Forex Trading in South Africa

Trading Forex in South Africa is legal & it is regulated by the FSCA. Read our beginners guide on how to get started for forex traders in SA.

Editorial Team

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Forex Trading in South Africa is regulated by the market regulator FSCA. You can legally trade in the forex market through any broker that is a licensed Over the Counter Derivative Providers (ODP). But forex trading involves financial risks and traders must understand the basics of forex trading before taking risks.

Summary Table of Best South African Regulated Forex Brokers for Beginner traders in 2022

Broker Name Highlights Trading Fees (Benchmark EUR/USD Standard Accounts) Account Minimum Max. Leverage Learn More
Exness South Africa

Exness

Exness ZA (PTY) Ltd is authorized by FSCA under FSP no. 51024.

Commissions
Minimum spread of 1 pip

with Standard Account

Account Minimum
R160
Max. Leverage
1:2000 for Forex
Open Account

on Exness

Hotforex Logo

HotForex

HF Markets SA (PTY) Ltd is authorized by FSCA under FSP no. 46632.

Commissions
Minimum spread of 1.3 pips

with Standard Account

Account Minimum
R100
Max. Leverage
1:1000 for Forex
Open Account

on HotForex

Avatrade South Africa

Avatrade

Ava Capital Markets (Pty) Ltd is authorized by FSCA under FSP no. 45984.

Commissions
Minimum spread of 0.9 pips

with Standard Account

Account Minimum
R1500
Max. Leverage
1:400 for Forex
Open Account

on Avatrade

XM South Africa

XM

XM Global Limited is authorized by IFSC (Belize) under license no. 000261/158.

Commissions
Minimum spread of 1.7 pips

with Standard Account

Account Minimum
R70
Max. Leverage
1:888 for Forex
Open Account

on XM

Chapter #1

What is Forex Trading

Forex trading (also known as foreign exchange trading) refers to the act of exchanging currencies to book profit or loss in short term. Forex is the largest financial market in terms of the average daily trading volume.

The price of any currency is always constantly fluctuating. This fluctuation is caused by the changing demand and supply of that currency in the global forex market.

The global forex market is open 24 hours a day on all weekdays. The forex market is OTC, and there is no central exchange, and the parties involved are a global network of banks and other financial institutions (as opposed to the stock market which is overseen by a central exchange such as the NASDAQ, JSE)

Most of the trading on the market is done by institutional traders. These are the people who trade on behalf of large banks, multinational corporations, and funds.

However, as mentioned earlier, retail forex trading has been growing over the past decade. Earlier it was thought that the forex market was too risky to allow individual investors or traders to part in them. However, this conception has changed over time.

Traders on the forex markets do not necessarily want to physically exchange their money for a different denomination. They may simply be speculating on the price movements of different currencies to make profits. Or, they may be making trades to hedge against risk caused by fluctuations in the currency market.

For example, suppose a South African company exports goods to the US market. Such a company will constantly need to trade on the forex market in order to ensure that price fluctuations between the US Dollar and the South African Rand do not unfavorably affect its bottom line. Such a company will be involved in trading the USD/ZAR currency pair.

No physical money is exchanged between parties during such trading. Nowadays, almost all trading activity is OTC, especially in the forex market.

There are three different ways for a trader to participate in the forex market. The choice depends on the goal of the forex trader.

3 ways to trade forex

There are three main ways to trade in foreign exchange: spot, forward, and future.

Spot market

The spot market is the main currency market. In this market, currencies are exchanged in real-time according to current prevailing conversion rates. The prices of currency pairs fluctuate based on market conditions and real-time changes in supply and demand.

Most of the online forex trading is done in spot markets via Contract for Deposits (CFDs).

Forward market

Rather than trading immediately, a trader can enter into a trading contract for a future date at an agreed-upon price. This is done privately.

Future market

The futures market exists to allow traders to make trades based on the future price of currencies. This trading is done through exchanges rather than privately (unlike the forward market).

Chapter #2

How to Trade Forex in South Africa

In terms of daily trading volume, South Africa is the largest trader in the forex market among African countries. The forex market in South Africa is governed by the FSCA (or the Financial Sector Conduct Authority).

The FSCA issues ODP licensing to financial entities that want to act as brokers for retail forex traders. Under this license, brokers are allowed to offer CFD instruments for trading forex. Any broker that wants to offer derivative instruments for trading purposes to South Africans, must first get a license from the FSCA.

Currently, there are only a few brokers in South Africa who are licensed by the FSCA to offer Forex Trading brokerage services.

FSCA Regulated Brokers

Most forex brokers that cater to South African traders hold a Category 1 license for derivatives instruments and forex investment from the FSCA.

For example, Exness is a forex broker which has been licensed by the FSCA to offer forex trading services in South Africa. You can cross-check whether Exness has such a trading license by visiting FSCA’s website.

Exness FSCA license

You can further verify the category of license that Exness holds & the products which they are authorized to offer by clicking on “details”.

Exness FSCA license

Before registering with a forex broker, as a South African trader, you must always verify whether the broker has been licensed by the FSCA.

It is very essential to only trade with forex brokers who are licensed by the FSCA. This is because being licensed means that the broker is regulated by the FSCA. The FSCA oversees the conduct and activity of the broker in question. This means that there is a far lesser likelihood that the broker is carrying on fraudulent or unfair practices.

Further, being regulated by the FSCA means that the broker in question can be taken to court in case it isn’t complying with the extant regulations. In case you have problems in dealing with such a broker, you can take legal recourse against it.

In contrast, if a forex broker is not licensed by the FSCA, then a South African resident will have no means to take any legal action against such a broker. This is especially true if the broker in question does not have an office or a physical presence in South Africa. Hence, such brokers can easily run scams to defraud South African traders or carry on unfair practices.

Fees and Spread

South African traders must watch out for the fees and spread charged by forex brokers. There are different kinds of fees charged by such brokers. The most common fees are Non-trading Fees like deposit fees, withdrawal fees, and inactivity fees.

Additionally, a broker will charge trading fees in the form of spread, Overnight Swap Rates, and commissions. You should know about the exact range of fees charged by a forex broker before registering with them.

Usually, the details of the fees charged by a broker are detailed on their website. In case you have further questions, you can also contact customer support and ask them to let you know more about the fees.

The most important fees that are charged by a broker are the trading fees in the form of spreads and commissions.

Spread: The spread is the difference in the “bid” price offered by the broker versus the “ask” price of the currency pair in question (the meaning of the two terms is discussed later in the article). This difference is measured in pips. The higher the pip amount, the more spread you are being charged for the trade.

For example, below is the screenshot of the typical spread for major currency pair EUR/USD at HotForex South Africa for their various account types. Their spread is lower for the Zero Account type, but there is an extra commission that is not mentioned in this table.

Forex Trading Spread example at HotForex Broker
The spreads are usually variable but some brokers can also offer fixed spreads on a few instruments. The amount of spread being charged by a broker depends on a variety of factors such as trading time, trading volume, currency pair, liquidity in the market, and so on.

Commission: Further, a broker may charge a commission per trade. The commission is a flat rate based on the number of lots that you are trading. Most often, brokers do not charge any commission but prefer to charge a high amount of spread. However, brokers may also charge a commission and a low spread.

The example below highlights the commission charged by HotForex SA with their Zero Account.

Forex Trading Commission Charged by Brokers
You should compare the spread and commission charged by different brokers before registering with a forex broker. The easiest way to compare the spread is by checking the average spread that they charge for trading the benchmark EUR/USD currency pair plus the commission charged per lot. This will give you the overall trading fees

Overnight Fees: You should also check the overnight Swap Rates of the broker. Some brokers have a higher Swap Rates for both Long & Short Positions than other forex brokers. For example, as per our research, XM has very high Swap Fees, while HotForex & Exness have low Swap Fees for majors.

Swap Fees at Forex Brokers

Demo Account

Further, as a new trader, you should only register with a broker that offers a demo account. A demo account allows you to practice trading in real-world conditions without using any real money. Virtual money will be deposited into your account and you can use it to test your trading skills and strategies.

Using a demo account is essential because it helps you understand how the forex market moves. You should pick two or three currency pairs and concentrate your research on them. Study these currency pairs and their movements to understand what makes them move.

A demo account will also help you to practice your risk mitigation strategies, such as implementing and maintaining a stop-loss, Risk Percentage, etc.

Which is the Best Forex Broker in South Africa?

There are more than 40 forex and CFD brokers that accept clients from South Africa. Some are regulated by FSCA of SA while others are offshore regulated brokers. Each broker offers different features and incurs different fees for the same.

A broker that is best suited for an experienced trader might not be ideal for beginners or vice versa. Clients can take the assistance of reviews by experts and existing clients but always decide on themselves. The forex broker recommended by your friends and family members might not be ideal for you or they may try to grab the referral bonus.

Traders must identify the best suited brokers for themselves after thoroughly checking and comparing every aspect of the broker. FSCA regulation is the most important factor that needs to be considered while choosing a forex broker in South Africa.

Following are the important factors that must be considered while selecting the best forex broker for oneself in South Africa:

1. Regulations: Financial Sector Conduct Authority FSCA is the financial regulator in the jurisdiction of South Africa. Clients getting registered under FSCA regulation are protected and are exposed to less third-party risk. Traders must ensure that the chosen forex CFD broker must be regulated by FSCA in South Africa.

The details of regulation are generally mentioned in the footnote of the official websites of the brokers. Clients can also access the FSCA website to cross-check the regulation details of a particular broker.

2. Fees: The spreads, commission, overnight charges, inactivity fee, deposit/withdrawal fee, and all other components of fees must be checked and compared. The higher fee is beneficial for the brokers and costly for the traders. Lower spreads can have a major impact on profits and losses booked by the trader.

3. Available Instruments: The chosen forex broker must offer adequate varieties of financial instruments including the ones that you wish to trade with. Traders must ensure that their preferred trading instrument is available with the chosen broker or not. Contract specifications on preferred instruments should also be checked before opening the account.

4. Trading Platform: All trading activity will take place on the trading platform. Clients must be convenient with the trading platform and all its features. Efficient and convenient use of the trading platform will enhance the outcomes of trades.

5. Deposit/Withdrawal: The best forex broker in South Africa must accept your preferred mode of deposit and withdrawal in time without additional commission. Traders must check the processing time of deposits and withdrawals along with the fees associated with each method before opening their accounts.

6. Customer Support: The best forex broker must offer quality customer support services through live chat, email, phone, or social media applications. Easy connectivity with the support staff will enhance the trading experience as traders can resolve any query faced while trading.

7. Trading Conditions: Clients must check every trading condition like leverage, account currency, deposit currency, account types, bonus, etc to choose the best forex broker for oneself. For example, if a broker does not support ZAR as the base currency of the account then the deposits made in ZAR will be converted to base account currency at prevailing rates.

For retail traders, it can be difficult to consider every aspect of a broker while choosing them. The best practice for beginners is to start with a demo account and trade with virtual currency. This will not only allow you to comprehend the trading conditions and experience with a broker but will also grant you experience to make better trading decisions.

Chapter #3

Important Forex Trading Terminologies

There are a few terminologies that every trader would come across when trading forex or using a broker’s platform. You must be aware of these terms to understand the market and use the trading platform.

1. Currency Pairs

A currency pair is how currency prices are represented for forex trading. All currencies are traded in pairs. A currency pair consists of two currencies symbolized by their three-letter names. For example, the United States Dollar and Euro are represented as EURUSD.

The price associated with the currency pair is the price at which you can buy or sell the first currency in return for the second currency. For example, if the EUR/USD price is 1.1612, it means that you can buy or sell 1 EUR in return for 1.1612 USD.

2. Leverage

Forex brokers allow you to trade with leverage. Leverage is the difference between the volume of currency pair you can trade versus the amount of money that you need in order to execute that trade. For example, a leverage of 1:1000 means that you can trade $1000 worth of currency for only $1.

Leverage allows you to make much larger trades with a relatively smaller amount of money. This means that the profit or loss from your trades can be much higher.

But there are huge risks associated with leveraging your market position, and you could lose big in case the market goes against your position.

It is advised to never use more than 1:10 leverage when trading forex. You should use much lower leverage when trading other CFD instruments like Crypto CFDs, and CFDs on indices, commodities, etc.

Many major regulators like FCA have gone ahead & restricted the leverage that can be offered by CFD brokers. But FSCA licensed CFD brokers can still offer high leverage. So, it is up to the traders to self-restrict the leverage that they are using while trading.

3. Bid Price

The Bid price is the price at which you can sell the base currency being referred to. For example, if the Bid price of the currency pair EUR/USD is 1.10, it means you can sell 1 euro for 1.10 dollars.

4. Ask Price

The Ask price is the price at which you can buy the base being referred to. For example, if the Ask price for the currency EURUSD is 1.15, it means you can buy 1 euro at a price of 1.15 dollars.

5. Forex Spread

The spread is the difference between the Bid price and the Ask price. The spread is how forex brokers make money from each trade. For example, if the spread at Broker A is 1 pip for GBP/USD, and 2 pips at Broker B, then it means that Broker A has lower trading fees. There may be some other fees that the broker charges, but usually, the tighter the spread, the less money the broker is charging from you.

6. CFDs

CFDs are also known as contracts-for-difference. Currency pairs are usually traded as CFDs through forex brokers.

A CFD is basically an agreement between a buyer and a seller to pay the difference in the price of a security between the time of entering into the contract and the time of exiting the contract. CFDs allow you to speculate on the price movements of various securities without owning the securities.

7. Forex Lot Size

A lot is the quantity of security that you are trading. There are three commonly used lot sizes.

  • Standard – A Standard lot consists of 100,000 units of the base currency.
  • Mini – A Mini lot consists of 10,000 units of the base currency.
  • Micro – A Micro lot consists of 1,000 units of base currency

8. Base Currency and Quote Currency

Currencies are always traded in pairs. The units of base currency are bought and sold in return for the quote currency. The base currency is mentioned first/above the quote currency. In the EUR/USD currency pair, EUR is the base currency and USD is the quote currency.

Chapter #4

Choosing the Best Forex Trading Apps

A forex trading app allows you to trade on the forex market through your smartphone. There are several forex trading apps out there. To open a trading account with any trading app, you need to open an account with a broker. Each forex broker can support single or multiple trading applications. These can be third-party apps or proprietary trading apps developed by the broker itself.

Here are the top three most chosen forex trading apps available in the market today:

MetaTrader

MetaTrader is one of the most popular trading apps out there. MetaTrader comes in two versions i.e. MetaTrader 4 and MetaTrader 5. The MetaTrader 5 has more advanced features when compared to the MetaTrader 4. however, MetaTrader 4 still remains popular and widely used.

MetaTrader is primarily meant for retail traders and investors who use the Android operating system on their mobile phones, however, an iOS version is also available. The trading app allows you to trade forex, stocks, futures, options, and many other types of financial instruments.

The trading app also comes with interactive charts, news, and various tools.

Most of the regulated Forex Brokers in South Africa like Exness, Tickmill, HotForex, AvaTrade, etc. offer MT4 & MT5 trading platforms to traders.

CTrader

Like MetaTrader, cTrader is also a 3rd party trading platform that some brokers offer. It is also available on desktop & mobile apps.

Few brokers like FxPro, IC Markets, and PepperStone offer the cTrader platform in South Africa.

Proprietary Trading App

Some forex brokers offer their own proprietary trading platforms, and may or may not offer 3rd party platforms like MetaTrader.

Plus500 & EToro offer their own platforms, and they don’t offer any other trading platform besides their own. But these brokers may not have their app on all devices. Plus500 for example does not have its platform available on the web.

Some brokers that offer MetaTrader & other 3rd party trading apps also offer their own platform. Like AvaTrade has its own AvaTradeGo app, but they also offer MetaTrader platform.

So, the choice is with the trader whether to use a popular platform like MetaTrader, in which case you can choose a MetaTrader forex broker. If you are comfortable using any app and need features like copy trading, then you must choose brokers that offer it.

To use any of the electronic trading applications, traders need to open an account with a regulated forex broker. Clients must check and compare every aspect of the broker before opening their accounts. The safety, fees, trading instruments, deposits, withdrawals, tools, and trading conditions must be compared.

Chapter #5

Risks of Online Forex Trading

All forex traders should know that forex trading is a highly risky activity. You should only deposit as much money into your trading account as you are willing to risk.

The forex market can be extremely volatile during certain market events. The relative prices between currencies can change quickly and it can be difficult to keep track of the changes in real-time unless you are very careful. During such an event, you can lose all your money if you are not careful & are highly leveraged.

Here are the Major Risks of Forex Trading

1. Leverage Risk:

Since forex trading is mostly done using high leverage by most traders, the risk is increased manifold. If you trade using a leverage of 1:1000, then your risk is 1000 times greater. The leverage allows you to trade at a much higher volume, which increases the risk.

If you want to trade a R100,000 position then you would need to have R100K in your account balance with the broker. But with leverage, you don’t need the full amount in your account, and you can instead only need the money that is required as margin by your broker.

For example, if your broker offers 1:100 leverage, then you can trade on a position worth R100,000 with just R1000 in your account. But this is very risky because you would lose the initial capital very quickly if the market goes against your position.

The major regulators in the EU, US, UK & Australia have put restrictions on leverage that can be offered to retail traders by their brokers. But there is no such restriction on FSCA licensed forex brokers, and these brokers offer as high as 1:2000 leverage. This is very risky and traders can lose whole account equity.

Hence, you need to strictly self-regulate your leverage. If you’re a new trader, then trading with a very low amount of leverage is advisable.

2. Unregulated Forex Brokers

It is also essential for you to only trade with a forex broker that is regulated by the FSCA.

The FSCA only licenses reputable brokers who have to follow strict codes of conduct. These forex brokers are less likely to have any unfair or fraudulent brokerage practices. This also allows you to stay away from brokers who may be looking to scam you. Also, if a licensed forex broker indulges in deceitful activities, then you can file a complaint against such a broker. Whereas there is no legal action that you can take against unlicensed forex brokers.

So, before choosing any broker, you must check if that broker is licensed by FSCA or not. If that broker is not licensed by FSCA or any other Top-tier regulation, then you must avoid such a broker.

Also, it is important to note that some illegal & fake forex\4
‘] brokers may claim that they are authorized by the FSCA even though they are not. There have been cases where fake brokers used the license no. of genuine brokers on their website to claim that they were regulated. Unsuspecting users deposited their funds into the account of such scam forex brokers.

That is why you need to make sure that you verify the FSP license no. the FSCA’s public search. And make sure to check that the forex broker that you are choosing is authorized under “CATEGORY I” to offer derivative instruments as an Intermediary. Also, the broker must be a licensed ODP.

3. Market Volatility

The forex market can be extremely volatile, especially during events like major news related to an economy.

For example, major news like an unexpected Interest Rate cut in the UK can have a major impact on the exchange rates of the GBP against other currencies. You should keep track of the news to not miss any important market updates that can impact the currency rates.

4. Economic Risk

For any investor, there is a risk that the economy that they are investing in takes a downturn or faces some political or economic challenges. This can also impact their currency exchange rates.

If you are trading the currency of a country with an unstable political environment, then also it can have an impact on your position if there is some unexpected event.

Also, some countries deliberately try to devalue their currencies to boost their exports. All these can have an impact on the exchange rates of currency.

5. Connectivity and Technical Glitch

Forex CFD trading is done online through trading platforms on electronic devices. The devices used for trading need an active internet connection without lags and glitches. The network must be safe from hacks and external attacks.

The device used for trading must be in good condition. Any lags or hanging of the device may lead to missing out on the trading opportunities. The use of public wifi should be avoided for trading. The passwords and login credentials should not be compromised.

Forex Trading in South Africa FAQs

Is Forex Trading legal in South Africa?

Forex trading is legal in South Africa & regulated by the FSCA. You can legally trade forex with any FSCA-regulated forex broker that is licensed under their ODP Regime for offering derivative instruments to traders in South Africa.

 

Is forex trading profitable?

How to Trade Forex in South Africa?

How can Beginners Learn Forex Trading in South Africa?

What is Forex Trading & How does it work?

See Best Forex Brokers in South Africa Read More