Best South African Forex Brokers

Understanding What Forex Brokers Do

The job of a forex broker is to connect you to other traders in an online environment using electronic computer networks in exchange for a fee. This is why every time you click on the buy/sell button, your order quickly gets filled as you are linked to another trader willing to take the opposite side of your trade as a counterparty.

To enable you connect with other traders, forex brokers provide trading apps/platforms like MetaTrader, TradingView etc. where you execute your trades.

You cannot trade forex without a broker because you do not have the advanced computer networks to connect you to other traders in the world.

Another reason why you cannot trade forex without a broker is the capital requirement. Brokers allow you trade with little money, while they take the burden of providing the needed leverage to cover the balance. This lets you open big trades with small initial capital.

For example, when trading with a broker leverage of 1:1000, you can trade 100,000 units of EUR/USD exchanging at 1.1550 by depositing just above $115 in margin. However, if you were to buy the physical euros using us dollars you would require $115,500 in capital.

Forex brokers make money to pay clients by charging a spread or commission on every trade irrespective of whether the trade ends in a profit or loss.

Another way forex brokers make money is by trading against clients and these kind of forex brokers are called market-makers and they require a special kind of license from the South African government FSCA regulator. We will discuss the forex brokers license types in the next subheading.

Forex Broker Licensing in South Africa

Forex trading is legit in South Africa and the government here requires forex brokers to register with them and obtain a Financial Service Provider (FSP) license.

If the broker intends to act as a market maker or counterparty to your trades, the South African government furthr requires them to obtain another Over-the-counter Drivative Provider (ODP) license.

FSCA licensed/regulated forex brokers are overseen by the South African government and they provide investor protection and if there is any issue between you and the broker, you can seek recourse in South African courts of law.

FSCA licensed brokers are also held to higher standards and will be penalized if they operate outside/below these standards. What happened to Veracity Markets is a good example; as the FSCA fined them R10 million for acting as market makers without obtaining an ODP license.

Prop Firms vs Forex Brokers in South Africa

A prop firm is a registered but not regulated company that charges you a fee to trade on their demo account (they call it simulated account). If you are able to meet their profit targets without breaing any of their rules, they will share your realized profits with you according to a pre-arranged sharing formula.

Forex brokers on the other hand are usually regulated companies that allow you trade live accounts with real money and they do not share your profits with you. Forex brokers make money by charging you a fee (spread/commission) each time you trade.

Unlike prop firms in South Africa, forex brokers do not have many stringent rules you must follow and most brokers allow you trade any strategy you wish to and to use EAs.

South Africa's Tax Expectations from Forex Traders

The South African Revenue Service (SARS) expects forex traders to pay an 18% Personal Income Tax. Every forex trader in South Africa is expected to have the mandatory Tax Reference Number which they should use to file and pay tax on any profits made from trading forex.