Understanding Forex Trading: Risks and Regulations

Forex trading involves the buying and selling of global currencies in the forex market with the goal of making a profit on the currency’s fluctuations. Simply put, you buy a currency when you believe its value is going to appreciate (go up) against the other currency, or you sell a currency when you believe its value is going to decrease (go down) against the other currency.

When you exit the trade, the difference between the trade’s entry and exit price determines your profit or loss. Forex trading is a high-risk investment due to the high volatility of the Forex market, which is linked to everything that can impact the price of the currency you are trading. It’s a high risk, as you can lose money if the markets go against you and if you do not employ risk management measures such as stop losses and etc.

These losses can be substantial or even total. It is therefore vital that one considers an investment into forex trading very carefully and that one receives appropriate advice from a registered Financial Services Provider (‘FSP’). South Africans can legally trade in the foreign exchange market through the Financial Sector Conduct Authority (FSCA) regulated forex broker. You should verify with the FSCA through their website whether the entity you are looking to invest in forex trading with is regulated in terms of the FAIS Act.

This will mean that the entity has displayed the requisite skills and integrity to qualify for a licence. There are many unregulated brokers looking to make money off unsuspecting and vulnerable clients, so do your due diligence on any entity offering you forex solutions, as you will only increase the risks involved by dealing with an unregulated entity.