Demand for retail and spot forex (FX) is increasing in South Africa.
The industry has developed in recent times with a growing number of traders, ever-increasing demand among investors, interested brokers and a well-regulated finance sector.
According to estimates by Forexbrokers.co.za, there could be around 190,000 traders in South Africa alone.
Nigeria’s figure is almost same as South Africa’s, with around 200,000 traders, while Kenya has around 50,000 traders.
The rest of Africa makes up 750,000 – meaning there are about 1.3 million traders in Africa.
FX Demand in SA and rest of Africa
South Africa leads the way in terms of local retail FX trading demand and global currency swaps in Africa.
One of the main reasons for this is the strong and regulated financial sector paired with local demand from the investors.
Further, strong foreign investor interest in the South African economy and currency adds to South Africa’s strength.
South Africans lead in the size of their deposits with retail forex platforms at $742.04, making South African traders the most valuable for brokerages.
Nigerian traders rank second, not far behind at $514.42, and Kenyan traders rank fourth with $363.56 according to data by Trading Analytics Software Firm CPattern.
South Africa’s Forex trading volume including CFDs and spot comprised about $2.21 billion per day with a total daily foreign exchange volume of $20.37 billion for all FX instruments in 2019.
In contrast, Nigeria’s FX daily volume was around $314 million per day in February 2019 and Kenya’s forex volume is around $192.66 million per day.
Russia and India are just ahead of South Africa at $46 billion and $39 billion respectively, while Turkey and Brazil ($19 billion and $18.7 billion) were behind South Africa in terms of foreign exchange turnover in 2019.
This is according to the Triennial Central Bank Survey of Foreign Exchange and OTC markets by BIS (Bank of International Settlements).
The South African Rand is also the most traded currency in Africa and the 18th most traded in the world.
The data table below compares the Forex volume of South Africa with other countries.
Strong Regulatory Framework
South Africa is becoming a popular market for both traders and brokers.
This is due in part to the role played by the Financial Sector Conduct Authority (FSCA).
The FSCA, the successor to the Financial Service Board (FSB), is the license issuer for forex trading in South Africa and lays down regulations which are well organized and trading friendly.
The FSCA is the most respected and oldest financial regulator in the continent and has over 1,000 registered financial entities.
Other countries are still catching up as they are in process of developing their own frameworks for the FX industry to regulate the sector.
Nigeria, which is the second largest market in terms of retail FX trading deposits in Africa, is considering regulating the FX sector, but currently does not have regulations for the sector in place.
This has left the Nigerian Retail FX sector self-regulated or altogether unregulated.
Nigerian investors are therefore choosing brokers that are regulated under FCSA or FCA to ensure fund protection.
Kenya, which is also one of the more prominent countries in Africa in terms of Forex demand and is the eighth largest economy in the continent, has started regulating brokers under their CMA (Capital Markets Authority) framework since 2018.
However, CMA is still new and in development, meaning not many brokers have licensed themselves under it yet.
This has made South Africa’s FSCA the most important FX industry regulation in the continent.
Brokers have made South Africa their hub in Africa
Due to existing regulations, a strong local financial sector, and growing demand for FX in South Africa and Africa, brokers are choosing South Africa as their operations hub in Africa.
To target the growing demand of the retail and spot forex sector in Africa, many of the world’s leading FX brokerages in terms of trading volume – including Saxo Bank, Hotforex, ForexTime, and IG Markets – have in recent years regulated with South Africa’s FSCA and have opened local offices in the country.
These brokers are also benefitting from their FSCA regulations, as it also allows them to market to traders in other African countries like Nigeria, Kenya, Tanzania, Botswana and Namibia.
Due to the lack of existing local regulations in most African countries to protect investor interest, many traders have shown their trust in FSCA and other foreign regulators; they are open to trading and signing up with forex brokers regulated under FSCA regulation.
FSCA brokerages offer products like CFDs on indices, commodities, cryptos and spot FX, and African investors have shown a lot of interest in these products.
There are also currently no restrictions on the leverage of CFDs and FX, or on the marketing of these products under FSCA.
This is unlike foreign regulators such as ESMA, ASIC (Australia) and FCA (UK), which have put caps on the leverage and marketing of CFDs and FX.
These factors have encouraged brokerages to register their African clients under FSCA regulation and expand their networks in Africa.
With the growing demand for forex and CFDs among African investors and their trust in FSCA, South Africa’s FX sector is expected to benefit from this growth.