Forex brokers and trading regulation in South Africa

Trading in South Africa

South Africa is without a doubt Africa's most advanced nation. A G20 member state, its banking operations are overseen by its local Reserve Bank (which, among other things, issues the local currency, the ZAR, or rand).

Although blessed with many naturally-obtained resources such as precious metal, it relies extensively on trade with Europe, the USA and Asia.

Thanks to its open economy, South Africans have embraced currency trading. They represent Africa's biggest forex market with over $20 billion traded in 2018. The number 2 country, Namibia, only has 10% the size of South Africa's forex trading volumes.

As for the national currency - the South African rand - it ranks only 19th in terms of worldwide trading.

As conditions are getting touger for forex brokers targeting traders in Europe, many of them are shifting their interest abroad, and South Africa is increasingly appealing as it offers both a healthy economy and low operating costs..

South African forex rules

Forex trading is both authorised and popular with local traders. The FSCA (Finance Service Conduct Authority) regulates forex trading, ensuring that no illegal conduct takes place on behalf of both traders and brokers.

Non-African brokers need to be FSCA-licenced in order to market their trading activities to South Africans. They must also comply with the operating capital minimums that are set by the regulatory body and have a main office in South Africa.

In addition, brokers that offer securities such as Contracts for Difference (CFDs) have to ensure that their traders are able to handle the volatility inherent in them. Local traders can also access derivative securities on the Johanesburg Stock Market. carefully assess their clients before allowing them to trade such volatile products. South African investors are also able to trade derivatives on foreign exchange on the Johannesburg Stock Exchange.

While the nation's citizens aren't forbidden from trading on non-FSCA-licenced foreign brokerage platforms, it is highly recommended that they use brokers that do have at least one licence in a leading jurisdiction (such as the UK, Cyprus or Australia).

In terms of account funding, traders will find it much more easy to do if the broker has a local licence. Dealing with foreign brokerage firms is often trickier as you have to deal with foreign banks and thus currency conversions.

Although funding via a credit or debit card may be tempting in terms of ease of use, a regular wire transfer will be more secure and enable you to send a greater sum of money, especially if the broker is located abroad. Lastly, you should favour brokerage firms that enable you to open a ZAR-based account (rather than an account in USD or euros). This is to avoid unnecessary currency exchange fees.

Financial regulation in South Africa

In South Africa, a dual regulation system was introduced a few years ago. 2 independent bodies were created, and each one has its own specific supervision missions.

Financial service companies - such as forex brokers - are overseen by the FSCA, which approves the firms that can operate within the jurisdiction. It handles the issuance of licences and can also sanction companies that violate national guidelines.

The other regulatory body is South Africa's PA, or Prudential Authority. They monitor finance-related entities except for banks. primary mandate of this entity is to regulate non-bank financial institutions, including market infrastructure, cooperative financial institutions and financial conglomerates.

South Africa's Reserves Bank completes the picture within a well-defined role: making sure that the region's financial market remains stable, issuing the local ZAR currency (both in bills and coins) and managing the nation's gold supply.

BrokersRegulationTrading platformsOfficial website
DFSA, FSCA, FCA, CySEC, FSA MetaTrader 4 HF Markets website
FRSA, FSCA, JFSA, ASIC, CBFSAI, BVI FSCMetaTrader 4 and 5AvaTrade website
FCA, ASIC, CySECMetaTrader 4 and 5 Admiral Markets website
FCA, KNF, CySEC, BIFSC, CNMV MetaTrader 4
XStation
XTB website
ASIC: Australia, BVI FSC: British Virgin Islands, CBFSAI: Ireland, CySEC: Cyprus, DFSA: Dubaļ, FCA: United Kingdom, FRSA: Abu Dhabi, KNF: Poland, BIFSC: Belize, CNMV: Spain, FSA: Seychelles, FSCA: South Africa, JFSA: Japan

CFD trading involves a significant risk of loss, so it is not suitable for all investors. 74 to 89% of retail trading accounts lose money trading CFDs.

Transferring funds to a South African trading account

Making your initial forex account deposit should be easy. Most traders do this via a local bank transfer or with a regular credit card.

South Africans are limited in terms of how much money they can send to a foreign destination (999,999 ZAR per year). Traders wanting to invest more simply need to submit a fiscal exemption request. Or invest via a locally-based broker, which won't require funds to be sent abroad.

Brokerage firms based in South Africa also now accept e-wallet transfers from providers such as Neteller, Skrill (formerly known as Moneybookers) and the often-maligned PayPal. These offer the benefit of being faster than a bank transfer while enjoying the same high level of fund-safety.

Another local and more recent solution is EasyEFT, which lets you send funds directly from your bank account. This process can be initiated right from your brokerage account - simply look up your bank via the interface and fill out and submit the requested data. Many banks support this safe and fast system, such as Investec, FNB, Standard Bank, ABSA and Capitec.

Lastly, PayU and PayFast are 2 more local options that many South African brokers support.

Forex trading software offered by South African brokers

In order to trade currencies, you will have to download and install free software from your forex broker's website. As of 2020, it's safe to say that all trading software enables you to add technical indicators to your charts (great for analysing price action). And it's also reasonable to assume that all brokers in South Africa offer free demo accounts, so that you can test the software's features and interface in real market conditions with virtual money. Many professionals also use demo accounts to test out a new strategy or to fine-tune how they trade.

Most brokers offer either MT4 or MT5 (MT stands for the MetaTrader platform), or even both. This is the most used trading software in the world and its success is due to its ease-to-use interface. The difference in the the two versions is simple: the former is only for currency pair trading while MT5 also supports other asset classes (futures, shares, commodities, precious metals, indices, etc.).

South Africans increasingly trade using mobile devices

Nearly half of all South Africans now use smartphones to communicate and make online purchases. And brokers have stepped up their game, offering mobile versions of Metatrader that enable traders to buy/sell currencies and monitor their positions no matter where they are. And both Androids and Mac systems are supported.

Traders can use these applications for free, and enjoy most of the features that are present in the desktop versions (zooming in on the charts, one-click buying, stop-loss adjustments, etc.). So whether you prefer to use your phone or a tablet (or your home/office desktop computer), you never have to miss another trading opportunity, especially as many important economic report announcements tend to drop in the middle of the day!

Common questions:

1. How should I choose a broker if I'm a resident of South Africa?
Stay away from unregulated brokerage firms. It doesn't matter if they're licenced in Cyprus or have an FSCA licence, just make sure they have some sort of licence from a legitimate jurisdiction! Don't let yourself be influenced by inflated bonus offers, and keep in mind that 500:1 leverage isn't necessarily in your best interest unless you're already a seasoned pro.

2. Are there ZAR-based currency pairs?
As the rand is rather volatile, currency pairs such as the GBP/ZAR and USD/ZAR appeal to many investors. Other lesser-known ZAR pairs are also increasingly supported, such as the CHF/ZAR and AUD/ZAR.

3. Will I be taxed on my currency trading income?
Unfortunately, you will indeed be taxed on your forex profits. The rate depends on how much you make (and ranges from 19% to 39%). Your broker can usually offer assistance if you're unsure of how to report it.

4. Are there any hidden fees that I need to know about?
Most brokerage firms don't charge any fees to trade currencies, as a very small commission is already built into the spread you pay (example: if you want to buy the EUR/USD the cost may be 1.1002, while the selling price could be 1.1000; the difference - 2 pips - is what the broker gets, a reasonable commission that is usually largely offset by the proceeds of a winning transaction). However, extra fees may well be applicable with other assets that you trade (indices or share, for example). Also, you might be charged a small transfer fee each time you withdraw your profits back to your credit card or bank account.

5. Is there a minimum required age to trade currencies?
You can trade with a demo account at any age, but you need to be over 18 in order to trade the forex.

Recommended forex brokers for South Africa residents:

BrokersRegulationTrading platformsOfficial website
DFSA, FSCA, FCA, CySEC, FSA MetaTrader 4 HF Markets website
FRSA, FSCA, JFSA, ASIC, CBFSAI, BVI FSCMetaTrader 4 and 5AvaTrade website
FCA, ASIC, CySECMetaTrader 4 and 5 Admiral Markets website
FCA, KNF, CySEC, BIFSC, CNMV MetaTrader 4
XStation
XTB website
ASIC: Australia, BVI FSC: British Virgin Islands, CBFSAI: Ireland, CySEC: Cyprus, DFSA: Dubaļ, FCA: United Kingdom, FRSA: Abu Dhabi, KNF: Poland, BIFSC: Belize, CNMV: Spain, FSA: Seychelles, FSCA: South Africa, JFSA: Japan

CFD trading involves a significant risk of loss, so it is not suitable for all investors. 74 to 89% of retail trading accounts lose money trading CFDs.