What Is Forex Trading?
Buying and selling various currencies in a decentralized forex market is called forex trading. The forex market is one of the world’s most liquid markets with an average daily trading turnover of more than 6 Trillion U.S. Dollars. Forex Trading in South Africa is a very popular online investment business.
How Does it Work?
In forex trading, currencies are exchanged in pairs. When the price of one currency appreciates or depreciates, then it creates a profit-making opportunity.
Let’s try to understand the concept of forex trading with an example;
Suppose you have 10,000 South African Rands (ZAR) and you to make some profits with forex trading. First of all, you need to select a forex pair such as USD/ZAR, ZAR/JPY, ZARGBP, etc. For example, you decide to choose the USD/ZAR pair. Now, you might want to know how much USD you can buy against 10,000 ZAR. Let’s suppose 1 USD is equal to 4 ZAR at current market price. That means you can buy 2500 USD with 10,000 ZAR.
If the value of USD declines in a day or two with a new market-rate being 2 ZAR for 1 USD. You can buy the same units of USD for 5,000 ZAR only. That’s how you may save 5000 ZAR that ultimately counts as a profit. Traders do the same in forex trading. You can buy an asset at current market price and liquidate it at higher price to make some money and vice versa
Pros And Cons of Forex Trading
Forex trading can bring decent returns if carried out with discipline. However, it can also be disastrous at times of high volatility. Given below are some main pros and cons associated with forex trading;
- Leverage – Leverage is one of the most crucial elements of forex trading. It allows traders to trade more volume with limited funds, in turn generating more returns. Likewise, leverage also increases the risk of loss. In case you lose a trade, the loss might exceed your initial capital by many folds.
- High Liquidity – With a daily trading volume in trillions of U.S. Dollars, the forex market is highly liquid. You always have a buyer available to fill up your orders right away. On a contrary, in other businesses, the disposal of an asset can take weeks and months.
- Decentralized Market – The forex market has no centralized location or headquarters. Therefore, the chances of price manipulation are less as compared to stocks and equity markets, where key players can manipulate prices with insider information.
- High Volatility – High volatility is considered risky in forex trading. However, it can also yield some quick returns if traded skillfully with proper money management.
- Diversification of portfolio – Forex trading comes with a variety of tradable assets including currencies, precious metals and CFDs that brings diversification in your investment portfolio.
- Minimum Capital Requirement – There is no minimum capital requirement. You can start trading forex for as low as $50. Some brokers even allow their clients to deposit even $5. No other business can be started with such a low investment.
- Demo accounts – Demo accounts help traders to learn and grow without any actual investment. In other investment markets, you cannot have another chance to rectify your mistakes.
- Trading is for everyone – Forex trading is a self-learning process. You don’t have to get any certification or pass any exam before starting your forex trading journey. You can be successful in trading if you know how to control your emotions.
- Scam and Dishonest Companies– There are so many dishonest forex brokers and money managers operating in the forex industry. Sometimes it becomes difficult to differentiate between a legit company and fraudsters. Therefore, novice traders are more prone to become a victim of scam companies.
- Social Trading Cons – Social trading is a superb way for novice traders to make profits right from the beginning of their forex journey. However, if they end up following a wrong trader, then they could well be in trouble.
How To Start Trading Forex in South Africa
It is very easy and convenient to start your forex trading business in South Africa as compared to countries with restricted forex trading access, such as India, Iran, and China, etc. You need a good forex broker, some money to invest and proof of your identity as well as address before starting your forex trading career.
Read: Best Forex Brokers In South Africa
South Africa has strong rules and regulation in place for forex companies. The Financial Services Conduct Authority (FSCA) South Africa oversees the affairs of all forex brokers and financial entities entrusted with public money. Brokers need to comply with AML guidelines, that require clients to complete the KYC (Know Your Customer) process.
Read: FSCA Regulated Forex Brokers
Traders opening an account with brokers in South Africa have to verify their identity first to fulfill the first KYC parameter. Traders can use the following documents to verify their identity;
1) National ID card/ Passport/ Driving License
2) Bank Statement or Utility Bill ( for address verification).
Once identity is verified, then the broker might ask you to verify your address by uploading your bank statement or utility bill. After verifying your address you might proceed with funding your account. Generally, brokers offer multiple payment methods such as credit cards, debit cards, wire transfers, and e-payments.
Forex Trading Communities, Forums, and Discussion Groups in South Africa
Forex trading is a self-learning process, however you can’t master it all alone. Interaction with other professional traders can create a huge difference. Besides learning from other traders’ experiences, you may also start analyzing things from different perspectives.
#1 South African Professional Forex Traders
South African Professional Forex Traders is a Facebook group created to connect traders from all over South Africa. With over 58.7K registered users, the group actively discusses different forex trading strategies.
#2 Currency Trading
Currency trading is another social media page where South African traders interact with each other. Members share their knowledge and ideas on forex trading. The group has over 2000 active users who post forex related updates on and off.
# 3 FOREX GDP
Forex GDP is a WhatsApp community for trading aspirants based in South Africa. The platform offers free forex signals. Traders joining this group may receive buy and sell trading ideas along with complete chart analysis.
Forex Influencers to Follow in South Africa
#1 Sandile Shezi
Sandile Shezi is the youngest forex trader with a successful track record. He is very popular in South Africa. He owns a global forex institute where he delivers trading lessons to forex aspirants. You can follow him on his Instagram channel.
#2 George Van Der Riet
George is another successful forex trader from South Africa. With in-depth knowledge of the financial markets, George Van Der Riet can help you reach your trading goals.
#3 Ref Wayne
Wayne is a professional trader and entrepreneur. He specializes in price action strategy and provides coaching sessions to traders all over South Africa.
Frequently Asked Questions (FAQs)
Is forex trading legal In South Africa?
Forex trading is legal in South Africa. Forex traders living in South Africa need to disclose their earnings to the South African Revenue Service (SARS) once a year.
What is the best time to trade forex in South Africa?
The best time to trade starts when two trading sessions overlap each other. Given below is the timing (In South African Time Zone) for different overlap trading sessions
- US/London Overlap: 12:00 PM to 04:00 PM
- Sydney/Tokyo Overlap: 6:00 AM to 8:30 AM
- London/Tokyo Overlap: 7:00 AM to 8:30 AM
Is forex trading taxable in South Africa?
Yes, forex trading is a taxable income in South Africa. The government of South Africa treats forex trading earnings similar to any other money-making business. The applicable tax rate may vary between 18 percent to 40 percent, depending upon the amount of profits made during a fiscal year.
Can you make money trading forex in South Africa?
Yes, you can make a decent amount of returns with forex trading as long as you employ effective trading strategies and risk management parameters.