Forex and CFD glossary for South African traders

Core trading terms: pip, lot, spread, margin, leverage

These five terms are the mechanical vocabulary of every forex and CFD trade. Understanding them is not optional — it determines whether you know what you are buying, what it costs, and how much you can lose.

• Pip — 'percentage in point'. The smallest standard price move in a currency pair. For most pairs quoted to four decimal places (e.g. EUR/USD = 1.0850), one pip is 0.0001. For USD/JPY (two decimal places), one pip is 0.01. Pips are how brokers quote spreads and how gains/losses on a trade are calculated. A 1-pip move on a standard lot of EUR/USD is worth approximately USD 10.
• Lot — the standard unit of trade size in forex. One standard lot = 100,000 units of the base currency. Brokers also offer mini lots (10,000 units), micro lots (1,000 units) and nano lots (100 units), making position sizing more accessible. The lot size you choose, combined with leverage, determines your monetary exposure per pip.
• Spread — the difference between the buy price (ask) and sell price (bid) of an instrument at any moment. The spread is the broker's primary transaction cost on a no-commission account. On a commission account, the spread may be tighter but a per-trade commission is charged separately. A 1-pip spread on EUR/USD means you are already 1 pip offside when you open the trade.
• Margin — the deposit the broker holds while your trade is open. It is not a fee; it is a security deposit against potential losses. Margin is usually expressed as a percentage of the full position value (e.g. 1% margin at 100:1 leverage) or as a required amount in your account currency. If losses reduce your account below the margin requirement, the broker may issue a margin call or close the position.
• Leverage — the ratio of your position size to your margin deposit. At 10:1 leverage, a ZAR 1,000 margin controls a ZAR 10,000 position; at 100:1, the same deposit controls ZAR 100,000. Leverage amplifies both gains and losses in exact proportion — a 1% adverse price move at 100:1 wipes 100% of the margin. South Africa does not cap retail leverage at the same level as the EU's ESMA rules, so FSCA-licensed brokers can offer higher leverage ratios than EU-authorised brokers.

What is a CFD (contract for difference)?

A CFD is a derivative contract between you and a broker. You agree to exchange the difference in price of an underlying asset — a currency pair, index, commodity or share — between the time you open the contract and the time you close it. You do not own the underlying asset; you are taking a position on its price movement.

Because you never hold the underlying, CFDs give access to markets (e.g. indices, commodities, global shares) that would otherwise require a separate broker or account. The trade-off is that CFDs are leveraged instruments (see margin and leverage above) and carry counterparty risk — you are relying on the broker as the other side of the contract. In South Africa, only FSCA-authorised ODP licence holders are permitted to write CFDs as principal onshore; an FSP-only broker routes the contract through an offshore entity.

Swap, rollover, and overnight financing

A swap (also called a rollover or overnight financing charge) is the cost of holding a leveraged position open past the market's daily cut-off — typically 22:00 or 23:00 London time, when positions roll to the next settlement date. Swaps reflect the interest-rate differential between the two currencies in a pair: if you are long a currency with a lower interest rate versus a higher one, you typically pay swap; if you are long the higher-rate currency, you may receive it.

Swap rates change frequently and vary by broker and instrument. Some brokers offer swap-free (Islamic) accounts that replace the overnight interest mechanism with an alternative fee structure; the specific terms of those accounts vary and should be verified with the broker directly.

• Swap — the overnight financing charge (or credit) on positions held past the daily cut-off.
• Rollover — the process of moving an open position to the next settlement date, triggering the swap.
• Swap-free account — an account type that removes the daily swap charge, typically by replacing it with a different fee structure; verify the broker's specific terms.

South African regulatory terms: FSP, ODP, SARB allowance

South Africa has its own regulatory vocabulary that applies specifically to forex and CFD brokers operating locally. These terms do not appear on generic overseas broker review sites — which is one of the main reasons those sites are less useful for South African traders.

• FSCA — Financial Sector Conduct Authority. South Africa's market-conduct regulator for the non-banking financial sector. Authorises and supervises Financial Services Providers (FSPs) and OTC Derivative Providers (ODPs). Official site: fsca.co.za.
• FSP (Financial Services Provider) — a firm authorised by the FSCA under the Financial Advisory and Intermediary Services Act 37 of 2002 (FAIS) to provide advice and/or intermediary services on financial products. An FSP licence is the baseline FSCA credential for a forex broker operating in South Africa.
• Category I FSP — an FSP authorised to render intermediary services (i.e. facilitate transactions on a client's behalf) but not to provide advice. Many broker intermediary entities hold Category I authorisation.
• Category II FSP — an FSP authorised to render discretionary portfolio management services (manage investments on a client's behalf under a mandate). Less common in the retail forex context.
• ODP (OTC Derivative Provider) — a firm authorised by the FSCA under the Financial Markets Act 19 of 2012 and Conduct Standard 1 of 2018 to originate, issue, sell or make a market in OTC derivatives as principal. Retail CFDs are OTC derivatives. An FSP licence does not automatically confer ODP status — these are separate authorisations. Brokers with their own FSCA ODP write CFDs onshore as principal; FSP-only brokers route CFD issuance through an offshore entity.
• SARB — South African Reserve Bank. The central bank and monetary authority. Its FinSurv division administers exchange control. Website: resbank.co.za.
• Single Discretionary Allowance (SDA) — up to R1 million per calendar year that a South African resident (18+, tax-compliant) may transfer offshore without requiring a SARS Tax Compliance Status (TCS) PIN. Covers travel, gifts, study abroad and — relevant to forex traders — offshore investment or trading account funding.
• Foreign Capital Allowance (FCA) — up to R10 million per calendar year in addition to the SDA. Requires a SARS Tax Compliance Status approval (a TCS PIN). Used for larger offshore investment or trading account transfers.
• FICA — Financial Intelligence Centre Act 38 of 2001. Requires FSCA-licensed brokers (as accountable institutions) to run anti-money-laundering programmes and perform customer due diligence — verifying identity (SA ID or passport) and residential address before a client transacts. This is why broker onboarding requires KYC documents.
• FAIS — Financial Advisory and Intermediary Services Act 37 of 2002. The law that requires FSP licensing for anyone providing financial advice or an intermediary service on a financial product. The s.1 definitions of 'advice' and 'intermediary service' are the hinge of who needs a licence.
• SARS — South African Revenue Service. The tax authority. Taxes forex and CFD gains on intention and trading pattern (revenue vs capital). Website: sars.gov.za.

Trading account and order types: market order, limit order, stop-loss, take-profit

These are the four order types every retail trader uses. Understanding them is prerequisite to understanding risk management.

• Market order — an instruction to buy or sell immediately at the best available price. Execution is fast but the fill price may differ slightly from the displayed price (slippage), especially in fast-moving or low-liquidity conditions.
• Limit order — an instruction to buy below a specified price or sell above a specified price. The order executes only if the market reaches the limit price, giving price certainty but no execution certainty.
• Stop-loss — an order to close a position automatically if the market moves against you to a specified price level, capping the loss on that trade. A stop-loss does not guarantee the exact fill price if the market gaps through the stop level.
• Take-profit — an order to close a position automatically if the market moves in your favour to a specified price level, locking in a gain. Like a stop-loss, it is triggered when the market reaches the target price.
• Negative-balance protection — a feature offered by some brokers that prevents your account balance from going below zero, so the maximum you can lose on a position is the funds in your account. Not universally offered by offshore brokers; confirm with your broker.

Currency pair terminology: base currency, quote currency, major and minor pairs

Every forex trade involves two currencies quoted against each other. The structure is always the same: base currency / quote currency.

• Base currency — the first currency in a pair (e.g. EUR in EUR/USD). One unit of the base is always priced in terms of the quote currency.
• Quote currency — the second currency (e.g. USD in EUR/USD). The price tells you how many units of the quote currency buy one unit of the base.
• Major pairs — the most traded currency pairs, all involving the US dollar: EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD, NZD/USD. These carry the tightest spreads and the deepest liquidity.
• Minor pairs (cross pairs) — pairs that do not include the US dollar: EUR/GBP, EUR/JPY, GBP/JPY, etc. Generally carry wider spreads than majors.
• Exotic pairs — pairs involving one major currency and one emerging-market or smaller currency. USD/ZAR is an exotic pair. ZAR pairs typically carry wider spreads and higher volatility than majors or minors.
• USD/ZAR — the US dollar / South African rand pair. This is the primary pair through which global risk sentiment and commodity prices influence the rand. The rand is historically one of the more volatile currencies among emerging markets.

Additional terms: liquidity, slippage, hedging, volatility

These terms appear regularly in broker materials and educational content.

• Liquidity — the ease with which an instrument can be bought or sold without causing a significant price move. High liquidity means tight spreads and fast execution; low liquidity means wider spreads and higher slippage risk.
• Slippage — the difference between the price at which you place an order and the price at which it actually executes. Slippage is more common in fast markets, at news events, or when trading instruments with low liquidity.
• Hedging — opening an opposing position to an existing one in order to reduce exposure. Some brokers allow hedging within the same account; others require you to net positions. Not all jurisdictions or broker entities permit hedging; confirm with your broker.
• Volatility — the degree to which an instrument's price fluctuates over time. High volatility means larger price moves in shorter periods, which increases both the opportunity for gain and the risk of loss. The rand is characterised by higher volatility relative to most G10 currencies.
• Gap — a jump in price between the previous close and the next open, with no trades in between. Gaps occur most commonly at the weekly open (Sunday night in SA time) or around major economic announcements. A gap can cause a stop-loss to fill at a worse price than specified.
• Demo account — a simulated trading account funded with virtual money, provided by the broker to let traders practise using the platform without risking real funds. Operating on a demo account before trading real money is strongly recommended, especially for beginners.

Sources & further reading

• FSCA — Financial Sector Conduct Authority
• SARB — South African Reserve Bank (FinSurv / exchange control)
• SARS — South African Revenue Service
• FAIS Act 37 of 2002 (SAFLII)
• Financial Markets Act 19 of 2012 (FSCA)