Market regulation is a challenge that could hinder growth of forex trading in Africa

The forex market for retail traders is a huge growth opportunity in Africa, but the lack of consistent market regulation in the region could have an impact on its expansion. We have taken an exclusive look into the state of the forex industry and its regulation in Africa and tried to understand how the market could be further developed.

In recent years, Africa has experienced growth in terms of fintech platforms, and online trading of currencies and CFDs on the continent has experienced similar growth. African investors and traders are increasingly choosing online trading platforms over local exchanges.

The increase in demand for forex and CFD trading in Africa has been very synonymous with the rise of low-cost MetaTrader brokers around the world. This development has been accompanied by a large population of young Africans who prefer trading CFDs and currencies to other asset classes, mainly because currency markets are evolving rapidly relative to regional stocks and barriers at entry are generally much lower due to leverage.

The rapid improvement in internet penetration on the continent over the past decade, which is now estimated at around 40.1% of the continent's population (1.4 billion people in 2020), has contributed to the considerable increase in the number of traders interested in currencies and other investment instruments.

Mobile data in Africa is available at much lower costs than in Asia, Europe, and payment gateways in the region are also very stable compared to just a few years ago. Africans were thus able to more easily access online trading platforms and make local deposits. It is now easier for brokers to target this growing user base through online advertising platforms, without too many restrictions or additional costs as is the case in Europe.

Most brokers and their IBs in the region often target their marketing in order to attract young aduts to online investments, which allow them to obtain a stable income. This has attracted many new brokers.

Another example of growth is professional investors in the region. Global brokerages have successfully attracted some of these professional investors. Most African capital markets and local stock markets lack sufficient liquidity for professional investors to consistently make profits. Large African traders are therefore increasingly turning to global investment options - such as stocks of companies listed on the NYSE, the forex market, commodities, which offer greater liquidity and volatility.

The forex market for individual traders is growing - South Africa and Nigeria are Africa's biggest markets

Forex trading is growing in Africa, and both South Africa and Nigeria are its main markets in terms of number of traders and forex transaction volumes. It is estimated that there are around 1.4 million forex traders in Africa, which means that 0.09% of the population is trading online.

South Africa and Nigeria are the largest markets in Africa in terms of daily trading volumes, with 389,000 traders in total.

There are approximately 189,000 individual traders in South Africa with a daily local volume of $19.89 billion for all over-the-counter exchange instruments on all pairs, including spot, options and futures, and forex swaps in 2019 according to the BIS (Bank for International Settlements).

While Nigeria has nearly 195,000 traders with a daily volume of forex transactions estimated at US $299 million per day.

According to trading data company CPattern, traders in South Africa and Nigeria deposited on average around $750 and $495 respectively per quarter last year with MT4 brokers, which are the most popular in Africa.

It has also been reported that traders from Kenya, Namibia and Botswana are also among the biggest deposit clients in Africa, after Nigeria and South Africa; and demand is constantly increasing in all these countries. This is also evident from recent Google Trends data on currency-related terms in African countries, which shows an increasing search volume for keywords related to "Forex" in the region.

Brokers regulated in South Africa by the FSCA: