South Africa fast catching up with the global forex market
The global market is clearly booming and although initially slow to the party, FX trading popularity in South Africa has quickly caught on.
A 2019 Bank for International Settlements (BIS) report discovered that the global forex market had reached daily trading volumes of $6.6 trillion. Amazingly, this was up about 30% in just 3 years. The global market is clearly booming and although initially slow to the party, FX trading popularity in South Africa has quickly caught on.
An Overview of the FX Industry
The global FX market is by far the largest financial market in the world based on value, volume and liquidity. Open round the clock, 24 hours a day, the industry is valued at close to 2 quadrillion dollars. Daily turnover at last check was more than 50 times greater than the daily volume conducted on the New York Stock Exchange (NYSE). The market is made up of about 4 or 5 different niches or asset classes which are Spot Forex, Forwards, Swaps and Options. This infographic highlights the sheer size and universality of the global market.
The Spot Forex Market is The Most Well Known
The Spot Forex market is the largest of the different Foreign Exchange subsets with more than $2 trillion worth of spot transactions traded every day. Spot Forex is also known as the physical or cash market as transactions occur with immediate effect. Parties in this market agree to purchase one currency and sell another at a mutually agreed price for settlement on a specific (spot) date.
This type of currency trading is the most well-known to South African traders and is made up mainly of large multi-nationals such as investment banks. Just 5.5% of the global Forex market is made up of retail traders and speculators. Despite only making up a small proportion of the global market, daily turnover among retail traders in 2019 was estimated to be around $363 billion.
Growing Popularity of FX in South Africa
With retail FX trading growing rapidly over the last 10-15 years, it was all a matter of time before it became popular on South African shores too. In 2019 FX trading volume from South Africa made up about 6% of global volume. While Forex trading was always going to follow this global trend and become popular in South Africa, the current climate of tightening FX regulation around the world has created a perfect storm for the local market.
In 2018 the European regulator ESMA followed the United States in imposing leverage caps on retail currency traders. This ban protects the interests of novice traders, but it also significantly reduces their upside. It also means that currency trading is not as attractive an option for retail traders in these markets. As a result, brokers have started flocking to operate in jurisdictions that are more lenient when it comes to retail currency trading.
For now South Africa remains an attractive option for Forex brokers to conduct their business and a boom in marketing and advertising activity has resulted in a rise in South African trading volumes. History suggests that while the retail industry in Africa is still in its early days, the FSCA is and will continue to keep a close eye on activity, ensuring trader interests are protected.
The Importance of Trading With a Regulated Broker
There are many opportunistic and rogue companies out there vying for trader deposits. Traders needs to do their research and be vigilant about only working with brokers that come highly regarded and licensed. Brokers advertising in South Africa might not necessarily be regulated locally by the FSCA but make sure they are a broker regulated by at least one reputable regulatory.
Watchdogs including ASIC in Australia, the FCA in the UK, MAS in the UK and CySec in Cyprus (among others) have robust and well policed rules around FX & CFDs brokerage. Regulated brokers are required to put certain measures in place to protect traders or they risk losing their licence which can seriously damage their reputation long term.
If you’re having doubts about your choice of Forex provider, jump online and Compare Forex Brokers by important features such as where they hold a licence.
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