What factors are influencing Africa’s expanding forex markets?

forex markets

Despite the ongoing and incredibly adverse impact of the coronavirus pandemic, forex market activity has increased across the globe. This trend has been particularly pronounced on the continent of Africa, where currency trading exploded by an estimated 477% in the four months ending June 2020. Find about the factor influencing Africa for expanding forex markets.

Of course, this expanding forex markets was inspired in part by the restrictive laws imposed by the ESMA, which reduced the maximum leverage available to EU traders and caused many European-based brokers to target alternative markets such as Africa.

In this post, we’ll explore the other factors that have triggered for expanding forex markets, while asking whether this trend will be sustained into the future.

The Basic Factors That Help to Drive Growth

Of course, there are several universal factors that have driven growth in Africa’s forex trading sector, which is now home to more than 1.3 traders (primarily in regions such as South Africa and Nigeria).

Other popular forex hubs in the region include Kenya, Egypt, Angola, Namibia and Tanzania, with residents here having been drawn to the market as it has become increasingly accessible.

Not only is the forex market already open 24 hours over a five day period each week (and split into three global trading sessions), but technological innovation and the rise of online trading have combined to remove many of the barriers to entry that once surrounded this space.

With a combination of more forex traders and a larger number of reputable brokers now active in Africa, it stands to reason that trading volumes should have increased. It also makes sense that activity should be particularly pronounced during the coronavirus pandemic, as this has weakened major currencies and provided a boost to emerging and frontier markets.

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As a general rule, weaker currencies in Africa and Southeast Asia definitely performed well during the first six months of 2020, while the wider destabilisation of the global forex market as a whole has created opportunities for international traders to increase their profitability in the near-term.

Has Regulation Played a Part in Higher Activity?

As the continent of Africa is home to a host of different countries and governments, there’s no uniform set of regulations for the forex market.

However, the growth of the marketplace in recent years has definitely encouraged different countries to regulate activity and monitor instances of fraud, particularly those that dominate currency trading in Africa.

In South Africa, for example, stringent regulatory measures have been imposed by the relatively recently formed Financial Sector Conduct Authority (FSCA), which is responsible for controlling all fiscal and trading activity within the country’s boundaries.

Most importantly, the FSCA regulates policies that require all OTC derivative brokers to report trades in a bid to effectively organise CFDs. As a result of this, forex brokers can relate with each other to set universal standards and avoid conflict, creating a fair and transparent market that’s appealing to new traders.

So, although the forex trading growth rate in Africa may diminish slightly as the coronavirus eases, the marketplace is poised for sustained expansion in the longer-term.

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