THERE is no doubt that the capital markets in Zimbabwe have witnessed a massive transformation in the last decade or so.
The dematerialisation process was a significant step in that transformation followed by the introduction of remote trading platforms in the form of C-trade.
Ever since other innovationshave followed in the form of the US-dollar denominated bourse, and other products like the exchange-traded funds (ETFs) and Real Estate Development Trusts (REITs).
As if that is not enough, Contract for Differences (CFDs) will now be a regulated product in our markets. CFDs, according to Investopedia,are an arrangement made in financial derivatives trading where the differences in the settlement between the open and closing trade are cash settled.
CFDs were launched by the Minister of Finance, Economic Development, and Investment promotion, Mthuli Ncube in Victoria Falls recently, who emphasised the importance of such diversified products to our financial markets.
Essentially one gets exposure in the up and down movement of a particular security without necessarily owning the underlying asset. These underlying assets include currencies, indices, equities, commodities, and cryptocurrencies.
Although stocks listed on our local exchanges are not yet available to trade under the CFDs structure, other 300+ global investments will be available for traders to pick from. Tesla, Facebook and Apple are some of the shares that one can be able to trade CFDs on, together with indices like the NASDAQ and SPN 500 whilst commodities like gold and crude oil are also options.
Exposure to such investment options locally is envisaged to attract funds that were invested offshore back into the country since these investments will now be available.
- Regulated, safe and secure platform for CFDs trading
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However, there is a clear understanding that this is not going to an overnight process.It will take some time until the market is conversant and comfortable with the products.
The other key feature of the CFDs is leverage, which in other words is debt. With leverage one can be able to magnify their positions by borrowing from the brokers. Leveraged positions are also very risky hence a need to use features like stop loss and take profit to reduce the impact of drastic market movements.
One of the main drivers that motivated the regulation of the CFDs is to ensure a safer market for participants. This comes after several market participants had fallen prey to unscrupulous unregulated brokers and had been scammed.
Some lost their savings after investing in pyramid schemes. Such unethical practices usually destroy trust in the market hence the decision to bring regulated players into the capital markets for the comfort of market participants.
The Victoria Falls Stock Exchange (VFEX) emphasized how young people are not only an integral part of the capital markets, but the future as well, hence a need to bring on board products that resonate well with them.
The exchange, however, admitted a need for extensive investor education on the products, which essentially they already started by a networking event where market participants attended.
The brokers will be first regulated by the VFEX, which will keep track of whether participants adhere to the rules, whilst the Securities andExchange Commission of Zimbabwe (SECZ) will be the overall regulator and licence issuer. VCG Markets, a Mauritian headquartered firm, which is licenced in various jurisdictions is the first broker to be licenced to operate in Zimbabwe.
However, since this is now an open market, more brokers will be expected to come on board.
Traders will be able to deposit and withdraw money into their trading account using the Visa card, Mastercard and the CBZ bank account. CBZ is also the clearing partner for VCG Markets. Discussions with other operators like Ecocash and Innbucks are ongoing, andthey are expected to join the platform later.
Unlike with the equities market where one is subject to a T+3 trading cycle, with CFDs trading one can get into and out of trading positions instantly.
VCG Markets also offers the VCG Academy which empowers the potential traders through knowledge transfer. The academy aims to simplify the intricacies of complicated financial markets and take a trader from the basic education all the way to the advanced level.
All these are offered free of charge. A demo account which is risk free is also available for participants, who are not yet ready for the live account.
The other interesting feature, which will be available is the VCG social, which exposes the participants to other 7000+ traders to watch along their trading history.
This allows a trader to follow another trader, who has a profile that fits their appetite in terms of the strategy and replicate that.
Market participants, who attended one of the networking sessions on CFDs were keen to understand the exchange control regulations around trading of these instruments.
For individual traders there is an annual limit of US$50000 before exchange control regulations kick in. The participants were also interested in knowing if the capital gains tax that apply on shares will be applicable with these instruments and they were assured that it will not apply.
The future of the financial markets in the country remains interesting with all these innovations being brought on board. Understanding that educating and convincing the market to take on these investment opportunities will critical, the success or failure of CFDs will be significantly hinged on that.
- Hozheri is an investment analyst with an interest in sharing opinions on capital markets performance, the economy and international trade, among other areas. He holds a B. Com in Finance and is progressing well with the CFA programme. — 0784 707 653 and Rufaro Hozheri is his username for all social media platforms.
