Forex Trading SA: Discover how forex trading works in SA (South Africa). Whether you are a newbie trader looking for the most suitable market for your investor profile or a more experienced trader wishing to try your hand at a new market, Forex can be an attractive choice in South Africa. But before seeing why, first find out what the Forex market really is.
What is forex ?
Forex is the acronym for Foreign Exchange, literally the foreign exchange market, or currency market. This is the market where currencies are traded.
It should be noted that the Foreign Exchange market is the second largest stock market in terms of overall volume, just behind the interest rate market.
Forex Trading SA: How does it Work?
On Forex, currencies are traded in pairs, for example the euro / dollar pair, which is denoted EUR / USD.
In a currency pair, the first (on the left) is called the base currency and the second (on the right) is the quote currency. The quote currency indicates its value for 1 unit of the base currency.
In our example of the EUR / USD pair, the euro represents the base currency and the dollar the quote currency. This means that if we have EUR / USD = 1.4000, then the EUR / USD pair is trading at 1.4000 and therefore 1 euro is worth 1.40 dollars.
What currencies to trade on the Foreign Exchange?
If there are many currency pairs on the Foreign Exchange market, they fall into three main categories:
- Major currency pairs,
- Minor currency pairs,
- Exotic currency pairs.
Major currency pairs are those that all include the US dollar. These are the Forex pairs: EUR / USD, USD / JPY, GBP / USD, USD / CAD, USD / CHF, AUD / USD and NZD / USD.
Conversely, minor currency pairs, also called cross pairs (of cross English) exclude all the US dollar. These are Forex pairs: EUR / GBP, EUR / CHF, EUR / CAD, EUR / AUD, EUR / NZD, EUR / JPY, GBP / JPY, CHF / JPY, CAD / JPY, AUD / JPY, NZD / JPY, GBP / CHF, GBP / AUD and GBP / CAD.
Finally, exotic currency pairs associate a major currency and a currency of an emerging or less important country on the international scene (such as Hong Kong, Singapore or European countries outside the EU). These are the Forex pairs: EUR / TRY, USD / SEK, USD / NOK, USD / DKK, USD / ZAR, USD / HKD and USD / SGD.
Who are the players of the Foreign Exchange?
There are many players in the Forex market. The main ones are as follows:
- Central banks,
- The states,
- The other banks,
- The hedge funds ,
- Investment funds,
- Stock brokers,
- Professional and private investors.
According to research in South Africa, central banks have a predominant role in the market. They, along with the States, set the price of currencies. They are indeed the currency supplier for their respective country.
Investors in the foreign exchange market are natural or legal persons. These can be investment funds, hedge funds, professional traders or individuals.
Orders in the Forex market are processed by an investment service provider, or PSI. These are intermediaries such as banks and stock brokers.
How To Choose Your Forex Broker?
The broker, or Forex broker in South Africa, is your direct contact for investing in the Forex market. It is with this PSI that you will open your trading account to deposit your capital and receive your earnings. It is therefore very important to choose your Forex broker carefully, unfortunately there are many scams on the Internet.
To be sure to choose a serious Foreign Exchange broker, it must meet the following three criteria:
- Your Forex broker must be regulated by a reliable regulatory authority such as the FSCA, AMF or the FCA,
- Your Foreign Exchange broker must not be on the FSCA’s blacklist of illegal Forex brokers,
- Your Forex broker must be registered with the FSCA
Forex Trading SA: Why invest in Forex?
If you are wondering which stock markets to trade, whether for a first investment or to test a new one, the Foreign Exchange market can be a very good choice. Here’s why
- The Foreign Exchange is a market open 24 hours a day, 5 days a week,
- The Foreign Exchange is the most liquid market,
- The Foreign Exchange offers lower brokerage rates than other markets,
- The Foreign Exchange allows you to trade from anywhere.
Forex Trading SA conclusion: the advantages of Forex are therefore very interesting: it is in particular an inexpensive market because it is very liquid which offers you great freedom in your trading hours and places.
Image Courtesy: www.worldfinance.com