The FSCA, formerly the FSB, is the government agency in charge of broker regulation in South Africa. While international brokers can obtain FSCA licenses, local brokers are more likely to have this certification. And deciding between FSCA-regulated brokers.
Some of the benefits and drawbacks of dealing with an FSCA-regulated broker.
Benefits of trading with an FSCA-regulated broker
The main benefit of trading with an FSCA-regulated broker in South Africa is that your trading account is protected locally. While the FSCA does not need brokers to join a compensation scheme, local FSCA protection entails:
- Segregated accounts: All trader funds are kept separate from a broker’s operational funds. If a broker declares bankruptcy, they must still return all client funds.
- Financial Audits: Brokers must submit regular audits to the FSCA to demonstrate that they abide by financial laws.
- Trading accounts in South Africa: Trading accounts are maintained at South African banks. If a broker goes default, South African traders can withdraw their funds by walking into the bank where their trading account is kept.
- Local offices and banking: These brokers have a South African office and keep their operational funds there. If a broker is a feel of wrongdoing, the FSCA has the authority to freeze its accounts in South African banks easily. The FSCA does not control freezing bank account in other countries.
- Rand (ZAR) Trading accounts: Most FSCA-regulated brokers, but not all, will provide ZAR trading accounts. This means that there will be no conversion fees when depositing or withdrawing funds from a South African bank account.
- Deposit and withdrawals: Most, but not all, FSCA-regulated brokers offer free same-day deposits and withdrawals to and from South African bank accounts. Most will also support South African eWallet like Ozow or PayFast, allowing instant deposits and withdrawals from South African banks.
Disadvantages of trading with an FSCA-regulated broker
When trading with an FSCA-regulated broker, there are some disadvantages. The FSCA is an effective regulator, brokers in south africa but it does not protect traders and regulators in the United Kingdom, Europe, or Australia. The following are the main disadvantages of trading with FSCA-regulated brokers:
- Negative balance protection is not required: FSCA-regulated brokers do not keep traders from losing more money than they have in their trading accounts. Although it is uncommon, traders in South Africa may find themselves owing money to their brokers.
- No financial compensation plan: FSCA-regulated brokers do not need to compensate traders in the event of bankruptcy or closure.
- Limits on leverage: leverage is necessary for forex trading, but excessive leverage is risky. In South Africa, there is no limitation to the amount of leverage that a broker can provide. A leverage of 1000:1 or higher is available from some FSCA-regulated brokers. With this much leverage, a small loss is to be expected.
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The main benefit of trading with an FSCA-regulated broker is that your trading account is locally protected. Even if a broker declares bankruptcy, they are still required to return all client funds. This broker keeps its operating funds in South Africa and has accounts with local banks. Excessive leverage is required for forex trading, but it is also risky. Although it is uncommon, south African traders may owe money to their brokers.
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