The FXScouts podcast helps beginner Forex traders get the best start to their trading careers. With years of experience in the world of Forex trading and writing broker reviews, we have unique insight into how to start trading, tips and tricks, and advanced trading strategies. Traders can learn from our experience and make better financial decisions. We cover a range of topics, including how to choose a Forex broker, safety and regulation, how to reduce your risk, trading psychology, trading platforms, and trading strategies, among others. Listen to our podcast here.
What is Forex Trading?
Forex trading is the exchange of currencies to make a profit from fluctuations in the exchange rate. To open a trade, a trader must choose a currency pair, and the direction they expect the exchange rate to move. As the exchange rate between the two currencies changes, the trader can close the trade for a profit or a loss. More detailed information on how Forex trading works is here.
Forex trading is one type of Contract for Difference (CFD) trading. This is a contract between you and your broker to pay any difference in the price of the currency pair between opening and closing your trade.
This means that neither you nor your broker needs to hold any currency.
Other CFDs that you can trade include commodities, cryptocurrencies, metals, equities, energies and many more. All Forex trading is CFD trading, but not all CFD trading is Forex trading.
Is forex trading legal in South Africa?
Yes, Forex trading is legal in South Africa and regulated by the FSCA. All South African based brokers need to be regulated by the FSCA, but international brokers based overseas do not need such regulation. Individuals can legally sign up with any Forex broker, based anywhere in the world, regardless of their regulatory status.
What is the difference between Forex trading and stock trading?
When people think of trading, they often think of stock trading and believe Forex trading is almost the same thing. But this is incorrect.
Stock trading is the buying and selling of shares from individual companies. Forex trading is the simultaneous buying and selling of currencies to profit from the change in the exchange rate. A couple of other major differences:
- The Forex market is a global, decentralised, over-the-counter exchange and all transactions and participants are confidential. Stock markets are based at a single location and public records are kept of buyers and sellers.
- Forex trading has a low cost of entry. To make serious profits, stock traders use large amounts of money, which is not an option for traders with limited incomes.
Forex trading isnot investing. Forex traders never take ownership of the asset being transacted. With Forex trading, the trader isspeculating on the future value of a currency pair and to call it an investment would be incorrect.
Can I really become a forex trader in my home?
Yes, you need some basic IT equipment and you need to open an account with a forex broker. You can teach yourself the basics of forex using the myriad of information available on broker websites and the internet generally or from lessons posted on the likes of youtube. It is wise to open a forex demo account where you can practice trading forex with virtual funds.
How do I trade Forex in South Africa?
Forex trading is accessible to everyone with an internet connection. But just because everyone
do it, does not mean that everyone
do it. Serious Forex traders know that education, discipline, and strategy are essential elements of a profitable trading career. If you start trading Forex without these skills, you may profit from a few trades, but you will eventually lose.
If you prepare properly and you are ready to learn, Forex trading can be a great way to create a steady income. But, before we look at the more complex aspects of trading, let us look at the essential things you are going to need:
A fast and stable internet connection
The Forex markets move fast, very fast, and if your connection is slow or drops out you are going to lose money. Winning trades can become losing trades in the blink of an eye. Many South Africans trade on their mobile phones, but this should be used as a backup (or to check on open trades when on the move) and not as a primary trading platform.
A Forex broker
Finding a good Forex broker is of the utmost importance. We maintain an updated list of the best Forex brokers in South Africa and a complete Forex broker directory that includes all brokers including those we do not trust or recommend, for educational purposes only. If you have heard of a broker and want to know if you can trust them, the directory is a good place to start. TradeForexSA only recommends the best Forex brokers in South Africa, reviewed using a transparent review process.
A Forex Trading Platform
This is the software that you are going to use for trading and will be provided by your Forex broker. Some brokers have their own platforms, but most support third-party apps like MetaTrader 4, MetaTrader 5 and cTrader. The best Forex trading platform is the one that
find the most comfortable to use. Many brokers will offer more than one type of platform, so a demo account to check out the different platforms at different brokers.
A Demo Account
Beginners should learn to trade using a demo account, before depositing money into a real trading account, so you learn how the market works and trading platform works without losing any of your own money. They are also a more comfortable way to try out different strategies or trade different currencies without taking any risk.
We have a Forex trading in South Africa beginners guide to get you started, and more on how to place your first trade. It will take some time to learn how to trade Forex successfully, as traders need to understand the many components and strategies to be profitable.
What do I need to open an account with a forex broker?
The procedure varies from one broker to another but generally involves filling in an online form and providing some form of ID such as a passport, driver’s licence, etc., and a utility bill. You may also have to respond to an email or text message to verify your details. You should be able to open an account online but if this is not possible you may have to send proof of identity in the post. You will also be required to deposit money into the account before you can begin trading.
How much do I need to start trading Forex in South Africa?
Trading accounts can be opened for as little as 5 USD (70 ZAR), though most brokers require a minimum deposit between 100 USD and 200 USD. But how much
you start trading with? The answer depends on how much you can afford and how much risk you are willing to take.
Beginner traders should start with a minimum account balance between 200 – 500 USD. This allows traders to make small profits, while still maintaining a sensible approach to risk.
Which currencies pairs can I trade?
You can trade in a vast number of permutations of freely floating currencies. Many traders choose to focus on one or two major currency pairs so they build a good level of expertise and knowledge of those currencies, their trading patterns and successful strategies. Examples of major currency pairs include the pound and the dollar, the euro and the dollar or the dollar and the yen. These are called majors because they account for the bulk of trading. Because demand for and the supply of these currencies is so vast it is easy to buy and sell positions.
What is the best time for trading Forex?
The Forex market is open 24 hours a day, Monday-Friday, but the best time to trade Forex is when the world’s major stock markets are most active. The more traders are active in the market, the more volatile the market is – and the more volatile the market is, the easier it is to make profits.
The two cities with the largest financial markets in the world are New York and London, so the best time for South Africans to trade Forex is the crossover period when both the London and New York financial markets are open.
The two other major markets are the Sydney market and the Tokyo market and trading when these markets are open is also a good approach, though you will have to stay up
late, or get up
For more detail on the best times for trading and how daylight savings time affects the major markets, read our piece on the best times for trading Forex in South Africa.
What is the best strategy for Forex trading?
There is no single strategy that guarantees success. Profitable traders will use many strategies and they will know exactly when to use each one. Forex trading strategies will rely on either fundamental analysis (analysing economic trends and news events) or technical analysis (analysing historical price action on charts). It is also wise to practice the strategy without using real money until you are sure you know how it works and how to implement it.
The most popular trading strategies are:
Price Action Trading:
This is the study of historical changes in currency prices to predict which way the price is going to move next. If you love studying charts and looking for patterns, then price action trading is for you. It relies almost entirely on technical analysis and there are many methods of trading using price action.
Range trading relies on figuring out at what point other traders are going to buy or sell a currency. Like price action trading, range trading relies on technical analysis but also needs a good understanding of the currency pair you are trading.
Scalping is when a trader opens and closes many trades over the course of a day. The goal is to make lots of small profits. Technical analysis is an important factor with scalping, but the main problem is the time investment required. Scalpers can spend the whole day glued to their trading monitor.
Positional trading is when a trader holds a position, or several positions, over a long period of time – sometimes for weeks or months or even years. Positional trading is heavily reliant on fundamental analysis, though technical analysis can be important too.
Other factors to consider when planning a Forex strategy are the time of day (as this affects how many other people are trading and the volatility of the market), order types (such as stop loss and take profit orders) and automated trading software/bots (which can see movements in the market that you may miss).
For more detail on analysis and how to use it, we cover strategies and building a trading plan in our Forex trading for beginners section.
What are the risks of trading Forex?
Trading Forex and CFDs carry a significant risk that includes losing all the money in your trading account over a short period.
75-90% of traders lose money trading these products.
You should consider whether you understand how CFDs work and whether you can afford the high risk of losing your money.
The principal risks of Forex trading are:
Risk 1 – Volatility: The Forex market is extremely volatile at times. It is, after all, because of this volatility that we can profit from trades. But the market can move very swiftly, and this can mean a trade can go against you in a short period. If you are trading, you must actively watch your trades all the time.
Risk 2 – Unpredictability: The Forex market is not something you can predict. There are just too many factors and actors on the market for it to be fully predictable. Traders need to set a win-loss target ratio where you account for some losses and use a strategy to minimise them.
Risk 3 – Leverage:
Profiting from CFD trading requires using leverage. Leverage is a tool used in trading to amplify your profits, but it also amplifies your losses which are automatically deducted from your trading account. Your account balance can be wiped out with a single bad trade.
Risk 4 – Interest:
In some cases, interest will be charged on your trades. For example, interest can be charged when you carry trades overnight and your broker will take funds from your account to pay this fee.
Can I limit my potential losses?
The trading platforms offered by forex brokers offer loss limitation features. It is common, for example, to set a loss limit amounting to 2% of the total funds you have in your account on any trade. You can set up the loss limit you are prepared to accept before you enter into any trade.
For example, If you have a starting balance of 10,000 ZAR, this means that you should never risk more than 200 ZAR on a trade. Many beginner traders cannot afford to start with a balance of 10,000 ZAR, but if you start with an account of 100 ZAR be aware that it is going to take patience and solid risk management to create a steady income stream.
Do Forex traders have to pay tax on my profits?
Yes, you will have to declare any profits you make while trading and may have to pay capital gains tax on them if you are a private investor. If you are a self-employed trader, you will be liable for any tax on the profits. For more on this read our taxation article.
Can I lose more than I hold in my account?
That is impossible with a broker regulated by the FCA, ASIC or CySEC, who will simply close your account when it gets close to zero. This is called negative balance protection, and while offered by most brokers in South Africa, it is not required by the FSCA to be offered to all clients and not always activated by default.
Is Forex Trading Right For Me?
By now you should know that it is a high risk, that you need to find a broker that you feel suits you best and the amount you want to put into your account with a broker. Trading Forex takes a commitment to learning, and you should be ready to:
- Compare the best brokers in South Africa to find one that suits you.
- Read our Forex trading for beginners section and learn everything you can.
- Understand the way the Forex market and CFD trading works.
- Learn about the software and tools that will power your trading.
- Be prepared to lose all the money you place in an account. Do not deposit any money you cannot afford to lose.
Easy Forex Trading Limited South Africa
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