A step-by-step guide to forex trading for South African investors
To make money in this field requires research, careful planning and plenty of practise
South Africa has been seeing so many changes lately, from the transformation of the government to include the DA working with the ANC, to how people are working and making a living. With all these changes, South Africans are keen to stay ahead of the game and make extra income wherever they can, not least because of the huge price increases in the cost of living. This is where things like forex trading come in, as they offer South Africans opportunities to diversify their portfolios and capitalise on global currency movements. However, navigating the forex market is not a walk in the park, especially for beginners. This step-by-step guide will walk South African investors through the essentials of forex trading, from understanding the basics to implementing effective trading strategies.
Understanding forex trading
It’s safe to say that any endeavour should start with research and an understanding of what you’re getting yourself into. Forex trading is quite simple in that it involves buying and selling currency pairs in an attempt to profit from changes in exchange rates. You will always choose two currencies because they are traded in pairs, such as the Euro and the US Dollar, for example. The first currency in the pair is the base currency, and the second is the quote currency. Traders make a profit based on the movement of the exchange rate between these currencies. As a South African, you know what effects bad management can have — thinking of Eskom here — so you need to be sure that you’ve got all ducks in a row.
The basics of forex trading were explained above with the currency pairs, and now it’s time to explore the market itself, which operates 24 hours a day, five days a week, and is the largest and most liquid financial market in the world. You can trade at any hour of the work week, so this is a great idea for people who don’t tend to love strict working hours and who enjoy working very early or very late. With this freedom also comes responsibility, as you’ll need to be dedicated, disciplined and tenacious in your approach. When you are ready, look out for reputable providers and brokers like HFM in order to put your best foot forward and get access to all the research and info you’ll need.
Getting started with forex trading
Contrary to popular belief, trading is not a made-up industry, nor is it easy to understand or make a living in. Trading requires a lot of research and education, so start by cementing your foundational knowledge of forex trading, including currency pairs, market orders and trading strategies. There are so many online resources, courses and books available to help you understand these concepts. Please keep in mind here though that no reputable site will ask you to transfer funds or rush you into making any decisions. Take your time and find your feet.
A great tip that experienced traders will give you is to use demo accounts to practise your trades and understand all the charts and graphs. You can open a demo account with your broker to practise trading without risking real money. This will truly help you familiarise yourself with the trading platform and test your strategies, all while not spending your own money — a real win win.
Understanding market analysis and choosing a reputable broker
It’s essential for you to do the legwork and research various topics about trading, and be sure to familiarise yourself with technical analysis (chart patterns, indicators) and fundamental analysis (economic news, interest rates) to make informed trading decisions going forward. Trading is like any other avenue you’d like to pursue, and involves a deep understanding of finance and general knowledge as a whole.
Another important point not to be underestimated is the choice you make about which reputable broker you want to use. It’s easy to say go with your gut, but you should also definitely look at reviews and make sure that the broker is regulated by reputable financial authorities. In South Africa, the Financial Sector Conduct Authority (FSCA) regulates forex brokers and the one you select should be on their list of authorised service providers. No reputable platform will ask you to make quick decisions or deposit money without having all the information first. No one should be rushing you when it comes to financial decisions, although the market will expect and demand quick and smart decision-making on your part.
Select a broker that offers a reliable trading platform with features such as real-time data, charting tools and order execution capabilities, things that you’ll surely need when trading. Popular platforms include MetaTrader 4 (MT4) and MetaTrader 5 (MT5), where you’ll have plenty of time to compare trading fees, spreads (the difference between the bid and ask price) and other costs associated with trading. Try to find a broker that fits your budget and trading style.
Opening a trading account and funding it
You are more than welcome to select an account type that works for you. Choose from different account types based on your trading needs and experience level. Common types include standard, mini and micro accounts, with each one bringing pros and cons. Research this topic a little before committing. It’s normal for a reputable site to ask you for verification, so be ready to provide all the necessary documentation for account verification, including your identification and proof of address. This step ensures compliance with regulatory requirements and helps protect your account, both things that you’ll want.
Once you’ve found your broker and have opened an account, it’s time to add in your funds by depositing them into your trading account by means of various payment methods, such as bank transfers, credit/debit cards or electronic wallets. However, it’s also vital for you to be aware of deposit and withdrawal fees. Check whether it’s a percentage of your earnings or a flat-fee that you’ll be asked to pay. This will make a huge difference to your final payout, specifically if you are trading in large amounts. Then, determine the amount of capital you want to invest and be advised that it’s completely fine to start with a smaller amount and gain some experience without risking significant losses.
To sum up, you now know what forex trading is and that it requires research and careful planning as well. Remember to set clear goals and objectives, and to analyse your trades regularly to see what you’re doing well and what you could possibly improve on. Keep learning and trading; it’s all about patience.