• leverage;
• name and country of residence.

What Legal Brokers Offer

The range of services provided by established brands is vast. Aside from Forex trading with minor, major and exotic pairs, there are stocks and assorted derivatives. Clients may create diversified portfolios that include:

1. currencies;
2. stocks;
3. CFDs on stocks;
4. CFDs on commodities;
5. CFDs on market indices;
6. binary options, etc.

What Lies Ahead

In the coming years, the region is likely to see a new influx of international brokers. This will happen due to the announced tightening of controls in Australia. Unlicensed firms will continue diddling rookie traders. Although legit operators do exist, aggressive marketing from fraudsters is detrimental to the perception of Forex overall.

Until Nigeria introduces its own regulations, Forex will remain a highly risky undertaking. The key takeaway for any aspiring trader in South Africa is that caution is paramount. It is vital to check that the broker is officially licensed. International firms must be subject to oversight from reputable state bodies, such as CySEC.

Trustworthy companies keep clients’ funds separate from corporate capital. Their sources of lawful revenue are spreads and/or commissions. Fraudsters set up websites for the goal of stealing money and personal data. Instead of connecting to the global marketplace for investing and trading, clients are manipulated into parting with hard-earned cash.