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Forex trading (foreign exchange trading) has gained immense popularity in South Africa, offering individuals the chance to participate in the dynamic global currency market.
The global forex market is the largest financial market in the world and it is active 24/5. Each trading day, the combined forex trading involves trillions of dollars.
South Africans are increasingly drawn to this market due to its accessibility, liquidity, and potential for profit, but doing your homework and understanding the nuances and risks of forex trading is essential to navigate its opportunities and dangers effectively.
The Basics of Forex Trading
At its core, forex trading involves buying and selling currency pairs, speculating on the relative strength of one currency against another. For instance, a trader might predict that the South African Rand (ZAR) will strengthen against the US Dollar (USD) and trade accordingly. The ultimate goal is to profit from the price differences caused by fluctuating exchange rates.
Regulatory Environment and Taxation
Forex trading in South Africa is legal and regulated by the Financial Sector Conduct Authority (FSCA). This regulatory body ensures that brokers and traders operate within the framework of South African laws, providing a safer trading environment. Traders can freely engage in forex trading, provided they adhere to applicable laws and tax regulations.
If you plan to do forex trading in South Africa, it is a good idea to pick a FSCA-licensed broker. The FSCA plays a pivotal role in ensuring that the forex trading environment in South Africa is safe and transparent. It monitors brokers and financial service providers to protect traders from scams and unethical practices. For added security, traders should therefore verify that their chosen broker holds an FSCA license. You can obtain this information directly from the FSCA. Do not take the broker´s word for gospel – always check with the FSCA to verify.
Earnings from forex trading are subject to taxation in South Africa. Profits must be declared to the South African Revenue Service (SARS). Keeping detailed records of trades and consulting a tax professional can help avoid complications. It is especially important to know exactly how to calculate and declare profits, losses and costs over the tax year, in order to get your tax burden down without running foul of South African tax law.
Why Is Forex Trading Booming in South Africa?
Many different factors are believed to contribute to the surge in forex trading popularity in South Africa.
The South African forex market offers unique features that make it attractive. The availability of local currency pairs, such as USD/ZAR, allows traders to speculate on their own economy while engaging with global markets. The FSCA’s oversight also fosters a sense of trust and security among traders. In addition, the accessibility of internet, online platforms and mobile apps has made forex trading more convenient, even for beginners and hobby traders that start out with a very small bankroll.
South Africa’s position as an emerging market adds another layer of interest. The South African Rand is a widely traded currency that attracts both domestic and international traders due to its volatility and potential for large price movements. Furthermore, the country has a growing community of traders who share knowledge and resources through online forums, seminars, and courses, creating a supportive environment for new and experienced participants alike.
The combination of a growing economy, middle-class aspirations and a high degree underemployment among young people in South Africa is contributing to the popularity of fx trading
The South African economy is facing challenges and we currently have a situation where the economy is growing but young people are struggling to find employment. For many, the solution is to look for independent sources of income – rather than wait to be employed by someone – and forex trading is an appealing choice.
Many members of the working class in South Africa are well educated and aspire to lead a middle-class lifestyle. When finding a suitable white collar job proves difficult, even with a good educational background, many people seek out online opportunities, including online forex trading.
Within South Africa, there are many people who would see vast lifestyle improvements even from having a fairly modest monthly income from forex trading.
Internet connections and mobile phones
Compared to 20 years ago, a much larger number of South Africans have internet access and mobile phones. The smartphones of today are advanced enough to take the place of traditional computers when it comes to forex trading, so a much larger number of South Africans have the required hardware and software to get started with fx trading if they want to.
Investments in infrastructure in South Africa has created a situation where you no longer need to be in a major urban area to get the type of fast internet access suitable for forex trading, and this has also helped boost the popularity of fx trading in the country. Even people in fairly remote areas – where other income opportunities might be scarce – can start forex trading.
The FSCA
Forex trading is not only legal in South Africa – it is supported by the Financial Sector Conduct Authority (FSCA) and this authority has a framework of rules in place for FSCA-regulated brokers to ensure trader safety and trading transparency. This has contributed a lot of the popularity of fx trading in South Africa.
The fact that forex trading is legal and it is possible to get licensed by a South African authority has also helped attract a lot of large multinational forex brokerage companies to the South African market. Prospective South African forex traders can chose well-known international companies for their trading and this has helped boost popularity – partly because traders feel safer and partly because large companies come with big advertising budgets that help make fx trading more visible.
Last but not least, the fact that forex trading is legal and authorized by a governmental agency in South Africa has made more people see it as a legitimate source of income.
There are now forex trading platforms available that accept local South African transfer methods
As the popularity of forex trading in South Africa has experienced strong growth in recent years, it has become an important market for forex brokers and many of them are now catering specifically to South African traders by accepting transaction methods that are widespread in South Africa, such as M-Pesa and local bank transfers. This has in turn helped promote fx trading even more, as it has become more accessibility and decreased transfer costs.
It is possible to get a ZAR account
To reduce currency risk, traders in South Africa can pick a forex broker that offers ZAR accounts. This means you can deposit in ZAR, keep your money in ZAR and make withdrawals in ZAR. It reduces certain type of currency risk and can also bring down costs.
Small start-up costs
You don´t need a big bankroll to get started with fx trading online. You need a smartphone (or computer) and an internet connection, and a small capital that you can grow gradually. Unlike traditional investments, e.g. real estate, you can get started with fx trading even on a humble budget, and this makes fx trading appealing to a wide demographic, including students and young professionals.
No formal requirements
You do not have to go through a formal route of education to start forex trading. It is strongly advisable that you learn a lot about forex trading before you start putting any real money on the line, but this learning does not have to take place in a university or trade school. There are a multitude of resources available online for anyone who is interested in becoming more knowledgable about foreign currencies, trading strategies, risk management, and more. There are no formal barriers to entry, such as a required degree, certification, or membership in a professional organisation. You also don´t need to have the right connections to get a chance to start.
Flexibility
Many South Africans are juggling a multitude of obligations and it is appealing that forex trading can be combined with other aspects of life, e.g. having another job, studies, or taking care of family members. The forex market is active 24 hours a day, five days a week (Monday – Friday) so you can trade when it fits your schedule. Because of how the time zones work, it is even possible to do some trading during parts of the weekend in South Africa, since the markets in places like Tokyo and Sydney will open when it is Monday morning there but still Sunday night in South Africa. Also, the markets in places like New York City will stay open when it has already become Friday night in Johannesburg.
It is also worth noting that South Africa is located in almost the same time zone as the important London forex trading session, and roughly halfway between the New York Session in United States and the Sydney and Tokyo sessions in the east. Regardless of what your schedule look like in South Africa, you should be able to find suitable trading hours during the week.
- Sydney Forex Session: 10 PM – 7 AM GMT
- Tokyo Forex Session: 12 AM – 9 AM GMT
- London Forex Session: 8 AM – 5 PM GMT
- New York Forex Session: 1 PM – 10 PM GMT
Automatic exposure to currency exchange rates
Even a South African with zero interest in forex trading will probably know quite a bit about the fluctuation of currency exchange rates and inflation, and how this can impact daily life. The South African rand (ZAR) is an emerging market currency characterized by a high degree of volatility and it has gone through significant periods of depreciation. This have had – and still has – a big impact on the daily lives of many South Africans.
Many South African fx traders focus on currency pairs such as USD/ZAR and GBP/ZAR since they are already familiar with the dynamics of these currencies, e.g. which factors that tend to impact their market price and how. They have an edge when it comes to predicting the movements of the ZAR as they grew up in an environment where it was necessary to be able to handle everyday expenses. They may for instance have developed an understanding of the importance of announcements from the South African Reserve Bank (SARB), the release of inflation numbers, and employment figures. Certain global commodity prices – especially gold and platinum – also have a tendency to impact the ZAR, as South Africa is a major producer of gold and platinum.
Another fact that many traders outside Africa are unaware of is how the ZAR is legal tender in several African countries, and widely used unofficially in a few more. The Namibian dollar, the Lesotho loti, and the Eswatini lilangeni are all pegged with the ZAR at parity, and the ZAR is also legal tender in these three countries. Examples of countries where the ZAR is not officially legal tender but widely accepted are Zimbabwe, Zambia, Malawi, and Angola.
English is the language of the forex world – and many South Africans speak it
The dominating language in the forex trading world is English and the barrier to enter is therefore lower for prospective traders that are comfortable using this language. This has helped boost the popularity of forex trading in South Africa, as so many people in South Africa are fluent in English – either as a first or additional language. Being comfortable with the English language makes it easier to start forex trading and also easier to find high-quality educational material about trading, currencies and the forex market.