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Forex Trading in South Africa

Written By

Christian Harris

Written By

Christian Harris

Christian is a seasoned journalist with decades of experience. He transitioned from tech journalism to finance to follow his interest in investing. He has been trading stocks, futures, forex, and cryptocurrencies for more than 5 years, becoming an eToro Popular Investor. With hands-on expertise across various assets, he offers valuable trading insights.

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Edited By

James Barra

Edited By

James Barra

James is an investment writer with a background in financial services. As a former management consultant, he has worked on major operational transformation programmes at prominent European banks. James authors, edits and fact-checks content for a series of investing websites.

» James Barra Profile Page

Fact Checked By

Michael MacKenzie

Fact Checked By

Michael MacKenzie

Michael is a writer and editor with over a decade in journalism and publishing. His niche lies in editing and fact-checking content in the financial services sector, with a focus on online brokers and trading platforms. Michael previously reported on politics and economics in the Middle East and edits books for established publishers.

» Michael MacKenzie Profile Page

Updated

Oct 18, 2024

Do you want to speculate on the value of the South African rand (ZAR)? You can do this through a forex trade.

Forex trading in South Africa has grown significantly in recent years. With an average daily trading volume of $16 billion, the country now accounts for a substantial share of Africa’s forex market.

Its sophisticated financial system is supported by a well-regulated banking sector and a currency, the South African rand (ZAR), which is among the top 20 most traded in the world.

Let’s unpack the essentials of forex trading in South Africa with this beginner’s guide.

Quick Introduction

• Forex trading involves simultaneously buying and selling currencies in a pair, such as the ZAR/USD (South African rand/US Dollar), to profit from market fluctuations.
• The ZAR accounts for around 1% of global forex trading volumes. Although small compared to the US dollar (USD) or euro (EUR), it remains a highly traded emerging market currency.
• Forex trading in South Africa is legal and overseen by the Financial Sector Conduct Authority (FSCA), a ‘yellow tier’ agency in line with DayTrading.com’s Regulation & Trust Rating.
• The most advantageous times to trade currencies often coincide with the London and New York overlap, which typically runs from 15:00 to 19:00 South Africa Standard Time (SAST).

Best Forex Trading Platforms in South Africa

How Does Forex Trading Work?

Forex trading is about speculating on currency exchange rates. You might sell the USD/ZAR pair, betting that the US dollar will lose value compared to the South African rand.

To begin forex trading in South Africa, you’ll need to:

1. Open an account with a forex broker: We recommend choosing an FSCA-regulated firm.
2. Deposit funds: Consider a ZAR trading account to minimize conversion fees.
3. Execute trades: Your broker should provide a desktop, web, and mobile forex app.

What Currencies Can I Trade?

South African traders can deal in an array of currencies, but you may be particularly interested in those containing the rand, notably:

• USD/ZAR (US Dollar/South African Rand): Highly liquid and volatile, making it the primary pair reflecting the ZAR’s value against the USD.
• EUR/ZAR (Euro/South African Rand): Offers good liquidity and volatility, driven by strong trade relations between South Africa and the eurozone.
• GBP/ZAR (British Pound/South African Rand): Volatile pair appealing to traders, reflecting significant trade ties between the UK and South Africa.
• AUD/ZAR (Australian Dollar/South African Rand): Influenced by commodity prices, relevant for traders due to similarities in economic structures.
• CAD/ZAR (Canadian Dollar/South African Rand): Resource-rich country correlation; influenced by commodity markets, particularly oil and precious metals.
• NZD/ZAR (New Zealand Dollar/South African Rand): Economic ties and commodity influences make this pair interesting for traders, similar to the AUD/ZAR.

Is Forex Trading Legal In South Africa?

Forex trading is legal in South Africa. The country has a well-regulated financial market overseen by the FSCA.

This regulatory body ensures that forex brokers operating in South Africa adhere to strict guidelines, protecting traders and maintaining market integrity.

The FSCA must license providers and require them to comply with regulations regarding leverage limits (up to 1:30 for retail clients), client fund segregation, and transparent reporting.

These regulations aim to create a more secure trading environment, making South Africa an attractive destination for forex trading.

The FSCA also regularly issues warnings and takes action against unauthorized forex firms.

Is Forex Trading Taxed In South Africa?

The South African Revenue Service (SARS) treats profits from forex trading as taxable income, requiring you to report your gains when filing your annual tax returns.

Typically, profits from forex trading are classified as income, and you must pay tax based on your marginal tax rate, meaning these profits are added to your overall income for the tax year and taxed from 18% to 45%.

If forex trading is conducted as part of a business, it may also be subject to capital gains tax (CGT). However, individual traders usually pay income tax on their profits rather than CGT.

Maintaining accurate records of your trading activities, including transactions, gains, and losses, is essential to ensure compliance with South African tax obligations.

I also recommend consulting a tax professional in South Africa to optimize your forex trading activities for tax purposes.

Christian Harris

Author

When Is The Best Time To Trade Forex In South Africa?

The best time to trade forex in South Africa aligns with periods of high market activity, which ensures greater liquidity and tighter spreads.

Typically, the most favorable trading times are:

• The overlap between London and New York trading sessions, 15:00 to 19:00 SAST. This sees increased trading volume and volatility, presenting more opportunities for short-term traders to capitalize on movements in currency pairs involving the US dollar (USD/ZAR) and euro (EUR/ZAR).
• The London session, which runs from 10:00 to 19:00 SAST, is also a prime time for trading, as it is one of the most active periods in the forex market globally.
• While the Asian session from 23:00 to 12:00 SAST is generally less volatile, it can still present trading opportunities, particularly for currency pairs involving the Japanese yen (JPY/ZAR) or Australian dollar (AUD/ZAR).

An FX Trade In Action

To demonstrate how forex trading in South Africa really works, I’ll walk you through a short-term (intraday) trade I made on the USD/ZAR currency pair:

Event Background

I closely followed the release of US Consumer Price Index (CPI) data, which was expected to show a moderate rise in inflation.

However, when the figures were released, they were surprisingly lower than forecasted, signaling weaker inflationary pressures.

This unexpected result sparked speculation that the Federal Reserve might halt or slow future interest rate hikes, which caused the USD to weaken. As a result, the ZAR gained strength against the dollar.

I had been monitoring the USD/ZAR currency pair leading up to the announcement, expecting that any disappointing US economic data would create an opportunity for a short trade on the USD/ZAR, given the rand’s sensitivity to global risk sentiment and US monetary policy.

Trade Entry & Exit

After the CPI announcement at 08:30 ET (14:30 SAST), the USD/ZAR pair dropped sharply from around 17.8960 to 17.8765 as traders reacted to the weaker US inflation data.

I entered a short position at 17.8765, believing the market had further downside potential.

I placed my entry with a stop-loss at 17.9666 (901 pips) to protect myself in case of a rebound, and I set my take-profit target at 17.7864 (901 pips), where I anticipated support would form based on previous price action levels.

As the day progressed, the ZAR strengthened against the weakening USD. By mid-afternoon, the USD/ZAR pair had reached my take-profit target, and I exited the trade with a 901-pip profit.

The lower-than-expected US CPI data provided a clear opportunity to capitalize on the weakening dollar.

I could navigate the trade successfully by carefully timing my entry after the initial market reaction and setting reasonable stop-loss and take-profit levels.

Christian Harris

Author

Bottom Line

Forex trading in South Africa has become a prominent and growing market driven by a sophisticated financial system and the increasing participation of retail traders.

The South African rand is among the top 20 most traded currencies globally, and the FSCA’s regulation provides a secure trading environment, with strict oversight of brokers and trading practices.

With high liquidity during key trading sessions and rising interest in forex as an investment opportunity, South Africa has become a significant player in Africa’s forex landscape.

However, the risks remain high – you could lose any rands you invest.

Start trading currencies online by opening an account with one of DayTrading.com’s top forex brokers in South Africa.

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