South Africa is a growing economy with a well-regulated financial industry. Forex trading has recently become popular in the country as people see it as a potentially lucrative option for earning income. However, many forex brokers are offering different services, and it can become taxing to choose one among many.
You need to consider several factors before making the final decision. One of the critical factors is the fees and commissions charged by forex brokers in South Africa. Different brokers have different rates and fee structures.
Generally, they earn their fees through spreads, commissions, margin rates, conversion fees, deposit and withdrawal fees, overnight swap rates, and inactivity fees. You can learn how forex brokers make money in detail in the section below.
In layman’s terms, spreads are the difference in the buying and selling price of currency pairs. They are measured in the smallest unit of price movements, known as pips. As a future forex trader, you should choose brokers with lower spreads.
It will help in reducing the cost of forex trading. You should avoid brokers with wider spreads as it can mean a higher cost in trading.
Some brokers charge commissions on each trade. Moreover, you should pay attention to spreads if they do not charge any commissions, which means they’re earning from spreads instead.
The rates are generally calculated as a percentage of the transaction value or a fixed fee. You can calculate and compare these rates across forex brokers in South Africa to determine which one is more beneficial to you.
- Margin Rates
Most traders may not have the necessary funds to facilitate trading on forex platforms. Therefore, forex brokers offer margin rates as a benefit on top of their services. It means you can trade for a higher volume than the funds you have in your account.
However, forex brokers can charge an interest if you cross the threshold of borrowed funds. The rates can vary across brokers from one to five percent interest.
- Conversion Fees
You can open either domestic or international accounts with a forex broker. Domestic accounts allow you to trade locally with Rand, but international accounts will enable you to access global markets.
Hence, some forex brokers in South Africa may charge a conversion fee if you trade in a different currency other than Rand. You should compare and see if your preferred brokers have such a fee and how much it will affect your trades.
- Deposit and Withdrawal Fees
Most forex brokers have a minimum deposit value required to facilitate trading on forex platforms. However, they have different policies regarding charging deposit and withdrawal fees.
Moreover, the fees may differ depending on your withdrawal and deposit methods. There are a few brokers who may not charge such fees.
- Overnight Swap Rates
Also known as rollover fees, they are charged on positions held overnight. The rates may differ across different forex brokers, depending on the interest rate differentials between currencies in the pair.
Hence, it can either be positive or negative based on the direction of the trade. You should carefully gloss over such details in the policy to know whether they charge a fee.
- Inactivity Fees
As the name suggests, it is the fee charged to you if you do not trade for a certain period. Forex brokers use it as an incentive to encourage you to trade regularly. Hence, you won’t have to pay it if you’re actively using your accounts for trading.
The fees and the designated period may be different for different forex brokers. Some charge monthly, and the period may range from 12-24 months.
To summarize, forex brokers earn money from your trading activity in different ways. Remember that if they do not charge specific fees, then it means that they’re covering it in other areas. Always read your policies back and forth and consult a lawyer if required. It will help you to choose the right forex trader in South Africa at a reduced cost of trading.