South Africa is arguably the financial capital of Africa, and you would expect that it would also have the most active forex market in the continent too. If you had thought as much, then you would have been right, as it is currently home to the largest stock exchange in Africa and ranked 19th in the whole world.
Overview of the forex market in South Africa
The primary stock exchange is The Johannesburg Stock Exchange (JSE), found in Johannesburg, and had a market capitalization of above US $1 trillion by the end of the year 2013. There are over 472 companies listed on the JSE and the value of stock traded every month is more than US $6 billion.
Financial trading requires a Forex regulator, and in South Africa, this role is performed by the Financial Services Board (FSB), an independent establishment that oversees non-banking services in South Africa. The FSB is responsible for monitoring all forms of non-banking sectors, which includes online forex brokers, retail forex brokers, and even the JSE. The JSE is supposed to apply for an operating license from the FSB each year before trading, and this is the body you would report to if you had a complaint against a broker. It is also the FSB that issues licenses to Forex brokers before they can start doing business to protect traders from Forex scams.
Forex development in South Africa
It's no secret South Africa's financial sector is huge, but the Forex market in South Africa had not always been so active. It has a long history over which it grew to become what it is today. The beginning was unexpected, back in 1886 when gold was discovered in Witwatersrand, and a lot of mining companies were formed. It was not until a year later when the Johannesburg Exchange & Chambers Company was formed, that South Africa's financial industry began to take shape.
The JSE joined the Federation International Bourses de Valeurs (FIBV), commonly referred to as the World Federation of Exchanges, in 1963, and then joined the African Stock Exchanges Association in 1993. The trading system was then made fully electronic in 1996 from the previous open outcry system, and that put the JSE on the map when they adopted modern Forex trading platforms.
Soon thereafter, in 2001, the JSE adopted the London Stock Exchange's (LSE) trading system, raising its standards internationally to the ranks of the NYSE and other prestigious exchanges. Several acquisitions followed thereafter including that of the South African Futures Exchange (SAFEX) in 2001 and the Bond Exchange of South Africa (BESA) in 2009. This made the JSE the sole proprietor of stocks and bonds, equities, commodities, interest rate derivatives, and other financial instruments.
Among the major stocks available in the JSE include British American Tobacco (BAT) and SABMiller - South Africa is the main market for SABMiller beverages.
Forex brokers in South Africa
Being such an enormous financial center, you can also expect to find numerous brokers dealing in various financial instruments like futures and options within South Africa. That's when it gets a bit tricky when choosing a forex broker in the country. While there are many brokers with subsidiaries in South Africa, very few are domiciled in the country.
CM Trading
This is among the largest forex brokers who are located in South Africa. It is the trade name for Global Capital Markets Trading Ltd., which is a Seychelles company. Nevertheless, CM Trading is fully domiciled in South Africa and is regulated by the FSB.
They provide trading services for Forex, CFDs, commodities, precious metals, and indices; pretty much all you will need. Their spreads are good enough to compete with other brokers, and they allow you to trade on your computer, tablet, or PC. Reviews for this broker are generally positive, and you can feel secure about your money. They allow deposits from as low as $ 250 upwards, with increasing benefits as you raise your deposit.
ForexTime (FXTM)
Although relatively new to the forex trading industry, founded in 2011, FXTM has been aggressively garnering new clients through competitive spreads and fast execution. They are also famed for a new strategy hedging option that helps clients cover their losses more effectively as well as other unique features. They got their license from the FSB in July, providing more confidence to traders in South Africa.
Trading with FXTM is also favorable for everyone given their acceptable initial deposit of $100 upwards, which makes it an excellent choice for new traders. FXTM is among the best forex brokers in the world right now dealing with forex, commodities, metals, and other financial instruments.
AvaTrade
This is another international Forex broker that has recently been regulated by the FSB. Their reputation precedes them, and they are known for fast execution and excellent spreads. The company was started in 2006 and its entry into Africa, first in Nigeria and now, in South Africa, shows that they are committed to the African market. Their minimum deposit may not be the most favorable though, US $500, but you can make the deposit using PayPal, bitcoin, and even through a South African bank transfer.
These are just a few Forex brokers available in South Africa, all of which are regulated by the FSB. Another broker who is also regulated by the FSB is Markets.com, and they do have attractive spreads and minimum deposits, but their Forex broker reviews aren’t very positive.
If you still do not like any of the forex brokers above, there are plenty of others you can trade with that are not regulated by the FSB. Popular options to compare forex brokers include:
- The XM - They're loved for free US $ 30 free initial deposit on opening an account
- Exness - very, very tight Spreads and has no required initial minimum the deposit
- IronFX - the secure and very regulated, with Plenty of Instruments, Significant initial the deposit
Why are there so few forex brokers domiciled in South Africa?
You would expect that, given how much trading is done in South Africa and the fact that the market is widely untapped, there would be a scramble by forex companies seeking a place in the country. This is not so, though, and the list of forex brokers above provides a statement to that effect. For any forex brokerage company, there are certain factors they have to consider, other than market capitalization:
Taxes
Any company considering establishing its headquarters in a country has to consider the rate of corporate taxes. The worldwide average corporate tax rate is 22.6% and 30.6% when weighted by GDP. The corporate tax rate in South Africa currently stands at 28% which is above the global average corporate tax rate. What’s more, this corporate tax rate was only lowered 3 years ago in 2013 because it stood at 34.55% in 2012 and the years before.
The decrease in corporate income tax rate since 2013 explains why more forex brokers have entered South Africa's financial market. On the other hand, South Africa's corporate tax rate is still more than 5% above the global average, and that discourages forex brokers from setting up their headquarters. Instead, most forex brokers choose to create subsidiaries in South Africa, while they are still domiciled in European countries like Cyprus that have 12% corporate tax rates.
Telecommunication
The forex market is a 24-hour beast that never stops moving all year round, so any forex broker needs a reliable internet connection to handle all their clients. South Africa is pretty well connected, with city-wide fiber-optic networks that can match global standards. The problem, it’s much more expensive compared to developed nations. What’s more, problems such as the recent nationwide electricity disaster experienced last year and early this year make telecommunication systems unreliable.
Skilled Labour
The Johannesburg Stock Exchange upgraded to an electronic trading system in the early 1990s. That's relatively late compared to other European countries which had such a system long before that. As such, there are not many people trained in managing such systems or advanced forex regulators. Every brokerage firm needs a large number of specialists under their roof which includes risk managers, traders, and other compliance staff; you simply can not ship all these people into South Africa. Perhaps, as more people in South Africa are being trained in financial subjects, this might change in a few years; but for now ...
To see how South Africans are making lots of money through Forex, look at this young guy's story:
