History of Forex trading with brokers in South Africa
Forex exchange in South Africa traces its origin back to the period when gold was discovered in the Witwatersrand in the late 19th Century. Back then it was the reserve of the wealthy class who would exchange their currencies in return for gold. Recently, however, the Forex industry has increasingly gained popularity among South Africans. The allure of becoming an ‘overnight millionaire is something few people can resist. The South African Rand has over the years not been very popular to trade in due to the fluctuations resulting from the socio-economic conditions. The apartheid regime of the 1980s followed by various global and home events affected the Rand in the late 20th century. South Africa attained its independence in 1994 first democratic election and the rand dropped to R3.60 against the dollar. Tito Mboweni’s election as the governor of SARB and President Mbeki’s election in 1999 allowed it gain to R6 to the dollar The 9/11 attacks and terror in the early 2000s pushed the Rand to its worst at R 13.84 to the US dollar at the end of 2001.
The South African forex market has recently been relatively stable albeit the conservative approach authorities have towards offshore investment.
Regulation on Forex Brokers
It is pertinent for a person intending to trade in this market to be conversant with its rules and regulations. There are no laws that expressly state whether the trade in Forex is or isn’t legal. The most important consideration is that one abides by the terms of the Forex Services Bureau (FSB), the South African Financial Laws, and the Money Laundering Act.
The FSB which was established in 1990 has the power and mandate to impose penalties of unlimited fines on companies found to be fraudulent, it also has a platform where traders can file complaints if any. The reason why this regulator was put in place is to ensure that services are conducted well and to the satisfaction of consumers and to improve the quality of products and strength of financial institutions. The Bureau also tries to ensure that financial services are stable and that uphold the financial markets and institutions.
Acquiring a trading license in South Africa allows local traders to open trading accounts within their country. Domestic accounts are however in high demand because as compared to offshore accounts the tax levied on them is fairly cheap hence no limit on the amounts deposited.
The regulations surrounding moving money offshore from South Africa are much more stringent compared to depositing funds into a trading account at home. However, the broker must ensure compliance with the regulations when purchasing other forms of currency and circulating them. This is where the government has put most of the restrictions. A trader is allowed to trade within the threshold of 4 million Rand for exchange. On top of that, each trader is allowed to apply for an additional but discretionary allowance of 1 million. To get it, however, one must go through a very bureaucratic process that involves a lot of paperwork.
There are many brokerage firms in the country which operate outside the scope of the law and not within the jurisdiction of the regulatory body. Traders must take caution and ensure they need to refer to reviews and not fall for brokerage firms that are offering deals that appear to be too attractive. These scammers are looking to rob unwary entrants in the market and therefore the government has put in place all these regulations.
The government of South Africa is not likely to prohibit the activity although it has put in place some tough measures to ensure that transactions are done fairly between both the trading and brokering parties. The government also does this to limit the amount of money leaving the country through trade by making it hard to trade with brokers from outside the country. Such kind of restriction is common in African countries whose citizens are involved in forex trading. The reasoning behind this is that selling and buying their currency in large amounts could result in adverse impacts on their currency.
Requirements for an Fx broker in South Africa
Any South African citizen above the age of 18 who is a taxpayer can invest about 300,000 dollars which is equivalent to 4 million Rand in an “exchange-controlled approved offshore investment allowance.” This amount, however, is restricted to an amount of 1 million without necessarily filing any paperwork with the government.
To fund an account in South Africa it is pretty simple given that it is the broker who keeps the account and hands the transferring and exchange of the monies on the account. However, for those who are looking to run their accounts personally, there are a few things they must satisfy
For investments of bigger sums above 1 million one must have a Tax Clearance Certificate and submit an application to the Financial Surveillance Department, South African Revenue Bureau with the Tax clearance certificate. The sums that are permitted to be invested in Forex trading are restricted regardless of which country the trader’s brokerage account is based. What this does is to limit the investment one can make in the trade but it does not affect the profits. If one makes wise investment decisions then there is no possible limit to their profit. The restrictions just mentioned are only applicable to offshore trading accounts. The laws in South Africa seem to get in the way of business at times especially when one tries to fund an offshore brokering account using a locally obtained card. However, this is not rampant although a few small banks still face this challenge. However, if one is trading via a licensed local broker the restrictions do not apply.
All the same, any prospective forex traders in South Africa must carefully consider and weigh the options available from the wide range of local brokers given the prevalent number of scammers in the country. The trader must carefully investigate the broker’s past and read the reviews about their trading history and past transactions on the internet. This will help them to know them to catch complaints of any sort about withdrawals or customer service. After all, they need to ensure the safety of their investment.
The safest bet to go with when looking for an overseas broker in the South African Republic would be an overseas broker from a financial jurisdiction with the strictest regulations and enforcement of the same such as the United States, U.K., Australia, or Singapore. Conditions for brokers in these jurisdictions are very tight and since involvement in fraud is felonious the regulators and law enforcement are always on the lookout so it becomes difficult for one to fall victim to scammers who would “run away with your money”.
To be safe also it is wise to go for a broker with a 10-year track record and capitalization of at least $20 million, it is wiser to trade with a firmly established Forex broker.
Most importantly for those who are total amateurs in the trading business, it is wise to start by trading using a demo account before staking or investing actual money. Forex trading is a gamble of sorts so it is better to be safer than sorry.
Limitations of Forex Trading in South Africa
Just like any other Jurisdiction where Forex trading is conducted, South Africa has its challenges and limitations. The most notable limitations are the tight regulations and restrictions put on offshore trading accounts, the bureaucracy involved in getting certification, and online fraudsters also known as scammers despite the presence of regulatory authorities in the country.
Over the last decade, it has become a bit easier to move money to overseas accounts thus making it possible to fund a Forex account which wasn’t the case before. However, the threshold imposed by the South African Reserve Bank at 4 Millon Rand plus a discretionary allowance of 1 Million is still limiting for many traders.
Many of the regulated and certified brokers available in South Africa have proven to be unreliable forcing traders to opt for the thousands of unregulated entities that are cropping up and operating without the knowledge of the relevant authorities.
The SARB and the FSB have not been able to keep up with monitoring all these activities. Many of them unlicensed show up and bait inexperienced and unsuspecting victims with a promise of a flashy lifestyle, stacks of money and even possibly driving a luxurious vehicle. They offer training at a fee and ask one to invest monies with them only to make off huge sums from their victims. Many brokers in the South African trading business put a limit on the amount of money one can deposit on their brokerage account, for some, this may not be a problem but the limits are quite high.
Examples of Popular Brokers in the Country
IG
IG Services has been on the market for more than 40 years and boasts a large base of almost 185,000 customers all over the world who rely on their services. Last, at the Intellidex-Investors Monthly Top Stockbroker Awards year it was awarded as the best online broker of 2017. The broker is well also recognized globally with several accolades and offers a choice from a range of over 150,000 markets worldwide.
FXTM/Forextime
FXTM is an award-winning global broker in South Africa. With a 9.9 star rating on their reviews on DailyForex.com, this is one of the brokers worth giving a try in South Africa. The minimum deposits required to open an account go as low as 5 USD plus a 20% welcome bonus. This broker, unlike others, uniquely provides a high leverage ratio of 1:1000 which increases a client’s potential earnings.
AVATRADE
AVA TRADE is another top 9.7-star rated online broker in South Africa which provides efficient execution and services. On their site, one can begin trading with as little as 100 USD as the initial deposit. With several accolades to their name such as Best Broker 2016, the European and Forex Empire they are credible and reliable brokers one can try out.
There are many more Forex brokers in the country and for those looking to trade the options are wider than ever. Armed with the right and facts about forex trading in the country one can proceed to join the lucrative high-risk business.