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HERE IS WHAT YOU NEED TO KNOW AS A BEGINNER FOREX TRADER FROM SOUTH AFRICA

Forex Trading for Beginners – South African Edition

Forex trading has gained immense popularity in South Africa and around the world in recent years. There are new traders entering the markets each day. However, for such new traders, the market can be very daunting. While it offers exciting opportunities, it also comes with an inherent risk of losing funds. Grasping the basics of this complex market before embarking on a trading journey can be the key to successful onboarding.


In this guide, we will be looking at some of the key aspects of forex trading for beginners in South Africa. We will cover topics from the basics to exploring some of the popular trading platforms. Additionally, we will look at payment options, broker execution, regulation, bonuses, minimum deposits, and more. We aim to equip aspiring traders with the knowledge necessary to embark on their forex trading journey. Let’s dive in.

What is Forex Trading?

Forex trading involves the exchange of currencies, with the goal of making a profit from the fluctuations in exchange rates. It involves buying one currency while buying another. As a decentralized market, forex operates 24 hours a day, five days a week. This allows traders to engage in trading activities at almost any time. Forex trading involves trading currency pairs, where one currency is exchanged for another. The first listed currency is called the base while the second currency is called the quote. There are three types of currency pairs. These include major currency pairs, minor currency pairs, and exotics. Let’s briefly look at each of them.

Different Types Of Welcome Bonuses

Major Currency Pairs

Major currency pairs consist of the most widely traded currencies globally and include the US Dollar (USD). These currency pairs mainly consist of the national currencies of the strongest economies in the world. Examples of major pairs include EUR/USD (Euro/US Dollar), USD/JPY (US Dollar/Japanese Yen), and GBP/USD (British Pound/US Dollar). Notably, major pairs typically exhibit high liquidity and often have lower spreads. This makes them attractive to traders.

Minor Currency Pairs

Minor pairs, also known as cross-currency pairs, do not include the US Dollar. Instead, they consist of other major currencies traded against each other. Examples of minor pairs include EUR/GBP (Euro/British Pound), AUD/JPY (Australian Dollar/Japanese Yen), and GBP/JPY (British Pound/Japanese Yen). Minor pairs may have slightly higher spreads and lower liquidity compared to major currency pairs.

Exotic Pairs

Exotic currency pairs involve one major currency and one currency from a smaller or emerging-market economy. Examples of exotic pairs include USD/ZAR (US Dollar/South African Rand) USD/TRY (US Dollar/Turkish Lira), EUR/TRY (Euro/Turkish Lira), and USD/SEK (US Dollar/Swedish Krona). Exotic pairs have higher volatility, wider spreads, and lower liquidity compared to the other currency pairs. Due to these factors, they are generally considered riskier and may require tighter risk-management techniques.


Understanding the differences between major, minor, and exotic currency pairs is essential for forex traders. These different currency pairs move differently in the market depending on market dynamics. Understanding this helps traders make informed decisions based on their risk tolerance. The currency pairs involving the ZAR will fall under the Exotics section. Since these will be prime pairs for South African traders, it is crucial to understand how exotics behave under different market conditions.


Choosing the right forex broker is also very essential for traders. Let’s look at some tips for selecting a forex broker.

How To Choose a Forex Broker for You

There are thousands of forex brokerage firms that operate in South Africa. Each broker offers different features for different types of traders. Due to this high number of forex brokers in the market, it can be hard to select the best fit for yourself. Let’s look at some of the key areas that traders should consider when selecting a broker to trade with.


Protection

Regulation

The regulatory status of a broker is probably the most important thing to look at before investing any money with them. Now, regulations on their own are never enough. There are regulated brokers that still offer sub-par services. Nonetheless, it is a safer bet to invest with a regulated broker than with an unregulated one or one with lacklustre regulations.

In South Africa, the Financial Sector Conduct Authority is in charge of regulating the forex market. Prioritising a broker that has regulations by the FSCA is the best move for South African traders. Regulation from the CMA in Kenya is also attractive for many traders in South Africa. 

However, having regulations from other top-tier organizations around the world greatly helps with the reputation of a broker. Brokers with regulations from organizations such as the FCA in the UK, the CySEC in Cyprus, and the ASIC in Australia are among the most touted in the market. This is because such organizations have strict laws that brokers and traders must adhere to.

Other regulatory organizations with good reputations include the FINMA in Switzerland, the CIRO in Canada, and the FINRA, SEC, and NFA in the USA. Nonetheless, the local regulator, FSCA should still be the priority. At the end of the day, this will be the organization offering traders in South Africa the most line of protection and conflict resolution.


Here is where you execute your trades

Trading Platform

Choosing the right trading platform is crucial for a successful forex trading experience. Luckily, South African traders have access to several reputable brokers offering world-class trading platforms.

These platforms come with user-friendly interfaces, advanced charting tools, and other features. Here are some of the most popular forex trading platforms in South Africa and a summary of their stand-out features:

MetaTrader 4 (MT4)

MT4 is the most used trading platform in the world. It is known for its user-friendly interface and comprehensive charting tools. MetaTrader 4 supports automated trading through Expert Advisors (EAs) and provides a range of technical analysis indicators.

It also comes with a customizable interface, multiple timeframes, real-time data and news, and one-click trading, among other features. Further, this trading platform has very fast order execution times which is perfect for the fast-moving markets.

MetaTrader 5 (MT5)

MetaTrader 5 is the newer version and the successor to MT4. It offers additional features such as more timeframes, order types, and an economic calendar.

It caters to a broader range of financial instruments, including stocks and commodities. Additionally, it includes the various features that traders enjoy on the MetaTrader 4. These include advanced charting tools, algorithmic trading through EAs, one-click trading, and more.

TradingView

TradingView is a popular charting platform used by many traders for its advanced charting tools. While not a traditional trading platform, this platform is popular for its lineup of features that make trading easy for investors.

It includes features such as a social community that gives traders the ability to share trading ideas. Notably, TradingView delivers a user-friendly interface, real-time data, and customizable alerts, among other features.


cTrader

cTrader is known for its intuitive interface and fast execution speeds. It is preferred by traders who value transparency in pricing. Like the MetaTrader platforms, this platform offers advanced charting tools, customization, and algorithmic trading, among other features. Additionally, it comes with some risk-management tools including stop-loss and take-profit orders.




How much you pay

Spreads and Commissions

The spreads and commissions are critical components that directly impact the cost of trading. For the most part, the spreads and commissions depend on the account type a trader chooses on a given broker site. The spread is the difference between the bid (selling) price and the ask (buying) price of a currency pair. It is the fee that brokers charge for facilitating a trade. The spread can be fixed where it remains constant, regardless of market conditions.

On the other hand, it can be variable meaning it fluctuates based on market conditions. Fixed spreads are popular among traders because they offer more predictability of trading costs. In essence, lower spreads reduce the overall cost of trading. However, extremely low spreads may be associated with other costs or trading conditions. 


As such, it’s essential to look at the combined costs of spreads and commissions. A broker with low spreads might have higher commissions, and vice versa. The commission charged by a broker is usually based on the trading volume of a trader. A commission-based model might be more cost-effective for high-frequency traders.

Sell vs Buy Price of the EUR/USD pair (see how they slightly differ, the difference is called spread)

(Used for illustration purposes only)


What assets you can trade

Trading Instruments

The variety of instruments offered by a forex broker is an important factor to consider before investing. The availability of a plethora of market instruments allows investors to invest in more than one market on the same broker site if they wish. This allows them to spread the risk of investment across various market instruments. A broker like Pepperstone gives traders access to over 1,200 different CFDs to trade.

Even when you are investing in a single market, say forex, you still need a deep collection of individual currency pairs. Luckily, most forex brokers offer many currency pairs that range from major pairs to exotics. For example, Exness allows South African traders to speculate on over 100 different currency pairs. Additionally, traders have access to commodities, stocks, cryptocurrencies, and indices.


Other Features to Look At

Essentially, we have covered the four main things that traders can look at when choosing a broker to invest with. But there are other features that also matter to traders when they are choosing a broker to invest with. These can include things like payment options, broker execution, bonuses, minimum deposits, and more. Looking at these other features can help a trader further narrow their choice of a broker to invest with. Let’s briefly look at some of these other features.


Payment method you will use to deposit and withdraw money

Payment Options

Understanding the available payment options on a broker site is essential. Before signing up, traders should know that they can make a deposit using the most convenient option for them.

South African traders have various methods for depositing and withdrawing funds from their trading accounts. Some of the commonly used payment options include:

Bank transfers – Bank transfers are a traditional and secure method for depositing and withdrawing funds. However, they may take longer processing times compared to other options. On some broker sites, there may be a processing fee.

Credit and debit cards – Most forex brokers accept credit and debit card payments. This provides a convenient and quick way to fund trading accounts. Popular card providers include Visa and MasterCard.

E-wallets – E-wallets, such as Skrill, Neteller, and PayPal, offer a fast and efficient way to transfer funds. Many traders prefer e-wallets for their ease of use and additional security features. Neteller is especially popular among South African traders alongside PayPal.

Cryptocurrency – Some brokers allow deposits and withdrawals in cryptocurrencies like Bitcoin. This option appeals to traders seeking anonymity and faster transaction processing. However, this payment option can make it hard to recover funds in case of a mistake as it does not allow for chargebacks.



How your broker executes trades

Broker Execution Model

The execution model a broker adopts can also be an important factor to consider. Broadly, there are two different types of forex brokers based on the execution model. These include A-book brokers and B-book brokers. A-book forex brokers are those who take people’s orders and pass them straight to liquidity providers.

They do not provide the liquidity themselves. As such, they lack a dealing desk and only act as intermediaries between traders and liquidity providers. There are different types of A-book brokers which include STP, ECN, and DMA brokers.


In comparison, B-book brokers are those that act as the counterparty in forex trading. Essentially, they take the opposite side of a trade when a trader places an order. As such, B-book brokers act as the liquidity providers in this model. As such, they need a dealing desk to match the orders that investors place.

How much can you leverage trades

Leverage

The leverage offered by a broker is another important thing to consider. In essence, leverage is borrowing funds from a broker in order to control larger positions than possible when using the account balance alone.

For example, with leverage of 50:1, a trader can control a position worth $50,000 with a $1,000 deposit. While leverage enhances the potential for substantial gains, it also increases the risk of significant losses.

Therefore, it’s important for traders to use leverage conservatively and use strict risk-management techniques.


Something extra

Bonuses

Many forex brokers offer bonuses and promotions to attract new traders and retain existing ones. While bonuses can provide additional capital to trade with, South African traders should carefully review the terms and conditions associated with such offers.

Ensure that the bonus is not the only thing you find attractive on a broker site. Moreover, ensure that there is a way for you to withdraw the profits you earn from the bonuses before committing to a broker. Nonetheless, here are some common bonuses that brokers offer in the market:

Welcome bonuses – These bonuses are usually offered to new traders upon opening and verifying their accounts. The welcome bonuses can either be deposit bonuses or no-deposit bonuses.

Deposit bonuses – Brokers may provide bonuses based on the amount deposited by the trader. The bonus is usually a percentage of the deposited funds.

No-deposit bonuses – Some brokers offer no-deposit bonuses, allowing traders to start trading without making an initial deposit. However, these bonuses often come with stringent withdrawal conditions. Usually, traders can only withdraw the profits they make from trading with the no-deposit bonus which is understandable.


Capital you start with

Minimum Deposits

Minimum deposit requirements vary from broker to broker. South African traders should consider their budget and trading goals when choosing a broker. Some brokers offer low minimum deposits, making it accessible for beginners to start trading with a smaller initial investment.

South African traders can access a range of brokers with minimum deposits ranging from a $5 minimum deposit to a $10 minimum deposit. There are even brokers available with no minimum deposit requirement.

However, there is also a plethora of brokers that have a minimum deposit requirement of $100. It is rare to see brokers with minimum deposits higher than this. 


It’s important to note that the minimum deposit may influence the account type and available features. Commonly, brokers provide standard, mini, and micro accounts, each with its own minimum deposit requirement.

The type of account chosen may impact the features available to traders. Higher-tier accounts might come with additional benefits such as lower spreads and personalized customer support.

The currency of your trading account

Account Base Currency USD X ZAR

The account base currency is the currency in which a trader’s account is denominated. Most South African traders prefer having a trading account in the South African Rand for the most convenience.

Having an account denominated in the ZAR means that traders do not have to pay currency conversion fees when they are making a deposit or withdrawal. Moreover, it means that transactions are processed much faster.

Unfortunately, there are not many forex brokers that feature a base account in ZAR. As such, some traders in South Africa settle for brokers with accounts denominated in USD which is universally supported on most broker sites.

Common Pitfalls and Mistakes

Overtrading

Some beginners fall into the trap of making too many trades. This is often driven by emotions or the desire to recover losses quickly. Overtrading can lead to poor decision-making and increased losses.

Lack of Education

Forex trading requires continuous learning. Lack of education can result in poor analysis, mismanagement of trades, and overall failure in the market. Invest time in understanding the market and refining your skills.

Ignoring Risk Management

Neglecting risk management is a recipe for disaster. Traders who don’t use stop-loss orders or fail to diversify risk are more likely to suffer significant losses.

Risk Management

Setting Stop-Loss and Take-Profit Levels

Implementing risk management tools like stop-loss and take-profit orders is crucial. Stop-loss orders help limit potential losses, while take-profit orders lock in profits at predefined levels.

Start Small

Determining the size of each trade relative to the trading capital is crucial. Risking a small percentage of the total capital per trade helps manage losses and ensures longevity in the market.

Diversification

Avoid putting all capital into a single trade or currency pair. Diversifying across multiple assets helps spread risk and reduce the impact of a single loss.



Final Comments

Navigating the forex market as a beginner in South Africa requires a solid understanding of its fundamentals. Traders need to properly grasp the basics of currency pairs to choose the right broker and trading platform. Each step plays a crucial role in the journey towards successful forex trading.

Traders should prioritise brokers with reputable regulations, user-friendly platforms, competitive spreads, and a diverse range of trading instruments. Additionally, paying attention to other features such as payment options, execution models, and bonuses can further refine the selection process.

Avoiding common pitfalls like overtrading, lack of education, and ignoring risk management is essential for long-term success. By implementing sound risk management strategies, setting realistic goals, and embracing continuous learning, traders can increase their chances of thriving in forex trading. Remember, start small, diversify wisely, and approach forex trading as a disciplined and informed investor.