The Bank of International Settlements (BIS) ranks the South African rand as the 18th most commonly traded currency in the world. According to the BIS 2019 triennial report, the rand has remained within the top 20 currencies since 2004. And it is the only currency on the continent of Africa to achieve this ranking in the forex market.
Strong regulation in the financial sector and the relative strength of the economy give South Africans the confidence to trade in forex at a rate roughly equal to Nigeria. Local experts actually give South Africa a slight edge in total volume, average account size and number of traders.
Get Started with Forex in South Africa
Anyone who knows how to trade forex will tell you the game is 90% preparation. Your infrastructure needs to be solid or even the best laid plans will fall flat. As the biggest financial market in the world, forex is a global competition that takes no prisoners. Here’s how you can get started.
- Connect online. You can connect to the world of forex and trade currencies across the world from anywhere in South Africa. Make sure you have a solid Internet connection with no built-in latency. Forex trades are all about timing, and you don’t need a delayed system reaction messing up a perfectly good strategy.
- Search for the best online forex broker. You can connect to forex brokers across the world. Take note of the regulatory bodies that govern your chosen brokers. South Africa has relatively strong protections, but those protections may not apply if the broker you choose is offshore.
- Open the account. Your broker will have a process for you to follow to open an account. Make sure you follow the directions closely. You must properly identify yourself and connect your bank account.
- Fund your account. You can begin your trading career using virtual (not real) money. When you want to start making money, you will need to fund your account. This should be a relatively simple process if you have connected your bank account. Certain brokers will also allow funding through a check, debit card or credit card.
- Download your trading platform. Most reputable brokers have proprietary trading platforms. This is the user interface you will use to make your investments into the forex market.
- Trade. Now that your infrastructure is set, you can begin trading in the forex market.
South Africa Forex Trading Strategies
When it comes to the forex market, failing to plan is planning to fail. The more strategies you master, the more likely you are to consistently profit. Start your journey with some vetted gameplans.
If you like reading and interpreting charts, you should enjoy trading off of price action. Predict the next move, strike while the iron is hot and take profits quickly. The price action trader is more concerned with a currency pair’s pattern of movement. Large macroeconomic conditions and long-term trends don’t matter as much because these trades aren’t meant to be long — sometimes only a few seconds (if that).
Day trading is a specific kind of price action trading that closes all trades by the end of the day. Placing a time limit on the action protects a trader from big overnight moves. Although forex trades 24 hours a day, weekend moves can be somewhat surprising. Day traders exercise many of the same techniques as price action traders and are opportunistic. This kind of trading is also usually higher frequency than position trading, range trading or trend trading.
Range traders may hold a trade for minutes, hours or days. This kind of trading tries to take advantage of larger patterns based on support and resistance levels. Range trading works when a currency pair has no definite direction — it is moving within a range that can be predicted. Successful traders buy at the low points of the range and sell at the high points over and over.
Trend trading usually takes place over the same time frame as range trading. The major difference is the behavior of the currency pair — it is moving in a direction rather than within a range. The successful trader will identify the trend (usually just up or down) and trade accordingly. You will usually ignore small pullbacks and wait for bigger profits as well.
Forex Trading Example in South Africa
Let’s say ZAR/USD is trading at 0.05780/0.05790 and you think the price will rise. The margin rate of this currency pair is 3.17% and you want to purchase R150,000. You will only need $275.08 in your account — the broker will let you borrow the rest.
The ZAR/USD price moves up according to plan. After 3 hours, it’s trading at 0.06020/0.06040. This is a move of 23 points (0.06020-0.05790), and your profit is (R150,000*0.06020)-(R150,000*0.05790) or $345.
Making Money with Forex in South Africa
There are many ways to make money in the forex market outside of the traditional “buy low, sell high” mantra (which works just fine as well). The more you know, the more likely you are to see opportunities as they come.
- Carry trading: You can make money on the directional movement of a currency pair, but you can also make movement on the interbank interest rate of a currency. When you hold a currency in forex, that’s just like holding it in a bank. You gain interest on your holdings. Carry traders try to profit from the difference in interest rates of various currencies.
- Binary options: Instead of taking profit or loss based on the real time movement of a currency pair, you can participate in all or nothing options. If a currency is at a certain price on a certain date, you win money. If it is lower than the pre-established price on that date, you lose your investment.
- Shorting: If you think the value of a currency will decrease in the future, you can borrow that currency and sell it at a high price to buy it back cheaper later. This is known as shorting a currency.
Best Online Forex Brokers in South Africa
Your forex broker and exchange provider are your windows into the forex world. Choose wisely.
You will need to know some basic terms to ensure proper trade execution. Here are some of the most important:
Pip: The smallest unit of measurement in the forex world — $0.0001 — also known as a basis point.
Lot size: The size of the order you execute. A standard lot size is 100,000 units of currency. You can trade in smaller lot sizes known as microlots.
Orders: You tell the forex platform what you want, and it delivers your order.
Calls: Calls are contracts based around a target currency pair. Buying a call gives you the right to take possession of the underlying currency at a certain price on a predetermined date.
Open New Financial Doors
Many investors use forex to open new financial doors in South Africa. Nothing is guaranteed, but numbers don’t lie. People believe the opportunity is there. Take a look for yourself and learn to succeed in the forex market.
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