“About 60 to 70 percent of our traders are on mobile,” revealed Robert J. van Eyden, CEO of Scope Markets South Africa, to Finance Magnates in an interview. He added, “The reason is a majority of the adult population in South Africa and Africa have mobile phones, but not necessarily notebooks or laptops. So a lot of the transactional services are done through mobile.”
Scope Markets operates with an ODP license in South Africa. The entity offers contracts for differences (CFDs) instruments in forex, indices, commodities, energy, and stocks. It also offers CFDs of stocks listed on the Johannesburg Stock Exchange. However, the local CFDs offerings are comparatively small.
“Huge Shift Towards Indices Listed in the US”
van Eyden revealed that most South African traders on Scope Markets are trading US-listed Nasdaq or Dow. “There's been a huge shift towards indices listed in the US at the moment,” he added. “I think it's because the size of these markets is so massive that they are a lot less vulnerable to economic announcements and other things.” “The Dow obviously gets impacted by macroeconomic decisions, but much less so than the South African markets.”
Africa is seen as one of the emerging markets for retail brokers. South Africa, with its clear rules and regulations, is witnessing an influx of brokers. Apart from Scope Markets, other CFD brokers that have obtained South African licenses in recent years include Vantage, XS.com, CFI, and others.
“The whole world is now waiting for interest rates to be cut, and South Africa is no different,” van Eyden added. “If that does happen, I do believe it is a huge opportunity, and we'll see a lot more entrants into the market. So, I think they are just positioning themselves at the moment for a potential influx of clients when there's a lot more discretionary income available.”
“I think South Africa will probably initiate a cycle of interest rate cuts in the next month or two, earlier than the US.”
He further pointed out that “many companies move to South Africa to establish a footprint for the rest of Africa in terms of providing operational services, sales, onboarding, etc. It's not unique to the financial services industry.”
“Low Initial Deposits”
Scope Markets’ presence in Africa includes operating in Kenya with a local license; however, it operates independently in Kenya and South Africa.
African traders are mostly small-time retail traders with “relatively small” deposits, and this stands true for Scope Markets as well, which sees deposits “in line with the industry.” According to van Eyden, the initial deposit by South African traders on Scope Markets is about $1,000 and “if things go well with trading, we see the average deposit picking up quite a lot. It's very similar to our competitors and is probably about $3,000.”
A low deposit might also impact the broker's profitability, as most of them earn from spreads. However, van Eyden pointed out that “it's just the function of the economy at the moment,” adding that he thinks it will “pick up” with the expected interest rate cuts.
“[Prop Trading] Brings Its Own Complexities”
Another popular trend in the retail trading sector is the boom around prop trading. Although many prop trading companies are targeting traders from South Africa, Scope Markets does not have any intention of entering the industry "in the next year or two."
“Prop trading has exploded globally, and it does provide many people the opportunity to enter the market,” van Eyden added. “The challenge at the moment is that it brings its own complexities. Many people try to meet these challenges, but they don't understand the parameters, specifically the maximum drawdown. Also, the rules of prop trading are quite strict.”
“If you succeed in your challenge and you do well, I think it provides a wonderful opportunity to change you, basically doing it for yourself and earning a living. But, on the dark side, at the moment, a lot of these prop trading platforms are opening up and also closing down very quickly.”
