THE Securities and Exchange Commission of Zimbabwe (SECZim) has approved the rules on Contracts for Difference (CFDs), paving the way for the creation of a regulated CFDs trading framework in Zimbabwe.
This comes as the Victoria Falls Stock Exchange (VFEX), a subsidiary of the Zimbabwe Stock Exchange (ZSE) is set to pioneer CFDs trading of foreign currency.
A contract for difference (CFD) is a financial contract that pays the differences in the settlement price between the open and closing trades.
If the closing trade price is higher than the opening price, then the seller will pay the buyer the difference, and that will be the buyer’s profit.
The opposite is also true.
Popularly used in forex trading, CFDs have grown in popularity in Zimbabwe but with no regulations in place, many investors have fallen prey to unscrupulous foreign brokers through unethical practices.
In addition, Zimbabwe has lost significant amounts of foreign currency as currently all the transactions and balances are outside Zimbabwe.
“The introduction of the rules on CFDs will create a regulated framework for CFD brokers operating in Zimbabwe and thereby providing safe and secure platforms for CFD trading in Zimbabwe,” said VFEX chief executive Mr Justin Bgoni.
VFEX, according to Mr Bgoni, is always exploring initiatives that deepen the capital markets and add value to investors.
In September, VFEX launched VFEX Direct, an online trading platform designed to make buying and selling of securities listed on the United States-denominated bourse easier.
The platform is specifically designed for retail investors. Investors wishing to participate through VFEX Direct, are required to hold an FCA (Nostro) account with any local bank.
Meanwhile, the Reserve Bank of Zimbabwe (RBZ) has often issued warnings to the public against participating and investing in Ponzi and Pyramid schemes which largely emanated from unregulated forex trading.
According to the RBZ, Ponzi and Pyramid schemes tempt people into investing their money in lucrative investments and contribution systems with the promise of high returns.
The RBZ further explains that a Ponzi scheme attracts investors to invest money with a scheme operator in the belief that they have a genuine market to invest in, waiting for their promised return on capital plus initial investment.
VFEX was launched in 2020 as part of efforts by the Government to attract global capital, while also helping restore foreign investor confidence in Zimbabwe’s capital markets and help companies raise capital in foreign currency.
It is believed the foreign exchange market is the largest financial market in the world. Where the value of stocks traded per day could reach around US$200 billion globally, on the forex market over US$5 trillion is traded.