Created on December 5, 2024

South Africa allows its residents to trade in Forex, offering a world-class regulatory structure. The country’s time zone is also well positioned for currency trading, allowing traders to participate, during daytime hours in South Africa, in the two most liquid Forex sessions, the London and New York Opens.

Let’s explore the legal framework for Forex trading in South Africa, including:

1. What are the regulations for South Africans?
2. Which brokers can I use?
3. In terms of regulations, what are the pros and cons of Forex trading?

Yes, Forex trading is legal in South Africa. No law explicitly states that this is illegal. Furthermore, the Financial Sector Conduct Authority (FSCA) licenses Forex brokers based in South Africa, making it legal.

There are two basic things that South African forex traders need to know about the regulations:

1. South African regulations do not prohibit South Africans from using any broker worldwide. I can use a broker based in South Africa or a foreign broker.
2. The Financial Conduct Authority (FSCA) regulates and licenses all Forex brokers operating in South Africa.

If a trader chooses a South African Forex broker, they will automatically know that the broker is subject to FSCA regulations. If an individual uses a foreign-based broker, they are subject to whatever foreign regulatory body covers that broker, which may not be as protective as FSCA standards.

All the best South African Forex brokers are now regulated. The 2018 collapse of VBS Mutual Bank and the estimated loss of $130 million in customer funds due to fraud led to a loss of confidence in the financial system and its regulators. This led to the creation of the Financial Sector Conduct Authority (FSCA) in 2018. The South African forex industry has benefited as the FSCA issues licenses to forex brokers wishing to operate in South Africa, ensuring they adhere to strict operating standards.

Every Forex broker based in South Africa must obtain a Financial Services Provider (FSP) license from the FSCA. Let’s take a look at the standards that govern FSCA licensed brokers in South Africa:

1. Leverage limits: From 2021, the FSCA applies a leverage limit of 30:1. (This is in line with the EU leverage limit of 30:1.) Professional investors who meet specific criteria, such as a minimum net worth, can access higher leverage.
2. Segregated Client Accounts: Brokers must keep client funds segregated or segregated accounts from their business. Brokers cannot use client money to run their business for any reason. Rules requiring segregated client funds are critical to ensuring the safety of client money, especially if the broker is facing financial difficulties. Therefore, brokers cannot use customer deposits to support their business operations, or if the broker fails, customers should be able to recover their deposits.
3. Fair Execution: Brokers must ensure fair trade execution and not engage in exploitative practices, such as slippage manipulation or excessive spreads during volatile market conditions.
4. Brokers must disclose clear and accurate information to clients about the products they offer, the costs of trading (such as spreads and commissions) and the risks associated with Forex trading so that clients can make informed decisions.
5. Fit and Proper Standards: Brokers must meet “Fit and Proper” requirements to secure an FSP license. Requirements include:

1. Honesty, integrity and good standing (eg no criminal convictions or disciplinary action by professional bodies)

b) Competence (e.g. completion of regulatory exams)

c) Continuous professional development (ie ensure they update their knowledge)

d) Operational capability (e.g. possession of technical resources for business management)

e) Financial stability (eg having the necessary liquidity for risk management)

6. South African representative: The broker must have at least one representative based in South Africa.
7. Compliance Officer: There must be a Compliance Officer.
8. Insurance: The broker must have professional liability insurance.
9. Anti-Money Laundering (AML) and Know-Your-Client (KYC): FSCA requires brokers to follow AML and KYC procedures by verifying clients’ identities, for example, by asking for copies of government-issued IDs, utility bills, etc. and reporting suspicious activity.
10. Operating capital: A broker must have sufficient capital to absorb losses, continue uninterrupted operations and ensure financial stability.

The above FSCA requirements for South African brokers to obtain and maintain their FSP licenses ensure that they operate to standards comparable to other top international regulators.

Remember, FSCA regulations and the FSP license only apply to brokers based in South Africa. The FSCA has no jurisdiction over brokers covered by foreign regulators. If an overseas broker acts unfairly or fraudulently, the FSCA cannot help you, even if you are a South African citizen.

1. Best Forex Time Zone: South Africa is in an excellent time zone for Forex trading as it is easy to access the New York Open (15:00 SAST) and the London Open (10:00 SAST), which are the two most liquid and potentially profitable times to trade forex.
2. World-class regulation: FSCA has become a world-class regulator for its domestic Forex brokers through the FSP licensing procedure. It ensures that brokers operate to the highest standards, requiring segregation of client accounts, fair trading and financial stability of brokers, among other criteria.
3. Ability to trade using foreign brokers: South Africa allows its residents to trade using foreign brokers regulated in other jurisdictions. I recommend that you always choose a broker in a top tier regulatory jurisdiction such as the UK, Canada, EU, USA, Australia or New Zealand. For example, all of these countries have regulators that require brokers to segregate client funds.
4. Vibrant trading community: With a population of 60+ million, South Africa has built an active and engaged trading community. Although retail forex trading is online, I have benefited from local live trading meetings, where I network and learn from others by getting to know each other in person. A strong community also draws on the resources of regulators to protect traders and encourages competition among brokers.

1. Limited Leverage: From 2021, the FSCA has limited Forex leverage to 30:1. This is in line with the EU leverage limit of 30:1, but less than the US limit of 50:1 for major Forex pairs. Other jurisdictions may offer 100:1 or more. I generally don’t recommend chasing extra leverage as it increases losses, not just profits. However, for small accounts, the extra leverage can be crucial to making trading worthwhile.
2. Most Individuals Lose Money in Forex: Trading is a notoriously difficult activity, and evidence suggests that most people lose money in the markets. When I’ve attended trading conferences and met the attendees, it’s rare to find people who generate high, consistent trading income. This is not to say that making money through trading is impossible – there are also many documented winning traders. However, it is important not to underestimate the task.

Forex trading is legal in South Africa. The regulations allow traders to use brokers based in South Africa or foreign brokers. The FSCA regulates all South African brokers and requires them to hold an FSP licence. FSCA’s world-class regulations require brokers to segregate client funds, be financially stable and enable traders to execute trades fairly. However, from 2021, the FSCA has limited Forex leverage to 30:1 for retail traders. If traders use foreign brokers, the FSCA cannot help if the broker acts unfairly or fraudulently. South Africa has one of the best regions for forex trading due to world-class regulations and the country’s time zone, which makes it easy to trade the New York and London Opens, the most active forex sessions.