HERMAN BEZUIDENHOUT: Forex trading: Two worlds, one important decision

The term forex trading has become increasingly popular in recent years, often evoking images of quick profits, high-stakes currency speculation and sophisticated platforms with flashing charts. But for many South Africans, the true meaning of forex trading is misunderstood — especially the difference between legitimate forex services offered by licensed providers and speculative platforms promising high returns.

This column unpacks what forex trading really means by exploring two fundamentally different categories under this broad term.

Forex trading on behalf of clients

The first — and often less flashy — form of forex trading is what licensed financial services providers (FSPs) do on behalf of their clients: individuals or companies needing to send or receive foreign currency. In South Africa, this is governed by the Reserve Bank under the Currency and Exchanges Manual.

Here’s how it works: a client wants to pay an overseas supplier, invest offshore or send funds abroad. They approach a licensed FSP who facilitates the transaction through the client’s own bank account at an authorised dealer — a commercial bank approved by the Bank to transact in foreign currency.

These are real-world transactions, subject to exchange control rules and documentation requirements. The FSP never takes custody of the client’s funds, nor do they speculate with it. Their role is to help secure the best possible rate, ensure compliance, and deliver efficient execution.

This model is transactional, and purpose driven. It’s commonly used by importers, exporters, investors and individuals needing foreign currency for legitimate needs. It’s also low-risk — since the funds remain under the client’s control and the service is provided within a strict regulatory framework.

Forex trading as a speculative investment

The second form of forex trading is speculative. It involves individuals signing up to trading platforms to buy and sell currency pairs — like USD/EUR or GBP/JPY — with the aim of profiting from market movements.

In this case, the client becomes the principal and trades using their own funds. Many platforms offer leverage (borrowed capital), amplifying both potential gains and losses. The risk of losing all — or more than you invested — is high, especially for those unfamiliar with global currency markets.

While there are reputable and regulated platforms, the industry is also rife with unregulated operators. Many promise “guaranteed returns”, offer expensive training seminars or promote so-called secret strategies. Some misrepresent the risks, while others manipulate trades or even vanish with client funds.

Understanding the differences and the risks

While both categories involve the exchange of currency, that’s where the similarity ends.

In client-focused forex, a licensed intermediary facilitates a cross-border transaction on behalf of the client. Funds stay in the client’s bank account and the process is regulated, with the objective of meeting a clear financial need.

In speculative forex, clients try to profit from currency fluctuations. They deposit funds into a trading platform, often with little oversight or accountability. The risks are significantly higher, especially when leverage is involved.

In the first, the main risk is related to timing — securing the right exchange rate at the right moment. In the second, the risk is structural and ongoing: markets are volatile, prices move quickly, and, without expertise, losses can pile up fast.

Why regulation matters

Whether you’re transferring funds or thinking of trading forex as an investment, always check whether the provider is licensed. In South Africa, this means registration with the Financial Sector Conduct Authority as a Financial Services Provider (FSP) and often oversight by the Financial Intelligence Centre and the Bank.

Regulated providers are subject to strict compliance and conduct rules. They’re audited, monitored, and held accountable — important safeguards that reduce your exposure to fraud or malpractice.

Final thought

There’s nothing inherently wrong with forex trading — but it’s critical to understand which world you are entering. If you’re transferring funds offshore or managing currency exposure, work with a regulated FSP who facilitates the transaction securely and transparently. These providers never touch your money and operate purely in your best interest.

If you’re drawn to speculative trading, be cautious. It requires deep skill, a high tolerance for loss, and constant attention to global markets. Never believe promises of guaranteed returns and never trade with money you can’t afford to lose.

In both cases, success starts with making informed decisions — and that begins with understanding the true meaning of forex trading.

• Bezuidenhout is the founder of financial services provider BeztForex.co.za and the global trade AI platform Zynched.com