Forex Trading in South Africa – A Beginner’s Guide

Forex trading is the process of buying and selling currency pairs like USD/GBP and EUR/USD. The main concept is that you will be looking to profit when the exchange rate of a forex pair goes up or down. If you’re based in South Africa and this is something you wish to do, there are heaps of regulated platforms active in the market.

However, it’s not as simple as opening an account, depositing funds, and then making unprecedented profits. On the contrary, you need to learn the ins and outs of how forex trading works, and you also need to compare platforms to ensure you pick the right broker for you.

In this guide, we explain everything there is know about forex trading in South Africa. On top of discussing key terms and strategies and reviewing the best forex brokers, we also provide a step-by-step walkthrough so that you can get started with a forex trading account today!

How to Start Trading Forex in South Africa in 3 Quick Steps

Don’t have time to read our guide all of the way through? Below you will find our three quick steps on how to start trading forex in South Africa right now!

Step 1: How to Pick a Forex Trading Platform in South Africa?

Trading forex in South Africa has never been easier, with heaps of online trading platforms allowing you to buy and sell currencies at the click of a button. With this in mind, your first port of call will be to pick a South Africa forex broker that meets your needs.

For example, are you looking for a platform that lists a specific currency pair, or are you more concerned with fast withdrawal times? Either way, you need to do some homework before parting with your money. To help you out, below you will find our picks for the best South Africa forex trading platforms of 2024.

 

Step 2: Learn How the Forex Market Works in South Africa

Now that you have established the online broker that you wish to sign up with, we now need to discuss the fundamentals of forex trading. As there’s the risk of losing money, it’s super-important that you know what you are doing before you begin forex trading.

As such, make sure you read through this section in its entirety before moving on to the next step!

What is Forex Trading?

In a nutshell, forex trading is an investment sector that involves buying and selling currency pairs. The main concept is that you will be looking to make a profit when the exchange rate of the pair goes up or down.

Whether its EUR/USD, GBP/USD, or USD/ZAR, each and every currency pair will have an exchange rate that moves on a second-by-second basis.

This makes it highly conducive for traders, as the forex markets operate on a 24/7 basis. In order to make money, you will need to speculate which way you think the pair will move in the short-term.

For example, if you are trading EUR/USD and you think the Euro will increase in value against the US dollar, then you need the price of the pair to go up. If it does, you make money. If the exchange rate instead goes down, you will lose money. This is why it is important to have sensible stop-loss orders and risk management tools in place.

In order to clear the mist, let’s look at a quick example of how a forex trade works in practice.

• You want to trade the exchange rate between the US dollar and South African rand
• As such, the pair that you will be trading is USD/ZAR
• The current price of the pair is 16.84
• This means that every 1 dollar, you would get 16.84 rand
• You think the exchange rate is likely to increase, so you place a ‘buy order’ at a total stake of $1,000
• A few hours later, USD/ZAR increases to 17.23
• This represents an increase of 2.37%, so you decide to cash out your gains
• On a stake of $1,000 – you made a total of $23.70

In the above example, your speculation was correct, so you made money. But, had the exchange rate of USD/ZAR gone down by 2.37%, you would have lost $23.70.

How does Forex Trading work?

Much like any other asset class, the forex trading scene is essentially based on market forces. That is to say, the price of a currency pair will go up and down in line with demand and supply. For example, when the UK voted to leave the European Union in 2016, the uncertainties that this presented resulted in a massive sell-off of GBP. In turn, whether that’s against the USD, ZAR, AUD, or CAD, the price of GBP-denominated pairs went down.

Nevertheless, in order to speculate on the future price of a currency pair, you will need to use an online forex broker. Such platforms operate as third-parties between you and other traders. For example, let’s suppose that you want to place a $500 sell order on GBP/USD. In doing so, somebody else would need to place a $500 buy order for the trade to go live. This isn’t normally an issue when trading forex online, as the industry is a multi-trillion-dollar battleground.

What Forex Trading Terminologies Should a Beginner Know?

Before we discuss some handy tips that will allow you to get your forex trading career off on the right foot, we first need to clear the mist with key terminology. This is because the online forex industry is jam-packed with terms that you might not have previously come across.

You will, however, certainly come across these terms when you join an online broker, so be sure to read through the terms listed below!

Buy/Sell Orders

First and foremost, it is crucial that you understand the difference between a buy and sell order, and how this relates to a forex trade. In its most basic form, buy and sell orders dictate which way you think the markets will go.

• For example, let’s say that you are trading GBP/USD, which is currently priced at 1.2278
• If you think the price of the exchange rate will go up, you need to place a ‘buy order’
• If you think the price of the exchange rate will go down, you need to place a ‘sell order’

So, if you place a buy order because you think the exchange rate will go up and it does, you will be in profit. Then, you will need to place a sell order when you decide to close the position. This works the same way if you think the price of the pair will go down, but in reverse!

Spread

The previous section on buy/sell orders leads us nicely on to the ‘spread’. This is because the spread is the difference between the buy and sell price of an asset. Crucially, in the example we gave above where GBP/USD is priced at 1.2278, this isn’t strictly how things work in the world of forex trading.

That is to say, you will always be presented with a ‘buy price’ and a ‘sell price’, and the difference between the two is the spread.

So why does this matter? Well, the size of the spread dictates how much you are indirectly paying in trading fees. For example, if the difference in percentage terms is 0.2%, then you need to make at least 0.2% just to break even. Anything above and beyond this is profit.

Market and Limit Orders

On top of buy and sell orders, you then need to make some considerations about whether you want to opt for a ‘market’ or ‘limit’ order! In simple terms, market/limit orders dictate what price your buy or sell order should be entered at.

If you opt for a market order, this means that you will get the current price of pair. There is likely to be a slight variation once the order has been matched, as currency exchange rates move on a second-by-second basis.

Alternatively, limit orders allow you to specify the exact price that you wish to enter the market at. For example, let’s suppose that AUD/NZD is currently priced at 1.0878.

You think that a buy order represents a good short-term investment, but only if the price of the pair breaks the 1.0900-mark. As such, you might decide to place a limit order at 1.0909. In doing so, your order will only be matched if the price hits 1.0909.

Forex Trading Tips for Beginners 

So now that you know the key terms that you need to look out for when using an online forex broker, we are now going to discuss some handy tips that we think you should consider before getting started!

Tip 1: Stick with regulated forex brokers

Although this is more of a non-trading tip, it is important nonetheless. In a nutshell, it is crucial that you only use an online forex broker that is regulated. In fact, you need to ensure the platform is licensed by a tier-one body.

This should include respected regulators like the UK’s Financial Conduct Authority (FCA) or the Australian Securities and Investments Commission (ASIC).

What this means for you is that your money remains safe at all times. This is because tier-one licensing bodies require forex brokers to keep funds in segregated bank accounts.

Tip 2: Learn technical analysis

Technical analysis is the most important learning journey that you will need to go on when you trade forex online. For those unaware, this is the process of performing in-depth chart analysis. The overarching objective is to look at historical pricing trends that could influence the future direction of the pair.

In order to do this, you will need to use technical indicators like the RSI (Relative Strength Index) and MACD (Moving Average Convergence Divergence). In truth, it can take months before you begin to get comfortable analyzing charts. But, without having the know-how, you won’t succeed as a forex trader, so get learning!

Tip 3: Always have an exit strategy

Without a doubt, you must make sure that each and every forex trade has an exit strategy. In layman’s terms, you need to ensure that you mitigate the risks of a losing trade as best as you can. The most effective way of doing this is to install a sensible stop-loss order. This will close the position automatically when the trade goes against you by a certain amount.

For example:

• You decide to place a buy order on USD/ZAR at 16.84,  meaning you think the price will increase
• In case the price of the pair goes down, you set up at a stop-loss order 16.34
• You choose this stop-loss price because it equates to a maximum loss of 3%
• A few hours later, the price of USD/ZAR crashes by 5%
• Ordinarily, you would have been 5% in red, but – as you have a stop-loss order in place, the position was closed automatically when it hit 17.35
• As such, your losses were capped to 3%

On top of setting up a stop-loss order, it is important that you consider your profit target. That is to say, you should also have the position closed automatically when a price target is hit. This is called a take-profit order, and it works in exactly the same way a stop-loss order, but in reverse!

What Currency Pairs can South African Forex Traders use?

Each broker will have a fixed list of currency pairs that you can trade at the click of a button. In the world of online forex trading, this can be split into three categories:

• Majors: As the name suggests, major pairs will always contain two ‘major’ currencies. However, one half of the trading pair must contain the US dollar. Examples of major pairs include GBP/USD, EUR/USD, and AUD/USD. You are advised to stick with major pairs if you are a newbie trader. This is because they benefit from the tightest spreads, highest volumes, and crucially – lowest volatility levels.
• Minors: Much like majors, minors will also contain two major currencies. However, this will not include the USD. Examples would include GBP/EUR, AUD/NZD, and CAD/AUD. Liquidity levels are slightly lower, and spreads are a bit wider.
• Exotics: Exotic pairs will contain one major currency and one currency from an emerging nation. The South African rand would fall within this category, so if you plan to trade USD/ZAR, you will be trading an exotic pair. Other currencies that would make up an exotic pair include the Kenyan shilling, Turkish lira, and Mexican peso. It is important to note that exotic pairs come with much wider spreads, so they are more costly to trade. Volatility levels are also much higher, so do tread with caution.

What is Leverage In Forex Trading?

In its most basic form, leverage allows you to amplify the size of your buy or sell order. For example, if you apply leverage to your trade at 10x, you will be trading at 10 times your stake. In other words, any profits that you make in real-terms will be multiplied by a factor of 10. At the same time, your losses will also be amplified by 10, so you need to be really careful when applying leverage.

Here’s what you need to know:

• Margin: In order to trade with leverage, you will need to put up a ‘margin’. This operates like a security deposit, which the broker will keep if your trade goes against you by a certain amount.  For example, if you have $50 in your account and you wish to use this to trade with leverage of 5x, your margin amounts to 20%. This is because the size of your trade is $250, even though you only have $50 to stake.
• Limits: If you are a retail client (non-professional trader), then you be capped in how much leverage you can apply. Most brokers follow the rules imposed by the European Securities and Markets Authority (ESMA). This amounts to 30x on major pairs and 20x on minors and exotics.
• Liquidation: When you apply leverage to a forex trade, you stand the chance of being liquidated. This will happen if the trade goes against you by an amount equal to your margin. For example, let’s suppose that you stake $100 at leverage of 10x – taking your total order size to $1,000. In turn, your margin amounts to 10% ($100/$1,000). As a result, if your forex trade losses more than 10%, your trade will be liquidated and the broker will keep your $100 margin.

Step 3: How to Manage Your Money When Forex Trading as a Beginner

Newbie traders come in a range of shapes and sizes. While some of you might be looking to go gung-ho and start trading with large amounts, others will look to take a slow and steady approach. Either way, there are a range of considerations that you need to make before taking the plunge.

This includes:

Decide How Much you Want to Invest

First and foremost, you need to assess the size of your initial investment. Just remember, each online forex broker will have a minimum deposit amount that you will need to meet. As such, if you are looking to start off with really small amounts, you will need to take this into account before signing up. In most cases, this sits around 2,500-3,000 South African rand.

Start with Small Trades on a Forex Trading Demo Account

Once you have figured out how much you want to invest into your forex brokerage account, it might be wise to start off with the platform’s demo facility. This allows you to trade in live market conditions without risking any money. Instead, you will be given a ‘paper’ money balance, which you can then use to place buy and sell orders.

Best of all, price movements on a demo account facility will mirror that of the real-world forex markets like-for-like. On the flip side, it is important to note that you will not experience the emotional side effects of losing money when trading via a forex trading demo account.

After all, each and every forex trader will encounter losing positions at some point – irrespective of how long they have been in the space. As a result, some would argue that trading with small stakes is more effective than using a demo account!

Learn Forex Trading Strategies for Beginners

Next, you need to figure out what forex trading strategy you wish to employ. There are heaps of strategies to choose from, such as:

• Swing Trading: Swing trading will see you keep a forex position open for a number of days or weeks – but rarely more than a couple of months. The overarching concept is to trade with momentum. That is to say, if the exchange rate of a currency pair has been increasing for a number of weeks, the swing trader will look to capitalize on this. When the trend reverses, they will then look to catch the decline with a sell order.
• Scalping: Scalping is a super-short term trading strategy that might see a position open for a number of minutes or hours, but rarely more than a day. The trader will look to set up a range of buy and sell orders when a currency pair is trading within a tight range. For as long as the pair stays within this range, the scalper will look to capitalize with micro-small gains.
• Day Trading: As the name implies, day traders will actively buy and sell currency pairs throughout the day. Positions might remain open for a number of minutes or hours. The trader will look to place dozens – if not hundreds of trades throughout the week, with the view of making small but frequent gains.

Step 4: Open a Forex Trade

If you have managed to make it through our comprehensive guide up to this point, you are now ready to place your first-ever forex trade.

In order to do this, you will need to open an account with your chosen broker, deposit some funds, and then place a buy/sell order.

Pros and Cons of Forex Trading

Conclusion

Forex trading is getting more and more accessible for everyday South Africans. All you need to do is choose a trusted forex broker, deposit some funds with a local debit/credit card, and that’s it – you can start trading straight away With that being said, it’s not as easy as loading up your brokerage account and making a full-time living from day one.

On the contrary, it can take many months, if not years to master the skills of forex trading. As such, we hope our guide has pointed you in the right direction.

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