Beginner's Guide

10 min read

What is Forex Trading? Understanding the Basics of Foreign Exchange Markets and How Trading Works

Discover what forex trading is, how the foreign exchange market works, and how beginners in South Africa can start trading the forex market with confidence.

TradeJournal Education

Updated November 2025

what is forex trading South Africa diagram showing currency exchange

If you've ever wondered "what is forex trading?" - you're not alone. Forex, short for foreign exchange, is the world's largest financial market where currencies are bought and sold 24 hours a day. With a daily trading volume exceeding $7 trillion, the foreign exchange market dwarfs all stock markets combined.

For South African traders, understanding what forex trading is opens doors to global financial markets right from your home. Whether you want to trade the US Dollar against the South African Rand (USD/ZAR) or explore international currency pairs, forex trading South Africa has grown significantly in recent years, with thousands of traders entering the market annually.

By the end of this comprehensive guide, you'll understand exactly what the foreign exchange market is, how does forex trading work, the opportunities and risks involved, and most importantly - how beginners can start forex trading in South Africa with confidence. Let's dive in.

What is the Foreign Exchange Market?

The foreign exchange market (also called forex, FX, or currency market) is a global decentralized marketplace where currencies are traded. Unlike stock exchanges that have physical locations, the forex market exists electronically - operating through a network of banks, brokers, and traders across the world.

When you ask "what is forex trading?" - at its core, it's the simultaneous buying of one currency while selling another. Currencies are always traded in pairs because you're exchanging one for another. For example, when traveling from South Africa to Europe, you exchange Rand (ZAR) for Euros (EUR) - that's forex in action.

Key Players in the Forex Market

Central Banks

Like the South African Reserve Bank (SARB), they manage currency supply and monetary policy

Commercial Banks

Major banks facilitate most forex transactions for corporations and institutional clients

Institutional Investors

Hedge funds, investment firms, and corporations trading large volumes

Retail Traders

Individual traders like you, accessing markets through online brokers

The beauty of forex trading is its accessibility. Thanks to online brokers and trading platforms, South African retail traders can participate in the same market as large institutions, though with different position sizes and tools.

How Does Forex Trading Work?

Understanding how does forex trading work starts with grasping currency pairs. In forex, you never buy or sell a single currency - you always trade a pair.

Understanding Currency Pairs

Every currency pair has two components:

Base Currency (First)

The currency you're buying or selling. In EUR/USD, EUR is the base.

Quote Currency (Second)

The currency you're using to make the purchase. In EUR/USD, USD is the quote.

Example: USD/ZAR = 18.50

This means 1 US Dollar can be exchanged for 18.50 South African Rand. If you think the Dollar will strengthen against the Rand, you BUY USD/ZAR. If you think the Rand will strengthen, you SELL USD/ZAR.

Buying vs Selling in Forex

Going LONG (Buying)

You buy the base currency and sell the quote currency. You profit if the exchange rate increases (base currency strengthens).

Example: Buy EUR/USD at 1.0500, sell at 1.0600 = Profit

Going SHORT (Selling)

You sell the base currency and buy the quote currency. You profit if the exchange rate decreases (base currency weakens).

Example: Sell EUR/USD at 1.0600, buy back at 1.0500 = Profit

The 24-Hour Market

One unique aspect of what is forex trading is that the market never sleeps. It operates 24 hours a day, 5 days a week across four major trading sessions:

Sydney Session

10pm - 7am SAST

Tokyo Session

1am - 10am SAST

London Session

9am - 6pm SAST (highest volume)

New York Session

2pm - 11pm SAST

For South African traders: The London-New York overlap (2pm-6pm SAST) offers the highest liquidity and volatility - prime trading time!

Why Trade Forex? (Benefits and Risks)

Now that you understand what forex trading is and how does forex trading work, let's explore why millions of people worldwide choose to trade currencies - and the risks you must understand before starting.

Benefits of Forex Trading

High Liquidity

With $7+ trillion traded daily, you can enter and exit positions almost instantly. Major pairs like EUR/USD and USD/ZAR have excellent liquidity.

Accessibility

Start with as little as R1,000-R5,000 with many brokers. No need for massive capital like traditional investments require.

Leverage Opportunities

Control larger positions with smaller capital (e.g., 1:100 leverage means R1,000 controls R100,000 worth of currency). Use wisely!

Profit in Any Direction

Unlike stocks where you typically buy low and sell high, forex lets you profit from falling markets by selling short.

Risks You Must Understand

High Volatility

Currency prices can move rapidly, especially ZAR pairs which are influenced by local economic announcements, commodity prices, and political events. A 2-3% daily swing in USD/ZAR isn't uncommon.

Leverage Risk

While leverage magnifies profits, it equally magnifies losses. Using high leverage (1:500, 1:1000) can wipe out your account in minutes if the market moves against you.

Complexity

Successful forex trading requires understanding technical analysis, fundamental analysis, risk management, and trading psychology. It's not "get rich quick."

Emotional Challenges

Fear and greed can sabotage even the best strategies. Most beginners lose money due to emotional decisions, not lack of knowledge.

Important: According to statistics, 70-80% of retail forex traders lose money. Understanding what forex trading is also means accepting that it carries substantial risk and isn't suitable for everyone. Never trade with money you can't afford to lose.

Forex Trading in South Africa

One of the most common questions beginners ask is: "Is forex trading legal in South Africa?" The answer is a resounding yes. Forex trading South Africa is completely legal and regulated by the Financial Sector Conduct Authority (FSCA).

Legal Status: Forex Trading is Legal in SA

South African residents can legally trade forex with both local and international brokers. However, for maximum protection, prioritize FSCA-regulated brokers who must:

Keep client funds in segregated accounts
Maintain adequate capital reserves
Follow strict conduct and disclosure rules
Provide recourse if disputes arise

Always verify a broker's license on the official FSCA website before depositing funds.

What Beginners Should Know About Forex Trading South Africa

ZAR Accounts Available

Many brokers offer accounts denominated in South African Rand, eliminating currency conversion fees when depositing or withdrawing. You can trade USD/ZAR, EUR/ZAR, GBP/ZAR, and many other ZAR pairs.

Local Payment Methods

FSCA-regulated brokers typically support local payment options including EFT (Electronic Funds Transfer) from major South African banks, credit/debit cards, and sometimes instant deposit methods.

Start with a Demo Account

Every reputable broker offers free demo accounts with virtual money. Practice how does forex trading work in real market conditions without risking capital. Spend at least 1-3 months on demo before going live.

Understand Tax Implications

Forex profits are taxable in South Africa. Keep detailed records of all trades for SARS compliance. Consider consulting a tax professional familiar with forex trading.

Choosing the Right Broker

Selecting a broker is one of your most important decisions when learning how to start forex trading. Check out our comprehensive guide:

Top 10 Forex Brokers in South Africa 2025

How to Get Started: 5 Steps for Beginners

Now that you understand what forex trading is, here's your actionable roadmap to learn forex trading steps and begin your journey as a South African forex trader:

Choose a Reputable, Regulated Broker

Your broker is your gateway to the forex market. Prioritize FSCA-regulated brokers for South African legal protection. Key factors to check:

• FSCA license (verify on their website)
• Competitive spreads on pairs you'll trade
• User-friendly trading platform (MT4, MT5, or proprietary)
• Good customer support during SA business hours
• Positive reviews from other South African traders

Understand Currency Pairs and Learn Basic Terms

Before placing your first trade, master the fundamentals:

• What currency pairs are (base vs quote currency)
• Major, minor, and exotic pairs (especially ZAR pairs)
• Pips, spreads, lots, and leverage
• Long vs short positions
• Stop loss and take profit orders

Read: Understanding Currency Pairs Guide

Open a Demo Account and Practice

This step is non-negotiable. Demo accounts let you:

• Practice placing trades with virtual money
• Learn the trading platform without risk
• Test different strategies and timeframes
• Experience real market conditions and price movements
• Build confidence before risking real capital

Recommendation: Spend at least 1-3 months on a demo account. If you can't profit consistently with fake money, you won't profit with real money.

Develop a Trading Plan

Successful traders don't gamble - they follow a plan. Your trading plan should define:

• Which currency pairs you'll trade (start with 1-2 pairs)
• Your trading timeframe (scalping, day trading, swing trading)
• Entry and exit criteria (when to enter/exit trades)
• Risk per trade (never risk more than 1-2% of account per trade)
• Daily/weekly profit targets and loss limits

Without a plan, you're trading based on emotions - a recipe for disaster.

Practice Risk Management and Journal Every Trade

The difference between successful and failed traders isn't strategy - it's discipline:

• Always use stop losses (protect your capital)
• Never risk more than you can afford to lose
• Start with conservative leverage (1:10 to 1:50)
• Keep a detailed trading journal of every trade
• Review your journal weekly to identify patterns

Why Journaling Matters:

Professional traders don't rely on memory - they analyze data. A trading journal helps you identify what works, what doesn't, and where emotions sabotage your success.

Learn how to keep a trading journal

Your Forex Trading Journey Starts Here

You now have a solid understanding of what forex trading is, how the foreign exchange market works, and how to get started with forex trading in South Africa. The forex market offers incredible opportunities for those who approach it with education, discipline, and realistic expectations.

Remember: forex trading for beginners South Africa success doesn't happen overnight. It requires continuous learning, practice, and emotional control. Start with a demo account, master the basics, develop your strategy, and only then risk real capital.

Frequently Asked Questions

What is forex trading?

Forex trading (foreign exchange trading) is the buying and selling of currencies in the global marketplace. When you trade forex, you're simultaneously buying one currency while selling another. For example, if you trade EUR/USD, you're exchanging Euros for US Dollars (or vice versa). Forex is the world's largest financial market with over $7 trillion traded daily.

How does forex trading work?

Forex trading works through currency pairs. You profit from changes in exchange rates between two currencies. If you think the Euro will strengthen against the US Dollar, you buy EUR/USD. If the exchange rate increases (Euro strengthens), you sell for a profit. If you think the Euro will weaken, you sell EUR/USD and profit if the rate decreases. You access the market through online brokers who provide trading platforms.

Is forex trading legal in South Africa?

Yes, forex trading is completely legal in South Africa. The industry is regulated by the Financial Sector Conduct Authority (FSCA). South Africans can trade with both local FSCA-regulated brokers and reputable international brokers. For maximum protection, prioritize FSCA-licensed brokers who must keep client funds segregated and follow strict conduct rules. Always verify a broker's license on the official FSCA website before depositing money.

How much money do I need to start forex trading?

You can start forex trading in South Africa with as little as R1,000-R5,000 with many brokers. Some brokers accept deposits as low as R100-R500. However, having more capital gives you better risk management flexibility. Most professionals recommend starting with at least R10,000-R20,000 to trade effectively without excessive risk per trade. Always start with money you can afford to lose, as forex trading carries substantial risk.

What is the foreign exchange market?

The foreign exchange market (forex or FX) is a global decentralized marketplace where currencies are traded 24 hours a day, 5 days a week. Unlike stock exchanges with physical locations, forex operates electronically through a network of banks, brokers, and traders worldwide. It's the largest financial market globally, with daily trading volume exceeding $7 trillion. The market allows businesses, governments, and individuals to exchange currencies for international trade, investment, and speculation.

Can I trade forex in South Africa?

Absolutely! South African residents can legally trade forex with both local and international brokers. Many brokers offer ZAR-denominated accounts, allowing you to trade without currency conversion fees. You can trade ZAR pairs (like USD/ZAR, EUR/ZAR, GBP/ZAR) as well as international pairs. Ensure you choose FSCA-regulated brokers for legal protection. The market operates 24/5, so you can trade during South African business hours or evenings when London/New York sessions overlap.

How do beginners start forex trading in South Africa?

Beginners should start by educating themselves about what forex trading is and how it works. Choose an FSCA-regulated broker, open a free demo account with virtual money, and practice for 1-3 months. Learn basic terms (pips, spreads, leverage, currency pairs), develop a simple trading plan with clear entry/exit rules, and never risk more than 1-2% per trade. Only move to a real account once you're consistently profitable on demo. Consider starting with major pairs like EUR/USD before trading volatile ZAR pairs.