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  • The foreign exchange (forex) market is the largest and most liquid financial market in the world.
  • The rand is the 20th most-traded currency and is projected to improve.
  • Forex trading isn’t always a walk in the park and the right steps need to be taken in order to achieve consistent profitability.

With an average turnover of $6.6 trillion per day in April 2019, the foreign exchange (forex) market is the largest and most liquid financial market in the world. And South Africa is not shying away from the benefits that come with forex trading.

The South African Rand is the 20th most-traded currency in the world and is projected to improve, according to The Bank for International Settlements’ (BIS) Triennial Central Bank Survey 2019, which tracks global foreign exchange activity in major markets. The US Dollar is still the dominant currency in the world, being on one side of 88% of all trades.

South Africa’s growth as a forex hub

Last year, the European Security and Markets Authority (ESMA) announced a temporary restriction on the marketing, distribution and sale of CFDs to retail clients in the European Union (EU). Since Forex Trading is a form of CFD Trading, these tighter regulations in Europe forced brokers to look to other continents to reduce their operational costs and expand their markets.

Similarly, in Australia the non-banking financial services regulator, ASIC, made proposals to restrict the method by which companies can offer certain leveraged forex trading products that fall under the rules of the Australian Financial Services License (AFSL). Justin Grossbard, a forex industry and CFD specialist in Australia, writes that the most troubling aspects of the industry proposals are the potential restrictions of the leverage effect of foreign exchange products and CFDs.

These restrictions might not be so great for Europe and Australia, but it led to Asia and Africa becoming attractive destinations for many regulated brokers. Led by big banks – Standard Bank, Absa, FNB, FirstRand and Nedbank – as well as the Johannesburg Stock Exchange (JSE), South Africa has taken up a firm position as the largest retail forex market in Africa.

The country is also becoming more and more attractive for brokers because the Financial Sector Conduct Authority (FSCA) provides South Africa’s financial market with a sturdy regulatory framework as the country has strong banking relationships with global economies.

Forex trading options for South Africans

South African investors can trade forex using the JSE's currency derivatives or through CFDs and retail forex trading via regulated forex brokers. You can easily find a regulated broker on comparison sites like Compare Forex Brokers.

The JSE’s Currency Derivatives Market allows for the on-exchange trading of currency that gives market participants an opportunity to hedge against currency risk, diversify internationally and see the movement of underlying foreign exchange rates. Currency Derivatives trade on an efficient and automatic electronic trading platform and can be traded by South Africans and non-resident investors.

Retail forex, on the other hand, is an agreement to buy or sell one currency against another immediately. Payment and delivery are instant, which distinguishes it from currency derivatives. If the buy currency value rises in future, the holder may sell it for profit by selling it.

Although digital trading platforms have made the forex market more accessible to individual investors, seeking advice from a professional is strongly recommended.

This post was sponsored by Compare Forex Brokers and produced by BrandStudio24 for Business Insider SA.