With the increasingly mature trading markets in Europe, America, Australia, and other regions, many people in emerging markets have begun to pay attention to currency trading, and the trading industry has become increasingly popular. In the continent of Africa, which has 54 countries and approximately 41 currencies, retail transactions are also gradually emerging, especially in the two largest economies in Africa - Nigeria and South Africa - where trading markets are thriving, attracting more and more individual investors to these markets.

Two major factors contributing to financial growth in Africa

1. Industry advantages align with regional development

One of the more important reasons for the gradual expansion of the African currency market is that the relatively large proportion of young people in Africa prefer currency trading over other asset classes. The African continent has gathered many underdeveloped countries, and their economic development level is relatively backward. Compared to financial activities such as stocks, currency trading has a unique trading structure that reduces the costs of exchange and settlement, so the transaction costs are not high.

In the past decade, the internet penetration rate on the African continent has rapidly increased. It is estimated that by the end of 2020, the internet penetration rate will account for approximately 39.2% of the 1.3 billion population on the African continent. This has also promoted the rapid growth of users in finance and other online investment types. Furthermore, compared to Asia, Europe, and the United States, the cost of mobile data in various regions of Africa is actually much lower, and in recent years, the stability has also become stronger, making it easier for African people to access online trading platforms.

2. Lateral push of European ESMA interventions

In 2018, the regulatory agency "European Securities and Markets Authority ESMA" implemented product intervention measures, imposing leverage restrictions on contracts for differences, cryptocurrencies, etc. This has led to an increasing number of brokers and retail customers turning their attention beyond Europe, seeking regions with more relaxed regulations in order to provide products with higher leverage. The growth of the African economy and less restrictive laws have made the continent a highly favored region for brokers and retail customers. On the other hand, due to the large population in Africa and the fact that many young people there view currency trading as a way to achieve financial freedom. Therefore, the African currency market has significant growth potential.

Current situation of the currency market in the African continent

1. Led by South Africa and Nigeria

Nigeria and South Africa are the two largest economies on the African continent and the two largest currency markets on the continent. It is estimated that the daily average trading volume of the Nigerian currency market may be around 350 million to 450 million naira (approximately 1 million to 1.2 million US dollars), and this number is still on the rise. In the past few years, investors in the South African region have also been steadily increasing, and there may be up to 300000 retail trading traders so far, with active traders accounting for approximately 25% -30%.

According to the net deposit report of currency trading platform research company CPattern, the average quarterly deposit of Nigerian currency traders is about $514. What attracted so many Nigerian investors to participate in currency trading? Perhaps because, compared to local stock and derivative markets, the currency market has higher liquidity and greater volatility. And due to 24-hour uninterrupted operation, it provides more investment opportunities for Nigerian investors.

2. Local markets urgently need more effective regulation

The trading market in the African region is showing a prosperous scene, and the main obstacle to its normal development is the extreme lack of effective financial regulatory institutions in the region. Some traders operating on the African continent are currently mainly regulated by the South African Financial Sector Conduct Authority (FSCA).

What is the regulatory strength of FSCA in South Africa? In the FX110 regulatory rating column, it can be found that based on the comprehensive evaluation of investment protection, regulatory rules, and risk management by regulatory agencies, the South African FSCA ranks 28th out of 45 global regulatory agencies included. It has many regulations on risk management and fund protection that Huimin is particularly concerned about, such as "FSCA requires financial service dealers to isolate customer funds and establish separate accounts to keep funds separately." Overall, the regulatory strength of this institution is relatively strong.

Nevertheless, there are still many unregulated brokers in Africa, even more than regulated brokers. The overall lack of strong regulatory agencies in the trading industry and the lack of risk awareness among local investors make it extremely easy for local investors to face investment fraud. Overall, the entire African region urgently needs a set of regulations to regulate local markets.

Source: FX110