Various markets have been in existence for centuries dating back to the first Stock Exchange that was established in 1585 in Amsterdam. A stock exchange, share market or bourse is a place where people meet to buy and sell shares of company stock. Some stock exchanges are real places (like the New York Stock Exchange), others are virtual places (like the NASDAQ). In fact, the first stock exchange in Zimbabwe opened shortly after the arrival of the Pioneer Column in Bulawayo in 1896. However, it only operated for about six years. Other stock exchanges were established in Gwelo (Gweru) and Umtali (Mutare). The Mutare Exchange, also opened in 1896, thrived on the success of local mining, but with the realization that deposits in the area were not extensive, activity declined and it closed in 1924. After World War II a new exchange was founded in Bulawayo by Alfred Mulock Bentley and dealing started in January 1946. The primary purpose of an exchange is provide capital for companies who then issue out “stock “ in return for investment. The exchange that was set up in Bulawayo in 1946 was the primary reason why Bulawayo then developed into an industrial hub as various textile companies were readily able to list and get access to capital.
Back then trading happened via telephone. You would call in your broker and ask them to represent you on the Stock Exchange by either buying or selling a particular stock you had interest in on your behalf. Today, however, with the advent of technology, trading is being increasingly done online. Brokers now offer trading platforms that can be accessed online without the need to ‘call in’ your broker. Not only has trading moved online, there are now new types of markets that have emerged in this century where trading can take place. Virtually anything can now be traded. In addition to stock exchanges, there are now commodity exchanges where commodities like wheat and maize are traded, metals exchanges where metals are traded, currency markets where currencies are traded, bond markets etc. The core function of an exchange is to allow for efficient and fair price discovery which happens when traders bid for various instruments on the exchange or market.
Trading is done by traders. Traders can be classified broadly into two different types of traders. These are investors and speculators. Investors are usually interested in owning a particular stock in the long run usually for hedging and preservation of value. Speculators are interested only in making returns from the short term price movement of an instrument. World over, there are 5 times more speculators than investors. Without speculation in fact, price discovery would be extremely difficult as having more people buy and selling an instrument aids in establishing the true price for that instrument.
Almost 90% of speculators now trade online. They are known as retail traders and make a living doing so. They connect to brokers who now offer online trading platforms and also offer a variety of instruments that retail traders can speculate in. Some of the most popular speculators on earth are multi billionaires like Paul Tudor Jones and George Soros who both made over a Billion Dollars in one day trading the currency markets. Professional speculators are usually housed on bank trading floors or in hedge funds and manage over 2 Trillion Dollars in money collectively. This is more money than the physical cash that exists on the planet. Trading has now evolved to be the most lucrative profession in the world. A simple Google search on ‘trading jobs in London” will reveal that on any given day there are over 1,000 trading jobs available in London.
So what is the case for trading in Zimbabwe? Can Zimbabwe produce billionaire traders? Can Zimbabwean speculators make a living trading online? According to the Modern Trader Report, 1 in 781 people in the world are traders. Because of technology and the ability of people to trade online, surprisingly there are now 1.3 million traders in Africa while America and Europe have 1.5 million traders each. Africa now has the fourth largest number of online traders in the world. Most Egyptian young adults can be found at internet cafes trading online. The Forex Traders Association of Zimbabwe which was established to recognise and assist online traders in Zimbabwe estimates that over 45,000 people in Zimbabwe are trading or have traded in Zimbabwe. This information is easily accessible from brokers who are surprised by the high proportion of traders in Zimbabwe. A quick survey done at the major Universities in Zimbabwe shows that approximately 25% of students at NUST and UZ have traded before or are currently trading. Zimbabweans have taken to trading because it allows them to trade the international markets and earn Forex if they make a profit. This is an attractive offer for Zimbabweans and is an endeavour that deserves the recognition and support of government especially because so many youth are now actively trading to supplement income and in some cases pay their own university fees. A story run early this year by the Independent interviewed a young man by the name of Munashe Maziwhananga who was able to pay his own fees at NUST from trading.
The numbers seem to justify this call for broader support. If 40,000 traders make even $12.50usd profit a week from trading, that works out to half a million dollars a week in Forex generated and coming into the country. If this is scaled up, it is possible to see a future where profits from trading match diaspora remittances. Zimbabweans are primarily trading the ONLINE CURRENCY MARKETS via international brokers. This is where retail traders speculate about the direction of exchange rates. It comes almost as a redemptive story as no one better appreciates currency values and what causes them to appreciate and depreciate perhaps more than Zimbabweans. Most people in Africa have never seen the US Dollar let alone a basket of multi currencies yet a Zimbabwean in the most remote part of Zimbabwe actively transacted with the US Dollar for over 7 years.
There have been calls by various analysts and industry players to scale up this form of trading for the collective benefit of the nation. Almost all international banks have trading floors. These desks are manned by traders who are given trading capital to trade with while trading the spot currency exchange market. FOTRAZ is calling for the establishment of trading floors across the country where 2500 youths per province can be housed in trading rooms and floors and given access to capital. A total of 20,000 youths across 8 provinces can be given the best training and assigned professional supervisors and trading executives who will help them manage and allocate risk professionally for a profit. If each youth is given $1,000 to manage with the mandate to give a 30%/month return on the capital that would translate to over $6 million dollars in profit generated a month. The trading capital would not be given directly to the youths, instead it would allocated to a trust account maintained by an internationally recognised broker. Their trading performance can be monitored and tracked. There is room to scale up the return provided the capital is increased. Pension Funds are declaring surpluses annually and perhaps a portion can be set aside as prescribed assets to these trading floors.
The other secondary benefits are that active traders will be drawn to trade some of the new products ZSE has been introducing and has plans of introducing in the future. Products like Exchange Traded Funds, Futures and Options will continue to receive low take up from the public because they need to be educated about these products first. What is missing is a trading culture and these trading floors can incubate a trading culture.
Trading is risky and even more risky when engaged for speculation. Price changes can wipe away profits and even the initial investment. There are, however, risk management strategies that can be employed such as limiting capital exposure per trade taken and ensuring trades are approved by a senior officer. These are internationally accepted methods of managing risk. The trading floors can be the first phase of rolling out a regional trading hub. London is the largest trading hub in the world with over 2.7trillion dollars being exchanged and traded daily. The benefits to the economy cannot be overstated. Small countries with highly educated citizens can and have been able to take advantage of this high turnover industry. One such example is Singapore. Singapore has a well-established, if not especially long, history as a solid offshore financial center. For a long time, it has been the largest Forex trading center by volume in the entire Asia-Pacific region, and according to the Monetary Authority of Singapore, it is the third largest such center in the world, after London and New York. It is widely considered to be well regulated, by the Singapore Monetary Authority. Over 700 million USD flows into its capital markets each day. This can certainly happen in Zimbabwe as we have a very high literacy rate. We can put our literate youth to task to create and engineer the largest financial hub in Africa. All this is possible and a vital proof of concept stage would be to start with trading floors in all provinces.
Asked for comment, one of the key voices behind this initiative, Mr Kudakwashe Manzanga said “trading floors are the only way to really prove to Zimbabweans that money can be generated online. Each trading floor can also house other online business initiatives and partner with other people already thinking in that space. The fourth Industrial Revolution is here and if you ask our youth, they are more interested in doing something online than in working in a factory. Let’s embrace the future and lean towards it, not lean away from it. Zimbabwe is the most strategic place for this initiative, being central in the SADC region. Trading is a Sanctions Buster because it allows us to trade and generate Forex without the need for approval from anyone. We are looking to present these ideas to our leaders at a Trading Indaba mooted for February 2020 with the hope to see our ideas incorporated in the 2021 National Budget. We believe trading can easily become one of the largest Forex generators in the country within 3 to 5 years. What is needed is to formalise the industry and submit it to inspection and interrogation by regulators, our leaders and the public at large. We are willing and open to submit to that process so that we can collectively shape and grow this sector for everyone’s collective benefit.”