In recent times, and the advent of the internet, making money has never been so easy yet so complicated if you aren’t knowledgeable enough. This paradox of our world applies to everything, from running an online shop, trading in cryptocurrencies or trading in forex. The long and short of the story is; that knowledge is key. If you are considering venturing into Forex in South Africa, you are not exempted from this. You must get all the information you would need to make money and not lose it. This article contains information on what forex is, how to trade and the risk involved in engaging in this venture.
What is forex money?
Forex simply means the foreign exchange market, which is a global yet decentralised currency market. Here, you can buy, sell and exchange currencies at a predetermined price or the price at which they are being sold at the moment. The currency market is the largest in the world and has the responsibility of determining the foreign exchange rates. Forex money is the profit you make if the currency you buy increases in value more than the money you sold. You don’t make any money if the value is the same, and you lose money if the value drops.
How to make money with forex
Nobody engages in the currency market to lose money; on the contrary, the goal is to make a lot of profit and earn from the trade. If you are going to make money from forex, you must first do your research. Find out all there is to know about forex by studying online or making appointments with consultancy firms and organisations. Although much of your knowledge of forex trading would come from your experiences trading in the field, learn as much about the markets, including the factors that influence your preferred currencies, before you start trading.
How to start trading forex in South Africa
If you are going to start trading forex in South Africa, here are a few things we recommend you consider so that you get the most out of your experience and, most importantly, make more money:
Find a reliable forex broker
to ensure the safety of your deposits and reduce the risk of losing money to unscrupulous people, ensure that you are working with reputable dealers. Ensure that you carry out as much research about your broker as possible, including their leverage amounts, initial deposit amounts, and withdrawal policies. It is also important that you find a broker that is registered with a regulatory body. That way, you are assured that their activities are closely monitored, and you can report any fraudulent activities.
Learn how to read a forex quote
Learning how to read forex quotes enables you to familiarise yourself with the terminologies associated with the trade. Quotes start with a currency pair that tell you which currencies you are trading with. In a forex quote, currency pairs usually include a bid, and an ask price. To effectively trade in forex, you must be able to understand what the quote means, and how to read, interpret and respond to them.
- Explaining the base and quote currency
A quote is made up of two currencies that are called a currency pair, and a currency pair has a base currency and a quote currency. The base currency is also known as the transaction currency. It is the first currency that appears on any currency quote. Some popular base currency includes the US dollar, the British Pound, Euros and the Australian Dollars.
Quote currency, on the other hand, maybe considered by a firm as the domestic currency of the trader. It is the second half of the currency pair quotation and can also be referred to as the counter currency. In currency pair quotations, simply tell you how much of the quote currency you need to have one unit of your base currency.
For example USD/EUR = .6356
This quote means that you would be translated to mean that 1 USD is equivalent to 0.6356 Euros.
Think of your trading time
Although the forex market is open 24/7 from Monday to Friday, you should know the right time to trade. Picking the right trading time would be a great way to maximise your trades. You should trade when the major stock markets are most active, i.e. London and New York. If you are in South Africa, the best time to trade would be around midnight, when both London and New York are awake and active.
Start with a demo account.
A demo account is a practice or a test account. Where you can practice in a simulated setting without actually funding the account, this allows you to have real-life practice and lived experience trading on a forex market. After using a demo account for some time and familiarizing yourself with the trade you can then move on to registering and trading on a funded account.
Basic requirements to open a forex account
To trade in forex, you will need to first set up an account with a reputable broker. Creating an account simply requires that you provide the broker with some personal and financial information to get your account set up. Some brokers may require that you pay a registration fee or some monthly subscription fees that would be particular to the broker you are working with. Listed below are the general requirements to set up a forex account:
- Physical address
- Telephone number
- Account currency type
- Trading account password
- Employment status
- Yearly income
- Your net worth
- State if you have any trading experience
Other specific requirements will be communicated to you by your broker.
Forex trading and risk
As we mentioned above, forex isn’t void of risks. You risk losing all your money from your trade over a short period if you do not take the necessary precaution. Over 90% of traders end up being on the losing end in forex. You should be ready to take these high risks with your money and hope to reap the benefits of them as well. Here are some of the risks you should beware of:
- The forex market witnesses many changes very quickly, and you have to constantly be on your toes. The forex market is highly volatile (liable to change rapidly and unpredictably). Although this dynamic nature of the market allows you to make profits if it sways the wrong way, that could also mean a great loss for you. Because of this, you are advised to be extremely watchful and pay close attention to your trades.
- Another risk in trading in forex is how unpredictable the market could be. As much as you may be informed and knowledgeable about the market, accurately predicting what happens next in the market takes a stroke of luck. The market is hard to predict because too many factors can influence it, and you may not know which factor to guard against. To help balance this out, you should set the target win-loss ratio to minimise your losses.
- Trading using leverage is also highly risky. As much as using the leverage tool amplifies your profits, it also amplifies your losses. A single bad trade has the potency to completely wipe out everything that is in your account because losses are automatically deducted from them.
- You may be charged with interests in some particular instances. E.g. your broker may charge you with interest if you carry out trades overnight. These deductions are made directly from your account.
If making money with forex is your goal, then we advise that you take the recommendations contained in this article seriously to make the most out of your trading experience.