BY MTHANDAZO NYONI
ZIMBABWE should fully embrace online foreign currency trading to boost its low forex reserves, analysts have said.
Online forex trading can be explained as a network of buyers and sellers, who transfer currency between each other over the internet at an agreed price.
The industry has become popular in recent years due to the growth in the number of brokers and the technological development of online trading platforms.
It has become one of the world’s largest markets generating over US$7 trillion a day while in London alone, over US$2,7 trillion is exchanged through the virtual platform.
Developed countries like the United States of America and China, among others, have embraced the industry, while in Africa — countries such as South Africa and Nigeria have also joined the craze.
South Africa even came up with the Financial Services Conduct Authority, an independent component that acts as the country’s regulator for all non-banking financial firms.
The watchdog helps forex brokers establish themselves in the country as well as to gain the trust of high profile investors.
But Zimbabwe, which is currently struggling to attract foreign currency due to obscure investment policies as well as poor production, has not yet come up with a substantial legal framework for online forex and binary options brokers.
Forex trading experts and economic analysts told Standardbusiness that foreign currency trading could prove pivotal in efforts to turn around the country’s fortunes by fostering economic growth and development.
“The opportunities exist on an individual level. First of all, you can trade from home.
“So if you make a profit, you earn forex because your profits are in forex.
“Now for the nation, if 100 000 people in Bulawayo are making US$1 profit a week, how much is coming into Zimbabwe because you would want to spend this money here as a trader. That’s US$100 000,” forex trading expert, Kuda Manzanga said.
“Very soon you can start competing with the Western Union remittances coming in if everyone is trading from home. Now, how about in a month? It’s US$400 000.
“How about if the profit is US$2, US$10 profit?
“So the opportunities become greater when more people engage in the activities, it begins to benefit the nation at large as well.
“Right now we are probably sitting at 12 000 traders in the country, but a lot of them are scared.
“A lot of them need to be encouraged once it is formally recognised.
“The more we speak about it, the more the government speaks about it, the more people embrace it,” he added.
Manzanga, who is also Forex Traders’ Association of Zimbabwe president, said if a lot of people could get training, online forex trading could boost the country’s foreign currency reserves.
Zimbabwe’s foreign reserves are critically low to an extent that the country is struggling to meet critical import obligations like drugs, fuel among others.
In 2016, Manzanga established the Forex Trading School Africa, which seeks to equip people with online forex trading skills.
So far, the institution has trained over 10 000 traders in Zimbabwe.
Manzanga said the government must realise that foreign currency trading was a lucrative forex earner that should be regulated.
He said they were looking at legislation, which would make it legal for a person to set up as a broker and which would look into the transfer of funds into Zimbabwe from a broker.
Lloyd Capital managing director Bekithemba Nkomo said online forex trading was an opportunity that was available to almost everyone, but “it seems that as Zimbabweans we have been slow in taking it up.”
“The reasons are varied and valid, but whatever they are, the fact of the matter still remains and that is we are not meaningful players in this market as a nation,” he said.
“The barriers to entry for this market are fairly low, and it would be great to see Zimbabweans participate more in this space.
“It could well be that more education is needed about the market, but that information is easily accessible to most people.
“Forex trading as a business could be helpful in reducing current unemployment levels in the country, particularly among the younger generation.
Financial analyst, Persistence Gwanyanya said even though there were some risks associated with online forex trading, the opportunities still abound.
“Online forex trading should not be outlawed,” he said. “Yes, government may not be encouraging it but it should not be outlawed.
“Opportunities do exist and so are the risks. It’s a balance of the two.”
Gwanyanya said the market should be allowed to determine the pace but it should be guided accordingly.
Economic analyst John Robertson said currency trading calls for good quantities of surplus funds that have been banked in foreign banks and can be quickly converted from one currency to another when exchange rate movements suggest the possibilities of making a profit.
He said Zimbabwe’s authorities do not encourage citizens to establish bank accounts in other countries, even though locals often have good reason to wish that they had banked their money in banks in safer countries.
“Some have managed to do so, however, and they can instruct their foreign fund managers to transfer their deposits into another currency whenever they believe they have seen a good sign that the one they have chosen will go up in value, or if they believe the currency they are in is about to go down,” he said.
“People engaged in this sort of activity are speculators. They could just as easily lose money with their activities, so the most active speculators need a lot of time to study market movements.
“They can also speculate on commodity price changes, ordering consignments or tonnes of copper or beef or wheat or cotton and then selling them before the quantities are ready for delivery.”
Robertson said as thousands of people were doing this all the time, the buying and selling activities tend to hold price variations within narrow margins, so prices may tend to be stabilised over long periods, but none of this activity is actually productive.
He said most commodity speculators do not want to see deliveries of tonnes of steel, tankers of oil or refrigerated containers of pork bellies delivered to their doors.
“No deals of this nature can easily be arranged or paid for from Zimbabwean banks as so many regulations are in place to control foreign exchange movements,” he added.
“So, the Zimbabweans who are engaged in this kind of speculative activity will all have large amounts of money in foreign bank accounts and will all have very trusted relationships with fund managers in these banks,” he said.