As the second largest economy in Africa, the emerging market of South Africa is the only African nation in the G20. The local South African economy depends in large part on mining, agriculture, and manufacturing, and machinery and transportation equipment makes up one-third of the value of the nation’s exports.
The vibrant and active forex trading community currently in South Africa resulted in part from the nation’s support of foreign investment, which has, in turn, attracted the many forex brokers that now have a significant presence in the country.
Overview: Trading Forex in South Africa
The South African Rand, symbol R (ZAR) is the nation’s currency and ranks 20th by the Bank of International Settlements with respect to daily volume and turnover among currencies traded in the forex market.
South Africa’s growing economy and population of 50 million make forex trading in the country attractive to foreign-based brokers and South Africans alike. Keep in mind, however, that trading forex and having knowledge of the currency market does not involve the geographic location of the trader. Traders based in South Africa should remain aware of several elements about trading forex in South Africa are unique to the country.
The first involves taxation. The South African Revenue Services (SARS) taxes trading profits for individual traders who operate within the country just like regular income. Tax rates range from 18% to 42% depending on the amount of profits generated and other factors relating to each individual’s tax status.
The second involves regulation. The forex market and the financial sector, in general, are regulated by the South African Financial Sector Conduct Authority (FSCA), which took over from the previous agency, the Financial Services Board, in April of 2018. Forex brokers licensed by the FSCA are required to maintain client funds in segregated accounts, and they are also prohibited from disclosing your information to third parties. Many foreign-based brokers that accept South African clients and are regulated by other major regulating agencies also get an FSCA license. Brokers that operate without oversight from any agency should be avoided at all costs since your entire deposit could be at risk.
How to Start Trading Forex in South Africa
Before you dive into forex trading, you first and foremost need to understand the forex market. The forex market is like no other market in the world. It trades continuously throughout the trading week from 5 p.m. EST on Sunday until 5 p.m. EST on Friday.
The forex market also dwarfs all other capital markets combined, with an average daily turnover of more than $5 billion. The market has its own dynamics, which depend on the relative economic circumstances particular to the countries that issue their currencies.
Even if you have experience in other markets, such as the commodities or stock market, a background in the forex market is invaluable before you begin to trade. Below, you will find some preliminary steps to take before you begin trading from South Africa.
Step 1: Consider Your Forex Broker Needs
The first consideration to take into account is the need for a trustworthy broker. Next, your level of knowledge and trading experience also impact what you will need in a forex broker.
If you already have considerable trading experience, you can focus on choosing a broker with adequate trading tools and a sufficiently advanced trading platform. If you have a limited amount of experience, then a broker with an excellent customer service department and educational resources would be your best bet.
Whether you’re experienced or a novice, open a free demo account with any forex broker. Less-experienced traders often find that trading in a demo account gives them insight into how the forex market trades and whether they like the trading environment. If you already have experience trading, then demo trading gives you an idea of how the broker’s trading platform works, as well as an understanding of the broker’s dealing spreads and order slippage, which can occur during fast markets.
Remember, forex trading carries considerable risk, especially when you choose to use a high leverage ratio since leverage lets you control a significantly larger position with your money. This magnifies profits and losses as well. Furthermore, if you leverage a position too much, an adverse move could even wipe out your entire account.
Again, experience will determine your leverage needs. If you have experience, then you could probably leverage sizable positions. If you have limited experience, then you would probably be better off with a lower leverage multiple to avoid excessive losses. Also, your trading should begin with small lots, such as micro lots, since you can start trading smaller amounts and can better fine tune position sizes when you ramp up your dealing size.
Step 2: Pick a Forex Broker
Make sure to carefully consider your needs before opening an account because not all forex brokerages are created equal. Once you have acquired knowledge of the forex market and determined your needs for trading, you can then proceed to pick a broker.
Features to look for to find the best forex broker for your needs include:
The broker you choose should be duly regulated by the South African FSCA or another major regulator such as the U.K. Financial Conduct Authority (FCA), Cyprus Securities and Exchange Commission (CySEC) or the U.S. National Futures Association (NFA) or Commodities Futures Trading Commission (CFTC).
Brokers make their money with the bid/offer spread or dealing spread. When the broker acts as a market maker, it takes the other side of your trade, but if the broker uses an electronic communications network (ECN), then several market makers’ exchange rates are used to create a quote with the best rates you can trade on. ECN firms also sometimes charge a commission on top of the dealer spread. The narrower the dealing spreads, the lower your overall transaction costs, which makes more of a difference the more often you trade.
Leverage or margin
The leverage ratio consists of the position size you can hold with one unit deposited in your account. For example, the 50:1 leverage ratio commonly used by U.S. based forex brokers means that you control a position worth $50 with just $1. Leverage ratios for some brokers can be as much as 3,000:1 depending on their location and regulatory agency.
Margin is the amount of money you put up to hold the trade. For example, the margin on a $100,000 position at 100:1 leverage would be $1,000.
Many forex brokers let clients use their own proprietary trading platform, though in many cases, they also offer customers NinjaTrader and/or the MetaTrader 4 and 5 trading software from MetaQuotes. If you have experience, then you would probably opt for the software package that conforms best to your needs. If you have limited experience, learning how the popular MetaTrader platforms work gives you excellent technical analysis resources and a news feed.
The platforms are also very customizable and programmable if you are interested in automated trading and developing custom indicators.
Customer service/educational resources
This feature would be an important one for inexperienced traders. Many forex brokers offer educational resources such as audio, video and articles on forex technical and fundamental analysis. The more prepared you are before trading, the more confidence you’ll have after you’ve begun.
Regardless of your choice of broker, it usually makes sense to trade in a free demo account first before committing any funds to a live account.
Step 3: Open a Forex Account
Several forex brokerages base their operations in South Africa. Also, you can open an account with an internationally based forex broker that accepts South African clients and is regulated by the FCSA.
If you are based in South Africa and want to consider a local broker, take some time to see if the broker has a good reputation with other traders on forex forums and websites. A brief selection of forex brokers based locally and abroad who accept clients from South Africa is shown below:
The largest U.S. based forex broker, FOREX.com, has no commissions and offers relatively narrow dealing spreads. The broker’s proprietary platform features over 50 technical indicators and a large selection of currency pairs including minor and exotic pairs.
FOREX.com also offers trading in gold, silver and futures contracts. Leverage of forex pairs is 50:1, and the broker benefits from oversight by the U.S. NFA and CFTC.
This South African-based forex and CFD provider offers a single type of trading account and leverage of 100:1. The broker uses the Alfa Trader trading platform and is licensed by the FSCA. Alfa has a minimum deposit amount of $1,000, which is quite high. In addition, the company charges an extra $15 per lot traded on all products.
Regulated by the FSCA, this broker offers a single account type with no commission fees, dealing via the MT4 trading platform, and tight, variable spreads. Oinvest also provides educational resources for beginning traders. In addition to over 50 forex pairs with leverage of up to 500:1, Oinvest offers trading in CFDs on stocks, commodities, indexes and cryptocurrencies.
Regulated by CySEC and the FSCA, Markets.com offers a single account type with leverage of 200:1. Interest-free Islamic accounts are also available. Markets.com offers the MT4 and MT5 trading platforms, with fixed dealing spreads of 2 pips for EUR/USD. The broker requires a minimum deposit of $100.
Based in Cyprus, HotForex benefits from oversight by the U.K.’s FCA, Cyprus’ CySEC, the FSCA and the Dubai Financial Services Authority (DFSA). The broker offers trading in CFDs on indexes, commodities and large-cap stocks, as well as spot metals and forex. Accounts can be opened with as little as $50 for a micro account, and leverage is on the high side, at 1,000:1.
Once you have selected the broker you wish to use, you can fund your account by following the directions for making initial deposits on its website.
Step 4: Start Trading
Now that you have opened your trading account, you can begin to trade forex online. Hopefully, you’ve done your homework and developed a plan of action. To help yourself in this very volatile trading environment, a trading plan with clear money management principles is essential.
Trading leveraged positions can allow you to make considerably more money, but doing so can also deplete your account very quickly if you happen to be on the wrong side of a fast-moving market. Therefore, make use of stop-loss orders to avoid losing your entire deposit.
Forex trading has become more popular in South Africa as the expanding economy and increased interest in trading have made the industry grow.
Finding the best online brokerage for your needs is the key to successful trading, in addition to rigorous research and learning.