It is estimated that there are more than 7,000 forex trading brokers in the world, and a fair share of them have a footprint in South Africa. This leads to a very important question: why are there so many forex brokers? The answer is a mix of market dynamics, competition, internet penetration and trader diversity that collectively shape the forex landscape.
This article takes a closer look at the compelling reasons behind the proliferation of forex trading brokers. Is it good for the industry, and who wins at the end of the day?
Do Traders Need Plenty of Forex Trading Brokers?
In any industry, monopoly is bad. And competition is good. This results in forex traders asking if they need lots of forex trading brokers.
Different brokers offer different trading experiences, tools and features. Depending on your trading strategy, some brokers may be better suited for you than others. So, how do you find the best forex broker for you?
Forex trading brokers are varied which is why you need to choose carefully. After making your choice, it is also essential to understand why there are so many forex brokers.
Why There Are Plenty of Forex Trading Brokers
The reasons are listed below:
Low Entry Barriers
The forex market is known for its relatively low entry barriers. This means that it’s easier for individuals and companies to become forex brokers compared to other financial markets. All that’s needed is capital, technology and regulatory compliance.
Unfortunately, this has also led to scam brokers that have left traders licking the wounds of losses.
Forex trading is one of the largest and most liquid financial markets globally, with a daily trading volume exceeding $6 trillion. By contrast, South Africa had a GDP of $405.71 billion in 2022, the third highest in Africa behind Nigeria and Egypt.
This high demand for forex trading services encourages more brokers to enter the market to cater to the growing number of traders.
Global Nature of the Market
Forex is a global market, and brokers can operate internationally with relative ease. This allows brokers to target traders from various countries and regions, increasing the number of brokers in the market.
Diverse Trading Needs
Traders have diverse needs and preferences, ranging from trading platforms and tools to account types and customer support. To cater to this variety, brokers offer different services and features, leading to many broker options.
Internet and Smartphone Penetration
The availability of the Internet and mobile devices has given many people access to the financial markets.
In South Africa alone, about 44 million people are connected to the internet and about 78.7% of the country’s population use mobile devices to access the internet.
This has led to a growing interest in the forex market.
Wrapping Up: Why There Are Many Forex Trading Brokers
In summary, the combination of low barriers to entry, high demand, global accessibility, diverse trader needs, competition, regulatory variation, and niche markets has contributed to the proliferation of forex trading brokers, offering traders a wide array of choices in the forex market.