BUSINESS NEWS - Online Forex trading involves speculation on currency pairs with an aim to make profit.
Since early 2000s it has become a popular trading instrument among retail traders worldwide.
Its growth has been largely supported by growing penetration of internet, growing awareness on forex among youth due to advertising by brokers which was supported by low-cost brokerages using new electronic trading platforms & technologies like Metatrader, CTrader etc.
In recent years, many countries including South Africa have regulated the forex as legal trading instrument allowing low-cost brokers to enter the market and making it possible for retail traders to participate.
Online Forex Trading in South Africa is offered as a CFD instrument and forex brokerages have to be licensed by FSCA. There is an estimated 190,000 active community of forex traders in SA.
Here in this article we look at how you can start forex trading and the risks you must consider.
Opening an Online Forex Trading Account
The process of starting and opening a Forex Trading Account in South Africa is quite straightforward and it requires you to choose a broker and fill in your details and submit Identification documents - which normally doesn’t take too long.
Here are some considerations that you should take note of before opening an account for trading CFDs & Forex.
- Start by Finding a Suitable Broker
Finding a suitable, trustworthy broker is crucial to the safety of your investment. There are a number of brokers that specialize in a variety of investments, try to look for a broker which focuses on the Forex market instruments and offers all major currency pairs.
You also need to check if the broker is licensed by local market regulator. In case of forex & CFDs, all the brokers have to obtain a license from the regulator FSCA before they can onboard South African traders. Being a licensed broker is a sign of trust and ensures safety of your funds.
There are also other things to look out for such as commissions, minimum account balance required, features in trading app and other fees as highlighted in this comparison of best forex brokers for South Africa based traders.
You should also consider your style of trading, if you are new to Forex trading you should find a broker that will provide you a free demo account and also easy to use interface.
Experienced or active traders need brokers that can handle high volumes of transactions with direct market access with minimum slippage and low fees.
- Importance of trading on Demo Trading Account
Before you start trading on a live trading account, you must always practice on a Demo Trading Account.
These accounts are a great way to get a hang of the markets and decide where you want to invest. Most demo trading accounts track or simulate the real-time movements of Forex markets, to give you a picture on how things should be when you trade on real account or real market conditions.
While, demo account don’t always paint real market picture and there might be some difference in real and demo environment. But, demo accounts are still a great way to learn about features like stop-loss, placing an order, selling units etc.
These features allow you to simulate all the processes that take place while trading and give you a sense of how well your investment will perform under particular circumstances.
- Opening a Live Trading Account
Once you have chosen a broker and tested the demo environment of the broker. The next step is to open a real forex trading account.
To open a Forex Trading Account you will need to choose a suitable account type from broker’s website depending on your needs. Then fill in the form on the broker’s website asking your personal details, your financial adequacy. After that you need to provide the documentation as proof of identity and address under the “Know your Client” or KYC requirements. The broker will review and verify your account details along with your ID proof.
Besides KYC, you might also be required to provide documentation under Financial Intelligence Centre Act (FICA), for Anti money laundering compliance.
If the application is accepted, you will receive the login details of the trading platform.
- Depositing your Capital
Once you Deposit the amount of money, you are ready to invest in forex market in your newly opened FX Trading Account.
There are a number of ways you can do this, but the most popular and convenient way is through Electronic Fund Transfers (EFTs) in local ZAR currency. Some accounts allow you to use wallet services like Skrill for deposits. EFTs can also be used to make withdrawals to your bank account as well.
Forex Trading is risky - so you must apply caution
Even though it is easy to open a forex trading account, it should be noted that forex is one of the most volatile and unpredictable market and investors in this market are usually very experienced with years of experience.
You can easily lose money even after years of experience. So, always read all documentation & understand the risks carefully before investing and ensure you are doing your research.
Forex traders are exposed to various risks like High Leverage, High Volatility & Unpredictable market movements.
Forex trading as CFD is an advanced trading instrument that is used by experienced investors that have a higher risk appetite. In a Forex CFDs instrument, the difference between the opening price of a currency pair and its closing price at the end of a contract is settled in cash and there is no delivery of the asset itself.
CFDs are leveraged instrument, giving investors larger exposure than their initial investment, this can earn good profits for investors, but this additional exposure also puts investors in a situation where they can face severe losses. CFDs are instruments that need to be approached with caution and should be used only by experienced investors.
Traders must always use safe leverage of 1:5 with risk to reward ratio of 1:2. Beginners must educate themselves with the concepts and risks before trading. And test their strategy on a demo account before trading with real money.
Article supplied by Forex Brokers SA.