Starting in a field you have very knowledge of can be very daunting especially if it means that you could lose considerable amounts of money. Of course you could also make a considerable amount of money but you need to know how. Trading forex in South Africa is unique as there are different laws that we have to abide to than the rest of the world. Forex or currency trading has its benefits as well as a few cons which should be considered before delving in. Lets have a look at this in the form of lists:
- You can lose your total investment.
- There is a lot to learn before you can start trading online.
- You need an internet connection.
- The forex market is very volatile.
- There are many scams surrounding the forex market.
- You have to find a good regulated broker.
You can lose your total investment when trading forex.
As the most popular way to trade forex is through trading CFDs (Contracts for Difference) it involves using leverage to trade. Leverage allows you to trade considerably more amounts than your initial deposit and although this might sound great and can be used to your advantage it also greatly increases your risk. Using leverage incorrectly could cause you to lose your entire investment in a matter of seconds.
There is a lot to learn before you start trading.
Although most providers claim that you can learn how to trade currencies within a very short period of time, you can really only start trading properly after learning and acquiring quite a large range of skills. Learning not only includes literature but also, and probably more important, a lot of practice time. Most people are not aware that they have to practice for at the very least 3 months before you start trading live.
You need an internet connection for online trading.
As the name suggests it is an online activity. You need a good internet connection to be able to trade effectively as this affects your slippage (transaction speed). If you are offline you cannot open or close trades and therefore if you have a bad connection this could really negatively influence your trading.
The forex market is volatile.
The forex market is not really volatile when trading on 1:1, but as almost everyone trades forex at a leverage of greater than 1:50 it changes the market into the most volatile tradeable market. Currencies fluctuate mostly because of news and economic events that have influence on the country or countries to which the currency is connected. As there is so much news and economic activity the currency market is an every changing animal with ebbs and flows that are as unpredictable as the sea.
There are a lot of scams in the forex market.
Currency or forex trading is extremely accessible as you only need an internet connection and a small investment to start trading. This has made the forex market a target for scams and scam artists. For a seasoned trader it is very easy to pick up which products are scams and which are not but as in most cases in life if it sounds to good to be true it most probable is.
You have to find a good forex broker that is regulated in South Africa
Probably the most important first step to trading is finding a good broker that is regulated in South Africa. Again, as in the previous section, it is easy to do if you know what to look for but if you are new to the market it could be difficult to decide which broker to chose. SAFX will help you with a list of the best forex brokers in South Africa.
Let us now look at the Pros list for online trading:
- You can trade a large amount with a small investment.
- It is very easy to start.
- There is great software available.
- It is the biggest market in the World
- Commissions in forex are very small.
- You can manage your risk.
- You can trade from anywhere in the world.
- The forex market is the most liquid market in the world.
How much do you need to trade forex?
This depends on the broker you use but in most cases it is R5000 or even less. The even bigger advantage is that most brokers give you a demo or dummy account to practice using their platform / software without risking your own money. This gives you a great opportunity without you having to risk 1 cent of your money. So in summary you do not need a cent to start practicing and a small amount to start trading.
It is very easy to start.
As we mentioned earlier there is a higher learning curve than most people think, it is however by no means difficult to get going. What you need is an internet connection, a trading device in the form of either a PC, tablet or smartphone, a trading platform, this is the software that allows you to execute trades, and a strategy or system. There are many strategies and systems, have a look on the safx.co.za website for more information on trading strategies and trading systems.
There is great software available.
A few years ago you basically had to be a mathematician to take advantage of technical indicators and other trading tools as you had to work out values with complex formulae. Nowadays you are able to take advantage of tools and software that have made the process of decision-making in online trading much easier. At SAFX we have developed a number of trading tools and software that will aid you in your decision making process. It is very important to watch out for scams when it comes to software as there are many products out there that just do not do what they promise. For peace of mind have a look at our products or let us assist you to determine whether or not a product is suitable or not.
Forex is the biggest market in the world.
There are a huge amount of currencies and currency combinations, or what most people refer to as currency pairs, that you can trade. The forex market has an estimated daily trading volume of roughly 5 Trillion Dollars. Yes that does mean that $5 Trillion is moved in the forex market everyday.
How much commission do you pay to trade forex?
Well to be quite frank this depends on your broker but mostly the commissions payable i forex is in the form of a spread. A spread just means that if a dollar is worth R14 the broker will sell it to you at R14.03 and the R0.03 would be the commission. It depends on the currencies that are traded. Your most traded currencies are the cheapest. In most cases the EURUSD pair would be the cheapest and a good indication whether the broker is competitive or not.
You can manage your risk.
As we said earlier forex trading can be risky and you can lose your entire investment. It is very important to note however that you can take full control of your risk and how much you are comfortable with. You determine your risk on every trade and you can trade forex very safely if you have a good risk management system in place.
You can trade currencies from anywhere in the world.
As you only need a trading device with an internet connection and a forex trading account you can trade from anywhere in the world. You do not have to be stuck in an office. You can literally trade forex while travelling the world. You obviously would have to learn to do so properly beforehand but it is a real possibility. Have a look at our trading education packages at safx.co.za
What is liquidity in trading?
The forex market is the most liquid market in the world, this simply means when you are ready to buy you can do so at the click of a button and when you are ready to sell you can also do so at the click of a button. When trading shares you need shares available to buy and when you want to sell there has to be a willing buyer on the other side. In forex this is not the case. You buy when you want and sell when you want.
We hope that was helpful information for forex trading South Africa.