Have you ever wondered about the potential of forex trading in South Africa? With its decentralized and 24-hour global market, forex can offer exciting opportunities for investors. However, navigating the complexities of the foreign exchange market requires knowledge and skill.
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 many forex brokers that now have a significant presence in the country.
Whether you are a beginner looking to dip your toes into forex or an experienced trader seeking to expand your knowledge, understanding the fundamentals of forex trading in South Africa is crucial. In this article, Benzinga covers the basics of forex trading, the benefits and risks involved and essential tips for success.
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.
Get Fast and Reliable Internet Connection
Fast and reliable internet connection is crucial for trading forex because any delay in data transmission could result in missed trading opportunities. Slow internet connection can lead to issues such as slippage, where a trade is executed at a different price than expected due to delays in data transmission. This can result in unexpected losses or missed profit opportunities.
Real-time access to market news, analysis, and trading platforms is essential for making informed trading decisions. A fast internet connection ensures that you can stay updated and act quickly on market developments.
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.
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.
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 The Financial Sector Conduct Authority (FSCA).
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:
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.
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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 Choose a Forex Brokers
Features to look for to find the best forex broker for your needs include:
- Regulation: 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).
- Dealer spreads: 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.
- Trading platform: 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.
- Demo account: 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.
Forex Trading is on the Rise in South Africa
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.
Frequently Asked Questions
Can I trade forex in South Africa?
Yes, you can trade forex in South Africa. However, it is important to ensure that you are using a licensed and regulated forex broker to protect yourself from any potential risks or scams.
How much does it cost to start forex trading in South Africa?
The cost of starting forex trading in South Africa can vary depending on the broker you choose and the amount you decide to invest. Generally, you will need a minimum deposit to open a trading account, which can range from around $100 to $500 or more. Additionally, there are other potential costs such as trading fees, spreads and commissions that need to be considered.
What are the best times to trade forex in South Africa?
The best time to trade forex in South Africa is between 10am and 4pm. The four major markets for trading are Sydney, Tokyo, New York (US) and London. The most traded currency pair globally is USD/EUR, accounting for nearly 20% of all forex transactions.
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About Jay and Julie Hawk
Jay and Julie Hawk are the married co-founders of TheFXperts, a provider of financial writing services particularly renowned for its coverage of forex-related topics. With over 40 years of collective trading expertise and more than 15 years of collaborative writing experience, the Hawks specialize in crafting insightful financial content on trading strategies, market analysis and online trading for a broad audience. While their prolific writing career includes seven books and contributions to numerous financial websites and newswires, much of their recent work was published at Benzinga.