Africa's Copy Trading Boom: True Adoption or a Passing Phase?

Copy trading is a common investment practice, but new indicators show that in Africa, the method has become a phenomenal hit. Curiosity about copy trading among Africans is higher than in other developed nations, such as the United States, the United Kingdom and Australia, according to Google data on searches.

Investigating the data, Finance Magnates found that some brokerages have seen a significant increase in copy trading adoption, especially during the height of the COVID-19 pandemic. For example, Axi reported a 300% increase in copy trading adoption over the last 24 months. However, some believe that copy trading is not 'the Holy Grail' and its adoption is being impeded by several factors, such as absence of trust, insufficient knowledge and a so-called 'cash-out' mentality.

Africans World Leaders in Search

Africa has the youngest youth population in the world and this category stands at the heart of the continent’s emerging online retail forex and CFDs industry. Despite the many challenges that plague this industry in Africa, including weak regulations and financial illiteracy, new data suggest that a high number of people from the continent are curious about two new trading opportunities: copy trading and trading bots.

Copy trading is a trading technique and service that enables individuals, especially newbie traders, to automatically copy positions opened by their peers, especially so-called expert traders. Mirror trading is similar to this practice and both terms are categorized under social trading, a concept that has been in the trading industry since 2008. The trading style was popularized by platforms, such as eToro and is now an established offering among forex brokerages.

According to a new report by TradingBrowser.com, between January 2004 and April 2023 (a 19-year period), searches for the term "copy trading" on Google made from Nigeria surpassed those made from the United States by 1900%. This same is obtainable for a number of other African countries: searches in South Africa (which is second highest on the continent) surpassed that of the US by 800% while Kenyans beat the UK and Australian citizens by making searches 1.8 times and 1.5 times higher than the developed countries. Furthermore, the search rate in Ghana doubled that of New Zealand, the report noted.

In terms of “trading bot” searches on Google, Nigeria leads with a score which is 3.7 times higher than that of the UK and 4.5 times higher than the US’s numbers. Kenya comes in second. In addition, searches for the term in South Africa are 155% higher than the US's figures.

“In Nigeria, the most frequently searched terms include ‘crypto trading bot’ and ‘bitcoin bot’, indicating a keen interest in emerging technology and a willingness to embrace innovation among Nigerians,” the report noted.

While these figures show a huge interest in copy trading and trading bots among Africans, the question remains as to whether the high level of curiosity about these trading innovations commensurate with adoptions.

The Revolution Is Brewing

According to a report by Insight Partners, the market size of the global social/copy trading industry was $2.2 billion at the end of 2021. The market is expected to grow at a compounded annual growth rate of 7.8% to reach $3.8 billion by 2028.

In addition, Research and Markets in its report on social trading noted that North America in 2021 "accounted for the largest share in the global augmented social trading platform market." However, Finance Magnates Quarterly Intelligence Report found that despite the fact that social trading was introduced over 15 years ago, the trading technique only accounts for 1-3% of trading volumes among forex brokers (excluding 'social brokers' such as eToro and NAGA).

In other words, despite being introduced over a decade ago, copy trading has refused to gain significant momentum across the global retail forex industry. What, then, is happening in Africa? Does the Google Trend data reflect reality in terms of adoption of copy trading among the continent's retail forex traders?

During the height of the COVID-19 pandemic in 2020, the global forex trading volume shot up to 2.4 quadrillion. The African retail forex industry also recorded massive growth during this period as people who were rendered unemployed or confined to working from home sought to make extra income from forex trading. According to Dany Mawas, the former Regional Director at INFINOX, Africa’s forex industry grew by 354% year-over-year in the first quarter of 2021 compared to the same period a year earlier.

Speaking to Finance Magnates, Paul Hwingwiri, the former Head of Africa at brokerage Axi and current Regional Director at INGOT Brokers, noted that copy trading gained peak popularity in South Africa during the height of the pandemic. The popularity came as beginner traders who were fresh to trading and had experienced losses turned to the trading technique, preferring the profit-sharing model. As a result, the adoption of Axi's copy trading feature, for instance, rose over 300% in the past 24 months and jumped five-fold from the pandemic period.

On the contrary, Temitope Ijibadejo, the Nigeria Country Director at SquaredFinancial, attributed the "significant increase" in copy trading to “financial brokers advertising this product more aggressively compared to earlier years when the copy trading technology was introduced.”

“At Squared Financial, in the past 6 months, we witnessed an increase in requests for copy trading solutions," Ijibadejo, who was previously the Nigeria Regional Manager at online trading provider CM Trading, told Finance Magnates. "Speaking with prospective clients, there is a general request for investment programs that wouldn’t require learning and trading time and that solution is copy trading."

However, some brokerages do not consider this market enticing enough and are turning their attention to other opportunities.

"When it comes to copy trading, we feel that other industry players have covered that space enough to make it too saturated for us and not an area we would choose to develop further or aim to stand out in," said Paul Margarites, Exness' Regional Director for Sub Saharan Africa. "Instead of focusing our efforts on copy trading, a key area of focus for us is crypto, which is ever-growing and ever-popular across Africa."

Furthermore, it appears copy trading is not 'the Holy Grail,' as Boyo Abidemi, a Lagos-based forex trader who has trained hundreds of beginner traders, puts it. "Not a lot of people do copy trading. While copy trading sounds interesting, it is not that profitable if you don’t have a lot of money to put in and most Nigerian traders don’t have a lot of money to put into forex," Abidemi told Finance Magnates.

Meanwhile, it also appears that the high curiosity about trading bots among Africans has not really translated to significant adoption. Hwingwiri noted that while the adoption of robot traders is on the rise, the growth has been majorly limited to established traders who have been successful with a particular strategy and want to remove emotions from their trading.

On top of that, Abidemi points out that not many traders use trading bots because of a lot of bad experiences people have had with using the automated trading style.

"People are trying their hands on different kinds of trading bots, but people (traders) don’t use it that much because I’ve used it myself and it’s not that profitable," Abidemi explained.

However, Margarite says trading bots remain a constant offering at Exness as the global brokerage, which operates offices in Nigeria, South Africa and Kenya, continues to monitor interests and trends closely.

"We are a scientific and data-driven broker, heavy in the technical departments of our company, with large teams of quant mathematicians working endlessly to improve our products. As such, we intend on focusing these resources for any future developments needed in the trading bots sphere," Margarite told Finance Magnates.

The Challenges that Impede Copy Trading Adoption in Africa

Several factors currently impede the use of copy trading among forex traders in Africa, including lack of trust, knowledge deficit on which expert traders they wish to follow, and the 'cash-out mentality'.

“The biggest challenge we face is that a lot of followers still don’t know the criteria on how to choose a good trader to copy. Someone just checks and finds somebody that has been making a profit and they decide to follow them,” Hwingwiri explained.

For his part, Ijibadejo noted that while Google search data reflects the current facts on the ground, things can change for better or worse.

“If investors observe that trading performance statistics of strategy managers displayed by the popular brokers are fictitious, misinforming and deceiving, then expect a sharp reduction in investors’ confidence in copy trading products as bad news spreads fastest,” he explained.

Furthermore, the SquaredFinancial Country Director blamed the "cash-out mentality," which describes a get-rich-quick perspective of the forex trading business to brokers who got in earlier into the market by promoting “fictitious trading performance, mostly showing very high returns on investment just to lure unsuspecting investors to take investment decisions.”

“The result is usually that the investor will see good results on the broker’s copy trading website but bad results on his trading account,” Ijibadejo said.

To combat these issues, Hwingwiri noted that brokerage firms are adopting solutions such as providing education materials to forex traders. Ijibadejo added that SquaredFinancial addresses the issue by hiring account managers, “showing demos to our prospective clients and also presenting them real reviews of clients who use our copy trading solution.”

Where Is Copy Trading Headed in Africa?

Africa has its fair share of challenges in the online forex industry. In South Africa, the continent’s largest online forex trading market, brokers are battling issues such as a changing regulatory landscape. In Nigeria, on the other hand, the absence of specific regulations means traders remain somewhat vulnerable.

With interest in copy trading and trading bots surging in recent years, experts believe this can be sustained if certain conditions are met. For instance, Ijibadejo believes that the adoption of copy trading, which helps to bridge the gap between skilled and unskilled traders, will spread like wildfire in the next few years if more transparent brokers push for the trading style.

Additionally, Hwingwiri noted that social media has emerged as a great way to promote the adoption of copy trading.

“Because copy trading is structured as peer-to-peer trading and is trended via social networks like Instagram and Facebook, and with the new generation used to social media and the dissemination of information via public portals, I think there are no two ways about it," Hwingwiri told Finance Magnates. "Copy and bot trading will continue to be massive. Our research even shows that brokers who have not adopted copy trading are losing business-wise."