Forex trading is buying one currency and selling another at the same time, aiming to profit from the change in the exchange rate between them. It happens in a global, decentralised market where banks, companies, funds and individual traders swap currencies around the clock on weekdays.
According to the Bank for International Settlements (BIS) 2025 Triennial Survey, the forex market averages about $9.6 trillion in daily turnover, up from $7.5 trillion in 2022, which makes it the largest financial market in the world. This guide explains how it works, what moves prices, how it differs from shares, and what South African traders need to know before they start.
How forex trading works
Currencies always trade in pairs. When you buy EUR/USD you buy euros and sell US dollars; when you sell it, you do the opposite. If the euro strengthens against the dollar after you buy, you make a profit. If it weakens, you make a loss.
Most retail traders in South Africa do not exchange physical currency. They trade CFDs (contracts for difference) through a broker, which pay out the price difference between opening and closing a position. That makes it as easy to go short (profit from a falling price) as to go long, and it is why leverage is involved.
Currency pairs: base and quote
In a pair such as USD/ZAR at 16.70, the first currency (USD) is the base and the second (ZAR) is the quote. The price tells you how much of the quote currency buys one unit of the base: here, R16.70 per US dollar. Pairs fall into three groups:
- Majors: pairs with the US dollar and another large currency, such as EUR/USD, USD/JPY and GBP/USD. They have the most volume and the tightest spreads.
- Crosses: pairs between two large currencies without the dollar, such as EUR/GBP or EUR/JPY.
- Exotics: a major currency against an emerging-market currency, such as USD/ZAR, USD/TRY or USD/MXN. Spreads are wider and moves can be sharp.
Many pairs move together because they share a currency. Avoid overlapping trades in correlated pairs like EUR/USD and GBP/USD, which are often close to one bet on the dollar.
Pips, spreads and lots
- Pip: the standard unit of price movement, usually the fourth decimal place (0.0001), or the second for yen pairs.
- Spread: the gap between the buy (ask) and sell (bid) price. It is the main cost of most trades.
- Lot: the trade size. A standard lot is 100,000 units of the base currency, a mini lot 10,000 and a micro lot 1,000. Our lot size guide shows how lot size changes the value of each pip.
Leverage and margin
Leverage lets you control a large position with a smaller deposit, called margin. At 1:100, R1,000 of margin controls a R100,000 position. Gains and losses are both calculated on the full position, so a 1% move against you wipes out the whole margin. Read how leverage works and margin before you choose an account.
Who trades forex
- Central banks set interest rates and sometimes intervene in their currency. The South African Reserve Bank (SARB) and the US Federal Reserve are the two that matter most for rand pairs.
- Commercial banks and liquidity providers trade with each other and quote the prices that brokers pass on.
- Funds and institutions trade currencies for investment and to hedge foreign assets.
- Companies exchange currency to pay for imports and convert export earnings, and hedge against rate moves.
- Retail traders trade through brokers, usually with CFDs. They are a small share of total volume.
An over-the-counter market
Forex has no central exchange. Trades happen over the counter (OTC), directly between banks, brokers and their clients over electronic networks. That is why prices can differ slightly between brokers and why the broker you choose matters. Shares listed on the New York Stock Exchange, by contrast, trade through one exchange with a central order book, set opening and closing times and a single official price.
When the forex market is open
Forex trades 24 hours a day from Monday to Friday as the main financial centres open in turn: Sydney, Tokyo, London and New York. For South Africans the week opens late on Sunday night or early on Monday morning, depending on US daylight saving time, and closes late on Friday night.
Activity is highest when sessions overlap. The London and New York overlap falls in the South African afternoon, which is when most major pairs and USD/ZAR move most. See our guides to the London session, the New York session and the Asian session in SAST.
What moves exchange rates
- Interest rates: higher rates tend to attract capital and support a currency. Fed and SARB decisions move USD/ZAR.
- Economic data: inflation, jobs and growth figures change rate expectations. The US Non-Farm Payrolls report is one of the biggest monthly events.
- Risk sentiment: in risk-off periods investors sell emerging-market currencies such as the rand and buy havens such as the dollar, yen and Swiss franc.
- Commodity prices: the rand often strengthens when gold, platinum and other metal prices rise.
- Politics and fiscal news: elections, budgets and credit-rating decisions can move a currency on their own.
Forex vs shares
| Forex | Shares (for example on the JSE) | |
|---|---|---|
| Market structure | Over the counter, no central exchange | Central exchange with an order book |
| Trading hours | 24 hours, Monday to Friday | Exchange hours only |
| What you trade | The value of one currency against another | Part-ownership of a company |
| Going short | As easy as buying, with CFDs | Needs CFDs or other derivatives |
| Leverage | Common, often high | Usually none on a share account |
| Main costs | Spread, commission on some accounts, overnight financing | Brokerage, fees and taxes on each trade |
Shares can be held for years and pay dividends. Leveraged forex trading is a short-term activity where costs and risk build up quickly, so it suits active traders rather than long-term savers.
Trading platforms
Most brokers offer MetaTrader 4 (MT4) and MetaTrader 5 (MT5), plus their own web and mobile platforms. MT4 is simple and widely supported by indicators and trading robots. MT5 also provides market depth, more timeframes and a built-in economic calendar, which suits traders who want more detail.
Is forex trading legal in South Africa?
Yes. Brokers that offer forex and CFDs to South Africans should be authorised by the Financial Sector Conduct Authority (FSCA) as a financial services provider, and CFD issuers also need authorisation as an over-the-counter derivative provider (ODP). Many international brokers have a South African FSP but book client trades through an offshore company, so check which entity is named in your client agreement. Our FSCA FSP search guide shows how, and is forex trading legal in South Africa covers the rules in more detail.
Trading profits are generally taxable. SARS usually treats them as income for active traders, so keep records of every trade and speak to a registered tax practitioner.
Risks of forex trading
- Leverage: losses can exceed what you planned and wipe out your margin quickly.
- Volatility: news and data releases can move prices sharply, and stop-losses can fill at worse levels.
- Counterparty risk: an offshore or unregulated broker gives you little recourse if a withdrawal is refused.
- Psychology: chasing losses and overtrading cause more account blow-ups than bad analysis.
Brokers that publish the share of retail CFD accounts that lose money show it is the majority, so start with a demo account and small positions.
How to get started
Learn the basics, practise on a demo account, choose an FSCA-authorised broker and start with a small live account. Our step-by-step guide on how to start forex trading walks through each stage, and Find your Broker compares regulation, costs and platforms.
Trading Terms You’ll See Here
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Currency Pair
A pair of currencies quoted together, showing how much of the quote currency is needed to buy one unit of the base currency (e.g., EUR/USD).
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Spread
The difference between the buy (ask) and sell (bid) prices of a currency pair, representing the transaction cost for a trader
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Leverage
A tool that allows traders to control larger positions with a smaller amount of capital, magnifying both potential gains and losses.
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Liquidity
A measure of how easily a currency can be bought or sold without significantly affecting its price; high liquidity means easier and smoother trading.
FAQs
What is forex trading in simple terms?
It is buying one currency and selling another to profit from changes in the exchange rate. Most retail traders do it with CFDs through an online broker.
How does forex trading work for beginners?
You open an account with a broker, deposit money and use a platform such as MT4 or MT5 to buy or sell currency pairs. Your profit or loss depends on how far the price moves and the size of your position.
Is forex trading legal in South Africa?
Yes, through brokers authorised by the FSCA. Check the broker’s FSP number and the entity on your client agreement before you deposit.
How much money do you need to start forex trading?
Some brokers have no minimum deposit, but you need enough to cover margin and normal price swings. Start with an amount you can afford to lose.
Is forex trading the same as gambling?
It does not have to be. A tested plan, fixed risk per trade and a stop-loss separate trading from gambling, but leverage without a plan behaves like a bet.
Trading CFDs is high risk. Leverage can magnify losses, and you may lose your deposit. Only trade with money you can afford to lose.
