Why has African market increased by 477% in the past 4 months?

A surprising discovery is that although Africa has been struggling with COVID-19, its forex is becoming more active and its trading has increased significantly all over the world, with the volume almost exploding.

This may become a turning point in the exchange rates of their currencies against USD. It is worthy to say that the growth has brought new hope to Africas investment industry, and more choices to investors.

Reasons for the substantial explosion in forex trading ofAfrican countries

1. More people confined to homes

Since the outbreak of COVID-19, governments restricted the free movement of people in an effort to curb the spread of the virus, leading to isolation and blockade. Many people were confined to their homes for months. During this period, as the employment and income security are increasingly uncertain, more and more people were seeking opportunities for additional income, and began to turn their attention to the forex trading industry. No matter investors or brokers, all of them have more spare time to learn how to trade at special times. They can spend more time looking for trading methods and strategies that suit them.

2. Large trading volume

Forex is a kind of investment, with the largest number of participants. People prefer a simple way to increase additional income in struggling times. Therefore, the volume surge directly shows that forex is relatively inclusive and is not vulnerable to interference from the external environment. The daily trading volume of the forex market is $5 trillion, promoting the liquidity of market, which is increased by continuous currency exchange. Forex brokers provide favorable trading conditions for investors who are interested in forex trading. There is one more thing important, that is, the forex market is operating 24 hours a day, increasing the number of people participating. So African participants can trade at any time.

3. Low transaction cost

Because of the high liquidity, transactions are proceeded in a faster pace, which leads to lower transaction costs. By this account, ample opportunities are available for African traders, who may not trade with a large amount of money, to join in the forex market

4. Leveraged trading of currency pairs

Leverage is a useful tool provided by brokers, which is available for African traders to open substantially large positions, despite of their initial deposits. The maximum leverage offered is determined by the broker, by the jurisdiction within which it falls, and predominantly by the regulatory entity (or entities) that it is governed by. Some brokers, such as those under the regulation of FCA, are restricted to provide the leverage of 1:30 while other brokers, mostly offshore brokers, are able to provide traders with substantially more leverage, often up to 1:3000. African traders, however, need to learn that leverage is a double-edged sword which can either increase the chances of making profits, or expose traders to substantial risks once used incorrectly or excessively. These risks may lead to losses exceeding the traders' initial capital. Thus, it is imperative for African traders to understand leverage before adopting it. They also need to learn how to properly use it in conjunction with risk management protocols and tools provided by brokers.

5. Africas native currencies are performing better

In the past few months, African currencies have weakened greatly due to the impact of Covid-19 on various economies. One of the forces driving the trends for currency pairs and exchange rates is the economic situation, which has greatly affected the strength of currencies against USD. In the past four months, a lot of African currencies have been more stable, and some even showed a more steady increase in value against the prevailing USD. This is resulted from the economic situation improved with the phased opening of various economies.

6. More brokers are accepting African traders

While several brokers have restrictions pertaining to traders from specific countries, there are many other brokers who welcome African countries and traders to use their services. As more and more African economies have seen the positive trend in currency value and the increased exchange rates, more trade channels will be accessible by using the services of more brokers.

7. Phased opening of economies

Although the threat of Covid-19 is far from the end, many countries start conducting economic activities in a controlled and phased manner, so as to enable more businesses to perform normal operation. With the phased opening, economies are set to strengthen, which will positively affect economic situations and consequently enhance the native currency and improve the exchange rates.

Despite of the global pandemic, the forex market has retained its largest position as the most liquid one. The reason lies in the significant influxes in recent months, especially those from African countries, in which more and more traders start trading. With economies returning to near-normal status in a controlled and safeguarded manner, further influxes are expected because the improve in economic situations plays positive role in strengthening native currencies and their standings against USD.

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