Earning money takes around 80% of our lives, leaving no space for life itself. Such a disturbing fact makes people look for other ways of making a living, less time-consuming yet more rewarding, and the search will definitely lead to Forex trading. Forex is a world-spread financial market, where your profit is the matter of your knowledge, intuition, and analytic skills.
Forex in South Africa is a relatively new direction of investment, yet, very popular, and the principles of its functioning are the same as all over the world. This article aims to show all the basics the South African traders need to know when exploring the world of Forex trading.
What is Forex?
Forex is about making money while trading money. “Forex” is a derived form of ‘foreign exchange’, and denominates the exchange of currencies and making a profit while predicting the monetary behavior on the market. A trader buys a currency at a certain price and then sells it with the target price in the future (or vice versa). Due to the difference between the prices the trader gains profit or loses.
Forex opens new opportunities for both, private citizens and big financial institutions. When private trading is involved, the participants are called retail south african traders.
The volume of the market is huge, around 5 trillion dollars are involved daily in the transactions, and the numbers keep rising, as more and more people want to be part of it.
How does the Forex market function?
The way the market operates may initially cause dismay, yet, it is not as difficult as it may seem.
The operations on the Forex market are based on the behavior of currency pairs like USD/EUR, USD/CAD, GBP/NZD, CHF/USD, etc. Let’s give names to these abbreviations:
- The first currency is the base currency, often called domestic, and is always given as one unit.
- The second place is taken by the quote currency, which is shown in relation to the base currency.
If the USD/EUR exchange rate is 1.30, the cost of the euro is 1,30 dollars.
Buying this currency pair means buying base currency (dollars) and selling quote currency (euros). Provided the exchange rate gets higher, the trader can sell the pair and get a profit.
Selling the currency means selling the base currency (dollar) and buying the quote currency (euro). Provided the exchange rate decreases, the pair can be bought with profit.
While regular citizens are afraid of currency changes and volatility, not knowing what to do with their money, the Forex traders simply increase their wealth. However, it takes deep analyses and knowledge to predict the changes in the exchange.
Forex Trading in South Africa
Forex Trading has no centralized market, yet it is regulated by the Financial Sector Conduct Authority, or simply, FSCA, which ensures safety and healthy competition in the market and protects the participants from fraud. However, Forex in South Africa is less regulated, as the brokers don’t offer negative balance protection, thus, there is no limit on the amount of leverage they can offer. It can sometimes be tricky, as the clients can spend more than they can afford.
South African Traders can also benefit from Rand (ZAR) trading accounts, as there will be no conversion fee for withdrawing money, unlike those who have a dollar or euro account.
Benefits of Forex Trading:
- Accessibility – considering the global network coverage, the financial market is within easy reach for everyone involved, across various devices.
- Non-stop work – the market is active 24/7 five days a week, which eliminates any borders connected with the time zones.
- Leveraging – Forex gives a chance to start earning even with a low amount of money due to the usage of leverage. The majority of brokers will allow trading with a $100 deposit to open an account.
- Volatility – the market uncertainties turn your money balance into a lucrative profit.
Downsides of Forex Trading:
- Volatility – the market situation can change in the blink of an eye. If you lose the moment, you can lose money.
- Leveraging – leveraging can amplify your profit, however, if you fail to analyze the situation correctly, your losses will double.
- Unreliable brokers – poorly regulated brokers can make every trader unprotected. Beware of those who offer unlimited leverages along with very low initial costs.
The bottom line
Forex is a choice for those who are looking for financial security and growing profit. Although the learning curve is quite steep and risks are involved, it is an engaging and profitable venture. Make your money work for you, and don’t miss a chance to use the market insecurities for your own good.