The Legality of Online Forex Trading in South Africa

The South African forex market is a leading trading hub on the continent. Currently, the country is the leader in terms of FX volumes. Daily activities of its traders account for roughly $20 billion of the total turnover. There is no denying that forex is wildly popular, but how legal is it?

Brokers promise to connect you to the largest financial market in the world, whose daily turnover has already exceeded 6 trillion US dollars. There are home-grown and international companies that advertise such services. So, is trading Forex in South Africa lawful? Here is a look at the legal aspects of FX trading in South Africa today.

Overview of Regulation

Forex trading in the country is legal if certain conditions are met. The government does not have any stringent regulation for the industry. First, your actions must not go against local anti-money-laundering laws. Secondly, traders must declare their profits to SARS (South African Revenue Service).

Traders may choose between local and international companies. Local brokers need approval from the FSCA (Financial Sector Conduct Authority). Global brands may be authorized in different jurisdictions. For example, ForexTime is licensed by the FSCA, the FCA in the UK, and the CySEC in Cyprus. These details should be public. Check the footer of your trading website or its ‘About Us’ section.

To gain approval from international bodies, brokers need to comply with the norms of client protection. Residents are not obliged to choose regulated companies, but they have many reasons to do so. First, oversight from entities like the FCA guarantees fair practices. Unregulated companies are often involved in a financial scam.

Secondly, there are guarantees like negative balance protection and compensation in the event of bankruptcy. A reliable forex trading website should include all licensing information.

Legally Funding Forex Accounts

Generally, there are no barriers to funding an FX account from a credit or debit card issued by a prime bank. In the past, state institutions sometimes interfered if residents tried to fund an international account from local banks or obscure credit cards. Today, such problems are rare.

Every citizen is allowed to transfer up to 10 million Rand a year. This requires approval from the Financial Surveillance Department of the South African Reserve Bank. Besides, one may apply for a discretionary foreign currency allowance, which adds 1 Million Rand to the limit. The payments must be cleared by the South African Revenue Service (SARS).

KYC — Anti Money-Laundering

Financial institutions in South Africa participate in a specific program called KYC. It is a bundle of laws designed to prevent money laundering through anonymous transfers. When traders open an account, they may need to submit a few documents to the authorities. All this is usually a colour copy of their ID and a recent utility bill that confirms their email address

Risks of Online Trading

Forex traders need to be aware of the inherent risks of their occupation. The currency exchange is a market whose forces are beyond anyone’s control. A trader may predict movements of prices, but not program them. Therefore, it is crucial to have a strict risk management policy and follow a consistent strategy in any situation.

Nothing ventured, nothing gained. Forex traders may achieve impressive results, particularly in highly volatile markets, or when trading with large volumes. However, they should also calibrate risk for every single position.

Learn to use Stop Loss and Take Profit, two essential features of any popular trading terminal. These tools allow users to secure a certain price level, so their trades are executed automatically once the level is triggered.

Another way to hedge risks is to diversify. Aside from currency pairs, traders may also expose themselves to other markets, such as the stock market, commodity market, etc. Popular choices are CFDs — contracts for difference. These are virtual derivatives connected to underlying assets. They enable you to profit from price prediction only, without ownership of physical assets.

Traders should start small and take calculated risks if they want to succeed. They should let their profit accumulate incrementally over time. Forex is not gambling. It is a domain where results are achieved through rational thinking and thoughtful analysis.

The Bottom Line

Traders in South Africa may work through local or international brokers. Global brands have an edge over rivals because they offer a wider range of services, ultra-modern software, efficient support, etc. They are also regulated by reputable monitoring organizations like the FCA in addition to the FSCA. At the very least, you need to ensure that the company is authorized by one regulatory jurisdiction belonging to tier 1. Finally, residents planning to transfer large amounts to a broker may consider creating an offshore bank account for this purpose.

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