Introduction to forex trading in South Africa
The currency of South Africa is the Rand and has a symbol R or ZAR. Forex trading in South Africa can be lucrative but can also be deadly as you might lose all of your money if you do not know what you are doing.
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The South African Rand ranks 20th for the average value and turnover of all currencies exchanged on the market by the BIS, the Bank of International Settlements.
The rising economy and population make forex trading in South Africa attractive to both traders and forex brokers. Traders based in South Africa should be well aware of the many elements or matters that are specific to Forex trading in South Africa.
One of the most important elements is taxation. The South African Revenue Services (SARS) will tax all revenue generated by a trader based in South Africa just like any other revenue at a rate between 18 – 42 percent.
You also need to be vigilant when it comes to regulations that are passed by the Financial Sector Conduct Authority (FSCA), formerly known as the Financial Services Board (FSB).
An example of a regulation would be that all brokers registered and regulated by the FSCA should retain clients’ funds in segregated accounts.
How to Start Trading Forex in South Africa
Just like any other career or business venture, you first need to understand the Forex market and also learn how to trade forex before you can start forex trading in South Africa.
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Understanding Currency Conversion
During your Forex trading journey, you need to learn how to convert currencies, note the difference in values during different time frames.
Here is a simple example of currency conversion:
Let’s say that 1 dollar is equal to 20 rands (also called the exchange rate) on the 16th May 2020. You then buy 3 dollars at 60 rands (3 dollars x 20 rands = 60 rands).
Suppose on the 18th May 2020 you notice that the exchange rate is 1 dollar to 25 rands. You then decide to sell the 3 dollars that you bought earlier; you will receive 75 rands (3 dollars X 25 rands).
The difference that you made is your profits, i.e. the 15 rands (75 rands – 60 rands). As you can see, the forex market is not different from any other industry; you buy cheap and sell high.
Of course there is a lot more involved when it comes to Forex trading, such as leverage, spreads etc but you get the picture. You do not have to do all the calculations as above; there are forex trading platforms in South Africa that automates the process.
Forex trading in South Africa – Pick a broker
Before you can start forex trading in South Africa, you need a brokerage account.
Forex brokers are firms or organizations that assist traders with access to trading platforms in order for them to buy and sell currencies. In exchange for their platform, forex brokers earn a commission or makes a profit by offering a specialised service.
Here are some features of Forex brokers:
The forex broker that you select needs to be regulated by the South African Conduct Authority (FSCA) or another well respected regulator like the U.K., Financial Conduct Authority (FCA), Securities and Exchange Commission of Cyprus (CySEC) or the United States, Global Association of Futures (NFA), or Commodity Futures Trading Commission (CFTC) and so on.
Leverage or Margin
The leverage ratio is the size of the place you will keep on your account with one unit deposited in. For example, the 50:1 leverage ratio widely used by U.S. forex traders means you’ll be managing a $50 position with just $1. In certain brokers, leverage ratios may be as high as 3,000:1, depending on their position and regulatory authority.
Margin is the sum of money that you set aside to keep the exchange. For example, $1,000 will be the margin on a $100,000 position with leverage of 100:1.
Brokers use bid/offer spread or brokers spread to make their profits. You need to know whether your broker is a market maker or trades against you. The smaller the scope of trading, the lower the average cost of your contract, which makes more of a difference, the more frequently you exchange.
Most forex brokers allow customers to use their own proprietary trading platform, although in many cases they do sell MetaQuotes trading software to customers NinjaTrader and/or MetaTrader 4 and 5.
If you have experience, then you’d probably prefer the software package that best fits your needs. If you have little experience, learning how to work with the popular MetaTrader platforms will give you excellent tools for technical research and a news stream.
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