Forex Trading in South Africa
Forex trading in South Africa is getting quite popular. South Africa is the largest forex market in Africa. By comparison, South Africa has a daily trading volume of $ 2.21 billion, a far cry from Nigeria’s $ 314 million daily. Moreover, the average client deposit in South Africa to South African forex brokers is $ 742, while in Nigeria, deposits averaged $ 514.42. The country’s vibrant and active forex trader community is now much better off in part thanks to foreign investment support.
In turn, this attracted many forex brokers to South Africa, and now their number in the country is very significant. South Africa’s mature economy and population of 50 million make foreign exchange trading attractive to foreign brokers and South Africans. Hence, Forex trading in South Africa is now taken as a serious profession.
However, trading in the forex market and having experience in the foreign exchange market does not depend on the trader’s geographic location. Also, traders living in South Africa need to keep in mind the many forex trading elements for the reason that they are unique to the country.
Table of contents
- How to start Forex Trading in South Africa?
- Expand Your Financial Portfolio
- What do you need to know as a beginner South African trader?
- 1. Basics
- Bid/ask price
- Short/long positions
- Forex lot sizes
- 2. How does the forex market work?
- 3. Security
- 4. Payment options
- Forex trading example in South Africa
- How much capital do you need to start trading in South Africa?
- Best forex trading platforms for South African traders
- What is the best time to trade forex in South African?
- History of South African Financial Services
- FSCA area of responsibility
- Forex brokers licensed by the FSCA of South Africa
- What is the South African Financial Sector Conduct Authority aware of?
- Pros of forex trading in South Africa
- Cons of forex trading in South Africa
- Bottom line
How to start Forex Trading in South Africa?
Before you start Forex trading in South Africa, you need to understand the forex market and legal aspects of trading.
The forex market is unique in the world; nothing like this exists anymore.
The forex market is also superior to all other capital markets combined. This is associated with an average daily income of over $ 5 billion. Again, this market has its dynamic range, which depends on the countries’ relative economic conditions that issue their currencies.
The Financial Sector Conduct Authority (FSCA) is South Africa’s Financial Sector Conduct Authority. The management’s main office is located in Pretoria in the Republic of South Africa.
Expand Your Financial Portfolio
The forex market is a great opportunity for South Africans looking to expand their financial portfolios.
All you need is an internet device, such as a smartphone, tablet, or PC.
- Select a forex broker that is regulated and accepts South African clients.
- Go to the broker’s website and look through the account options. These can range from small-scale accounts with low minimum balances for beginner traders to professional accounts with advanced features for experienced traders.
- Fill out an application form.
- Once you’ve completed the application, you’ll be given a username and password to access your account.
- Access the brokerage’s trader portal.
- Make a deposit into your account.
That’s all there is to it. You are now ready to start trading forex.
What do you need to know as a beginner South African trader?
Forex trading refers to the buying and selling of currency pairs. You are essentially buying one currency while selling another in the hopes of profitably closing the transaction.
As a forex trader, you’ll come across several terms; therefore, let’s define some of them:
The pip is the smallest unit of currency in a currency pair. For most currency pairs, one pip equals 0.0001.
If the GBP/USD rate is 1.3891, the pip is the last decimal value in it. In this scenario, the last value is one. Thus, one pip is the difference between 1.3891 and 1.3892.
Leverage is the borrowing of a portion of the funds required to invest in the forex market. Money is typically borrowed from a broker in the case of FX.
For example, if you have $10,000 in your account and open a $100,000 position (equal to one standard lot), you will be trading with ten times leverage (100,000/10,000). If you trade two standard lots worth $100,000 in face value with $10,000 in your account, your account leverage is ten times (100,000/10,000).
The bid price is the amount a dealer is willing to pay for a currency, whereas the asking price is the amount a dealer is willing to sell the same currency for.
A long position is one in which you trade on the price rising, whereas a short position is one you gain on the price falling.
Forex brokers charge commissions based on the spread, which is the difference between the buying and selling prices.
Forex lot sizes
A lot is the typical unit size of a forex contract. Typically, it is 100,000 units of the base currency. A currency pair’s base currency is the first currency. For example, the EUR is the base currency for EURUSD.
There are three lot sizes in forex:
Standard Lot – 100,000 units
Mini Lot – 10,000 units
Micro Lot – 1,000 units
2. How does the forex market work?
The forex market is the most liquid globally, with the biggest daily traded volume of any market or exchange. Daily, the Foreign Exchange Market is worth more than $5 trillion.
Aside from its magnitude, the market is open every day of the week, 24 hours a day! It is open almost 24 hours a day, seven days a week.
The currency market is open 24 hours a day, five days a week, except weekends.
Currency pairs, such as the ZAR/USD, are often traded, and traders place bets based on their price change forecasts.
Currency price variations are measured in pips, and traders use pips to decide where to place their trades.
As the forex market has become much more open, you want to ensure that everything can work fine to trade with confidence. Every trader knows that one of your primary considerations should be security.
Before opening a trading account, make sure to check out the broker’s website. If you see anything shady, don’t register an account with that broker.
4. Payment options
As a South African trader, you have several payment alternatives available to you. You can pay through credit/debit cards, bank transfers, and payment options like Skrill, Neteller, payfast, raypd, and others.
You need to check if the broker allows these payment methods. For example, a lot of South African brokers allow you to trade with domestic payment options.
Forex trading example in South Africa
Consider the South African Rand (ZAR) against the US Dollar (USD). One US dollar equals 14 ZAR. So, if we buy $1,000, we would pay 14000 ZAR.
Assume the value of ZAR rises in the market. In that case, we would pay less ZAR for each USD bought. However, this also implies that for every USD sold, you will receive more ZAR than you were charged. The difference between the ZAR charged and the ZAR earned is your profit.
How much capital do you need to start trading in South Africa?
Many brokers offer a multitude of options for opening accounts. However, both of these accounts demand a minimum account balance.
Many brokers have a $5 minimum. However, we recommend starting a trading account with a $500 minimum. This ensures that a substantial position may be taken in trading, and a reasonable profit can be achieved on market fluctuations.
One thing to keep in mind is that a position is determined by the balance kept and the leverage offered by the broker. Therefore, if you are a day trader, you should not risk more than one per cent of your forex account on a single trade. In other words, if you have $1000 in your account, you should not risk more than $10 per trade.
The lot size is chosen also has an impact on trading positions. You can trade in Standard lots, Mini Lots, or Micro lots, as previously stated (1000 units).
The pip per lot value is set if USD is listed as a quote currency in a pair, such as EUR/USD or GBP/USD, and your account is financed with USD.
As a result, one pip is worth $0.1, $1, and $10 for a Micro, Mini, and Standard lot, respectively. Knowing these specifics is quite useful because it aids in determining the level of risk that you can tolerate and when to enter the trade.
Assume you have $500 in our account and trade on small lots for EUR/USD, currently trading at 1.2000. For the EUR/USD pair, the broker offers leverage of 100:1 and a spread of 0.4 pips. You can buy one mini lot of EUR/USD for $120 (1 mini lot = 10,000 units x $1.2000 = $12000 / 100 leverage = $120).
Let’s say you have $500 in your account, you open a position of 40000 units, or four Mini lots, in the EUR/USD pair, for a total capital investment of $480. A one-pip increase in EUR/USD would result in a $1 gain per lot. As a result, our total gain on our stake would be $4.
Starting with a small amount, such as $500, provides you with the freedom to trade, as trading with very little cash and excessive leverage is quite dangerous.
Most liquid currency pairings, such as EUR/USD or GBP/USD, move in the 100-pip range. As a result, if you invest intelligently and with moderate leverage, you can get a good return. However, before leaping, you should always consider your risk tolerance.
Best forex trading platforms for South African traders
The best forex trading platforms for South African traders are those offered by forex brokers. The MT4 platform is the most popular, and most forex brokers provide it. Some forex brokers also offer the MetaTrader 5 and cTrader platforms. Either you can use them on your desktop, or you can access them through mobile apps.
What is the best time to trade forex in South African?
The optimum time to trade forex in South Africa is between 9 a.m. and 3 p.m. This is because the London and New York trading sessions overlap and are active. Volatility is at its greatest during these trading hours.
While you can trade at any time, you shouldn’t try to be a night owl, as it can affect your trading.
The best time for trading forex in South Africa according to four major forex sessions is:
- 9 p.m. – Sydney session
- 3 a.m. – Tokyo session
- 9 a.m. – London session
- 1 p.m. – New York Session
You can benefit from the most liquid and volatile sessions if you can get up during the overlapping of Tokyo and London or London and New York trading sessions.
History of South African Financial Services
The Financial Sector Conduct Authority of South Africa was established in 1990. The financial regulator’s main task is to oversee the activities of companies and organizations that conduct financial activities and provide related services to residents of the South African region.
A few years after the formation of the state structure, the FSCA regulatory powers expanded. The Financial Advisory and Intermediary Services Act, approved in 2001, added oversight of the banking sector and the Johannesburg stock exchange to the agency’s mandate.
Today, the financial regulator also controls pension, mutual funds, insurance, and brokerage companies. This means that the South African regulator monitors the work of market makers, brokers, dealers, large traders and investors, ETF funds, and all issuers of stocks, bonds, bills of exchange, derivatives, and other financial instruments. The Commission oversees companies that have been listed on the Johannesburg Stock Exchange by issuing their securities.
As of early April 2019, the capitalization of the trading floor amounted to 950 billion dollars.
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FSCA area of responsibility
Companies wishing to conduct business honestly in the African market must obtain a license from a notified body before commencing business. Financial institutions licensed by the FSCA automatically fall under the management regulation and are required to comply with all its requirements. The list of powers of the South African regulator includes the following tasks:
- registration and licensing of financial institutions that wish to provide services in South Africa;
- constant monitoring of the work of the reporting companies, the primary purpose of which is to protect clients from fraudsters;
- application of penalties to companies that violate established rules or their obligations;
- consulting activities.
The South African regulator is quite active in the fight against fraud and other illegal actions on controlled companies. Upon detection of various kinds of violations, the management can apply sanctions. Depending on the severity of the recorded violation, the regulator’s reaction can be different – from the imposition of a monetary fine to the revocation of the license.
Forex brokers licensed by the Financial Sector Conduct Authority of South Africa
The South African Financial Services Authority is quite loyal to foreign organizations. The regulator is ready to cooperate with various companies. It is noteworthy that even companies that do not have an office in South Africa can carry out activities in the South African region. This fact in itself is indicative.
Organizations wishing to become FSCA license holders must provide an impressive amount of documents not only in the process of obtaining permission. Also, companies must meet several requirements:
- the presence of at least one director;
- the company must have a registered office located in South Africa or abroad;
- the potential license holder must have an account with one of the local banks;
- compliance of the organization with all norms and regulations of the regulator.
After all, documents have been submitted, the decision to issue a license is made within one year. After successfully obtaining a permit, the licensee undertakes to submit audit data and other financial statements to the department at least once a year.
Financial institutions licensed by the regulator can operate throughout the southern part of the African continent. The authorization document is also valid in Zimbabwe, Zambia, and Botswana.
What is the South African Financial Sector Conduct Authority aware of?
In recent years, South Africa has strengthened itself in the global market as a popular financial centre. Investors are showing interest in the promising South African market. The region is one of the ten largest capital markets and has an audience of thousands of traders. Therefore, more and more brokerage companies are considering entering the South African market.
The FSCA is governed by a council appointed by order of the African Ministry of Finance. Board members are four executive directors, each of them is responsible for a specific area (pension funds, financial advisory, self-help societies, and intermediary services).
Despite the existence of regulatory mechanisms, fraudulent structures operate on the territory of the African continent. Supervision of the activities of organizations is included in the list of powers of the Reserve Bank of South Africa.
To foreign entrepreneurs, South Africa offers a flexible tax system, similar in characteristics to the rules of work in offshore jurisdictions. However, companies’ operating environment in the southern part of the mainland is more like a mid-shore. Owners of foreign companies have the opportunity to register in a prestigious jurisdiction that is not included in any blacklist.
Companies deprived of the FSCA license can operate in any other offshore zone, having received a preliminary certificate from an authorized regulatory organization. This means that the South African regulator can deal with unscrupulous companies exclusively in South Africa.
However, the FSCA is the only regulator on the continent, which improves the governance rating. In general, investors and traders trust companies regulated by the FSCA, but certain financial institutions are treated with caution.
Is forex trading illegal in South Africa?
No, trading forex is completely legal in South Africa. However, unfortunately, many forex brokerages in South Africa function under the radar of regulatory authorities.
How do you start forex trading in South Africa?
You may begin trading forex in South Africa by searching for a broker who meets your trading conditions, opening an account, and making a deposit.
How much capital do I need to begin trading forex?
Some brokers will let you start trading with as little as $1. Others require you to start with $100 or $1000.
Which African countries are known for forex trading?
Pros of forex trading in South Africa
- The forex market is open round the clock, so forex trading can more easily fit into traders’ schedules than other types of trading.
- Since the foreign exchange market is the most liquid in the world, there are always many buyers and sellers eager to make a trade. Every day, individuals, organisations, and institutions convert approximately $5 trillion in money, with the vast majority of this activity focused on profit.
- One of the benefits of forex trading is the opportunity to buy or sell currency pairs based on market conditions.
- Because of the massive volume of currency exchanges that occur every day, which amounts to billions of dollars every minute, the price movements of some currencies are especially turbulent. Therefore, speculating on price fluctuations in either direction has the potential to be quite profitable.
- Technical analysis is effective in the currency market. While equity and bond traders may need to delve extensively into the fundamentals and financial health of share and bond issuers to assure their assets will yield returns, FX traders can frequently profit from technical analysis of price charts.
- Private information held by insiders and large stakeholders in those assets can frequently impact the stock, bond, and even commodities markets. On the other hand, the currency market is substantially less centralised and less influenced by insider knowledge.
Cons of forex trading in South Africa
- Every day, the global forex market trades more than $5 trillion, with the vast bulk of transactions carried out by major participants such as banks, hedge funds, and other major financial institutions. These players have a natural advantage in pricing and influencing market price variations due to their trading volume and superior access to information and technology.
- Forex appears to be quite exciting, but in truth, it can be boring. So be cautious if you have a lot of worries when making trades.
If you are a newbie, you should dedicate as much time as possible to mastering the essentials of forex trading.
We recommend trading on a demo account. In this way, you’ll get to know what it feels like to trade the forex market.
Open a real account once you’ve mastered the demo account. Begin with a tiny amount, such as $500, and trade with the smallest lot size.
Don’t bite more than you can chew. A decent risk management method is to never risk more than 1% or 2% of your trading account.
Heinrich is a forex and CFD enthusiast with a passion for writing good informative quality content. He strives to showcase the best forex brokers in Africa. Join him on his Journey!
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