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The spot market: One way to trade forex in South Africa

by , 04 September 2014

Once you've decided that you're going to trade forex, the next thing you need to work is how you're going to do it.

In South Africa you have three choices. You can trade forex through the spot market, currency futures or spread trading

Let's take a closer look at the spot market…

What is the spot market?

The forex spot market is a decentralised over the counter (OTC) market. It’s an easy way for you to trade the forex market.

But if you opt to trade forex this way, you’ll have to get clearance from SARS to use your offshore allowance. You just need to apply for a clearance certificate.

The spot market is also called the cash market. On the spot market, forex transactions are executed at current market prices. For example, if you sell US dollars for euros, you exchange the actual currencies.

Unlike currency futures, contract sizes vary in the spot market. In the spot market, a fixed contract is called a ‘lot’.

For the retail market, a lot size is 100,000 of the base currency units. For example, a US dollar/rand transaction would see lots of $100,000.

But you will find brokers that offer smaller lot sizes, for instance, 10,000 units. In the above example, the transaction would be $10,000.

Over the years, some standardisation has developed in the spot market. These include:

  • Rules regarding delivery of spot forex transactions; and
  • The way currency prices are quoted.

You have other options to trade forex

If you don’t want to apply for clearance to trade forex, you have two other options. You can either trade currency futures or you can opt for to spread trade currencies.

These options also offer you the option of trading in smaller amounts.

So there you have it, how you can trade forex in South Africa using the spot market.

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The spot market: One way to trade forex in South Africa
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