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Is Forex Trading legal in Zimbabwe? Understanding the forex market and local regulations

Is Forex Trading legal in Zimbabwe? Understanding the forex market and local regulations

Forex trading is increasingly becoming popular across Africa. Today from Sub Saharan to Southern Africa, urban people are trading in various financial instruments, including forex.

Forex is the engine of global trade. Companies, governments, and financial institutions continuously exchange currencies on the forex market for export and import, manage currency fluctuations, buy and sell assets worldwide. While most currency trade happens between these big players, a small percentage of roughly 5.5% goes to retail forex trading.

According to Forex Brokers SA, “Nigeria and South Africa are the two largest forex markets in Africa, but many others countries such as Kenya, Zimbabwe and Angola are also witnessing a massive surge. Nigeria and South Africa have together 470,000 active traders, while Kenya has 75,000 traders, and Zimbabwe is catching up fast with 45,000 traders.”

If you’re looking to trade forex, here are the things you must know:


Forex History

The exchange or barter system existed in different civilizations since time immemorial.  People traded one good for another, and then salts and spices became a more popular form of exchange. Further down the civilization road, the first gold coins were produced around the 6th century B.C. For almost 2500 years, the gold coin became the currency for global trade until the 1900s.

In modern financial history, the Bretton Woods 1944 created the world’s first currency exchange system involving 44 Allied Nations including most European countries and the U.S. It was the gold-dollar pegged system where US Dollar was pegged with gold value and other currencies were pegged to US Dollar value. However, in the 1971 the Bretton Woods’s pegging system was suspended by the U.S. when they temporarily stopped interchangeability of gold & US Dollar, hence making USD fiat currency.

By 1973, whole Bretton woods system collapsed and since then, gold pegging has not returned and the majority of countries have adopted free-floating currency regimes where the currencies are allowed to float based on demand, supply in free market while some currencies are pegged against other currencies.

Thanks to the Internet revolution in the 1990s, the currency trading system grew faster. This increased retail participation and as one can now trade currencies by pressing Enter on their computer or mobile. Today, the forex market is the largest financial market, with an average daily trade of $ 6 trillion.

With the rise of third-party platforms such as MT4 and MT5, a small percentage of global currency trade found its way into mobile/laptop screens of smaller retail investors. 24/5 market, low capital requirement, high leverage, and decentralized regulation attract ordinary investors to risk and earn from this lucrative trade.


What is Forex Market and how forex trading works?

If you have travelled abroad, you have indeed exchanged your currency; and your bank would have exchanged the currency based on current currency rates plus commission. This is done by placing order in the forex market.

The forex market is the decentralized financial market where different national currencies are traded against each other. For instance, if you want to travel to France, you have to exchange your Zimbabwean currency (ZWL) for Euros. Similarly, a business importing goods from another country has to pay the invoice in that country’s currency.

Forex Market Participants

There are all sorts of big and small participants in the forex market – central banks, commercial banks, business entities, investment firms, retail traders and brokers. While more than 90% of forex volume consists of banks and businesses, the rest of the volume comes from brokers and retail investors.

Foreign exchange happens almost every second. The forex market never sleeps in this ever-connected world, with activities like travelling abroad, global business transactions, banking, and individuals investing in foreign assets and stock markets.


The forex trade happens in currency pairs like EUR/USD, USD/JPY, and GBP/EUR. Here each currency written left before the oblique sign is called the base currency, and the right to oblige is called quote currency.

Currently, 1 EUR=1.21 USD. That means you for each Euro you will get 1.21 USD. If this pair fluctuates to 1 EUR=1.23 USD or dwindles to 1.20 USD, then the investor profited 0.02 USD in the first instance and lost 0.01USD in the second. The movements in currency values are how traders make profit or loss.

Retail forex trading is growing in Africa, but it is risky 
Retail forex trading has gained much popularity in the last few years. South Africa, Nigeria, Kenya, Namibia, Zimbabwe, and other African countries have seen rapid growth in online currency trading.South Africa registers the highest daily forex volume, USD 20.37 billion (BIS 2019), and is tightly regulated under the market regulator, FSCA. According to an estimate, there are close to 220,000 active traders in South Africa. Nigeria has roughly 250,000 forex traders and sees USD 315 million in daily volume. Kenya has around 75,000 traders while Zimbabwe has 45000-50000 retail investors. The trend is expected to rise further.

However, except for SA and Kenya, most African countries lack regulation for online forex trading.

The lack of regulation in online forex and CFD trading has made forex trading unsafe in these countries. Many times, people lured by high returns get trapped into Ponzi schemes and lose their hard-earned monies. That’s why it’s essential to understand the forex risks. In forex trading, profit is possible but not guaranteed.

The main forex trading risks are:

  1. Leverage risk:

Retail traders often use leveraged instruments like CFDs to place orders in the forex market. In forex trading, leverage enables you to place trading orders with very low capital. For instance, a 1:2000 leverage gives you 2000 USD for every 1 USD deposited as margin money with a broker. The aggressive use of leverage in volatile market conditions can result in substantial losses.

  1. Interest Rate Risk

It’s a simple macroeconomics concept. If a country raises its interest rate, its currency appreciates and vice-versa. Central banks across the world change the interest rate to confer with market conditions. And these changes can cause a shift in currency values hence affecting retail traders & businesses.

  1. Political/Economic News

A change in national government can have a significant impact on the currency market. For instance, when Joe Biden was declared a winner in the U.S. Presidential race, the dollars strengthened as investors expect that Biden will allow more open global trade. Similarly, the release of any new economic data or financial news can cause volatility in the market.

  1. Broker Risk

Before handing over your hard-earned money to a broker, do diligent homework to find a reputable and regulated broker. The regulatory requirements bind brokers to follow the rules such as capital adequacy ratio and other safety requirements like leverage cap etc.

As a rule of thumb, always choose a tightly regulated brokerage under regional, top tier regulations like the Africa based FSCA licensed forex brokers from South Africa or CMA brokers from Kenya or internationally regulated brokers under top tier regulations like FCA in UK, ASIC in Australia to avoid fraud and risk of ruin. Examples of highly regulated brokers in Africa include Hotforex, IG Group, Exness broker which are regulated with FSCA & FCA. You must also ensure that the chosen broker is also licensed by market authority in your country in case there is a local regulation as this will protect you further.


Forex Market Rules and regulations in Zimbabwe

In every country, there is a restriction on forex trade like exchange control regulations to control foreign currency supply situation, Balance of payments and inflation in the economy.

Reserve Bank of Zimbabwe (RBZ) has set the rules for currency exchange in Zimbabwe under Exchange Control Act. The financial authority clearly states that no person shall deal (buy and sell) foreign currencies other than from an authorized dealer. Ordinary citizens can exchange currencies only through licensed institutions and commercial banks.

Given the volatile political and economic situation, the Reserve Bank of Zimbabwe has issued a strict warning against illegal holding of foreign currencies. According to SI 142/19, Zimbabwean Dollar is the sole legal tender in the country. If anyone is found involved in charging or purchasing in foreign currency, the person will face a civil penalty under SI 212/19 and 213/19.

Other foreign exchange rules in Zimbabwe

  • Exporters can keep the foreign exchange in Nostro accounts, beyond their immediate requirements. A Nostro account is a bank account that a Zimbabwean bank holds with a foreign bank.
  • Corporates receiving funds will have to deposit the same with a Nostro account.
  • Individuals can’t keep foreign currencies. Persons receiving foreign funds have to sell foreign currency within 30 days. No person shall buy, sell, borrow, lend foreign currency other than from Authorized dealer.
  • The use of foreign currencies in domestic transactions is outlawed as per the SI 212/20 directive. SI 212/2019 prohibits any party to a domestic transaction from paying or receiving foreign currency in exchange for any goods or services.  
  • Only free funds held in foreign currency are allowed to make domestic transactions. Free funds are defined in the Exchange Control Regulations 1996, S.I 109/96 as follows;

“money which is lawfully held outside Zimbabwe by a Zimbabwean resident and which was acquired by him otherwise than as the proceeds of any trade, business or other gainful occupation or activity carried on by him in Zimbabwe”


Can retail traders trade forex legally in Zimbabwe? Are online forex platforms & brokers safe?

Given the volatile economy and above forex restrictions, the retail investors should heed caution and follow the prescribed rules by Zimbabwean Central Bank diligently.

Although, there are no direct rules on online forex trading. But RBZ’s foreign exchange rules do apply on individuals, where they are prohibited from direct forex dealings without the use of Authorized Dealer. There are also restrictions on foreign currency held for longer than 30 days. So, this will impact traders making deposits at brokers abroad and funds held at brokers for longer than 30 days.

Traders need to understand these rules before trading so they are not in violation of forex rules. Also, there are no locally regulated forex brokers in Zimbabwe. If anyone claims to be a nationally regulated broker, stay away from them.
However, some investors do trade in forex via globally regulated online brokers (which might be illegal and in contravention of above forex rules). If you’re also considering forex trading at your own risk; understand the current forex laws, restrictions, and ensure that you report currency dealings within 30 days to avoid penalties.

To minimize broker related risks, you can choose a reputed broker regulated by Tier I and Tier II regulatory bodies such as FCA, ASIC, FSCA and CySEC. However, trading with a licensed broker won’t remove all the risks.

New traders are advised first to educate themselves and start with a Demo Account before placing any actual trading order. Make sure that you follow best forex management practices such as wise use of leverage and risk-reward ratio.


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