Forex stands for foreign currency and exchange, and in a nutshell describes the process of changing one type of currency (such as SAR) for another (like USD or GBP). This can happen for several reasons – for commerce and trade, for tourism and vacation spending, or for traders.
The forex market was worth $2.409 quadrillion in 2022, and with $6.6 trillion traded on the market daily, the advent of internet trading and discount brokers has meant that individuals can now trade on the forex market almost anywhere in the world, including in South Africa.
The forex market in some form has existed for centuries – humans have seemingly always traded goods or currencies to purchase other goods or services. However, forex trading as we know it today is a strictly modern phenomenon, emerging in the early 1970s following the collapse of the Bretton Woods accord.
When gold was no longer the standard to which the US Dollar (and therefore almost all currencies) was valued, it became the responsibility of each country to decide on how to value their own currency – which has led to today, when the price difference between a pair of currencies can be traded upon, and as an individual you can buy, sell, or otherwise trade forex on the market through a broker.
The Rules of Forex Trading in South Africa
There are rules and regulations that need to be followed for legal forex activity in South Africa.
Firstly, all brokers need to be regulated for the safety of you, your information, and your money. Regulation can come from the Financial Services Conduct Authority (FSCA) which is based in South Africa and deals with financial institutes, or through another top tier authority such as CySEC from Cyprus, the UK’s FCA, or Australia’s ASIC. Brokers that are regulated must follow strict rules about the services they provide.
Do forex traders pay tax in South Africa? It is worth remembering that any profits from forex trading are subject to capital gains tax. If you are trading as a business, this is set at a rate of 28%, but if you are an individual it can vary from 19%-39% – and if you aren’t sure, you can speak to your broker who will be able to help you.
Anybody over the age of 18 in South Africa can open a live trading account with a forex broker.
What to Consider in a Forex Broker
Unless you are an institution or a high net worth individual, the chances are you will need to engage the services of a broker to get access to the forex market. There are many brokers that offer services to residents of South Africa, whether they are local businesses or global ones – which can make choosing the right one a difficult decision.
1. Fees
Online brokers are often considered to be discount brokers because there is an expectation that you will do all the research and complete the trades yourself – they are acting as a platform for you to get access to the markets. However, there will still be fees to be paid. Trading fees might be built into the cost of the spread or charged as a commission per trade, but there can also be fees for withdrawals and deposits, for managing your account, or for any long periods of inactivity.
2. Base Currency
SAR is available as a base currency within several different brokers. If you choose a broker that does not use SAR as a base currency, you will have to bear in mind any relevant currency conversion costs when you are making trades. There are limits to the annual amount you can send to a foreign currency, too.
3. Trading Instruments
While you might be happy just trading forex, there are several other trades that you can make on different markets, from things like gold, silver, and oil to futures, CFDs, and even cryptocurrency. A broker that offers access to many forex pairs as well as other trading instruments can help you to build a diverse portfolio.
4. Access
Forex trading is volatile, and while this can mean big profits you have to be ready to make a trade straight away – and that means access on the go. Many brokers will have a web application or a desktop download, but for the most convenient access look for a broker that offers a mobile app.
5. Education and Research
Nobody goes into trading as an expert – everyone must start somewhere. Many brokers offer extensive education opportunities, from demo accounts to full forex trading courses. You will also want trading tools and research materials to help you decide which trades to make based on the activities of the market.
6. Customer Service
Not everything is going to be straightforward, and you are going to want to be sure that you can get access to help when you need it. Look for customer service that is available through multiple channels (live chat, phone, and email) and that it has had favourable reviews from independent sources.
Trading forex in South Africa is simple to get into, and with a little bit of learning and a good amount of research you too can make some money in the foreign exchange markets.
