The benefits of Forex trading cannot be overemphasized. Many people in South Africa are already going into it. It will not be a bad idea if you too venture into it today. The earlier you do that the better for you because of the money-making opportunity that resides in Forex trading. If you feel like firing your boss and you want to do it quickly, one of the best ways to do that is to venture into Forex trading. While Forex trading may be profitable, you also need to understand that it has its challenges. You need to bear all the challenges in mind so that you will not end up as an unsuccessful Forex trader. In this OnlineForexTrading.co.za write-up, we will show you some of the very important things you must bear in mind in online Forex trading in South Africa.
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Advantages of trading Forex
We will mention some of the advantages and also intimate you about the challenges in it.
It is open for 24 hours a day
Forex trading is not like your 9 to 5 job. The door to your store or office may close at some point during the day. This is never the case with online Forex trading. As a result of this, Forex traders in South Africa can access their Forex trading platform without hassle. If you feel like trading during the day or night, the door is always open to you. The constant availability of the Forex market all day long makes sure that everyone is welcome here. What is more, the 24-hour availability is global. Virtually anyone can access the market from any location on earth. There is always an open market somewhere across the globe all day long. So, you can trade Forex all day long.
The Forex market opens in Sydney Australia by 1 am on Monday South African time. This time is synonymous with 5 pm on Sunday in Sydney Australia. The market remains open throughout the week to close in New York at 5 pm on Friday. This time is equivalent to 11 pm on Friday in South Africa. So, you can have fun and make money via online Forex trading from 1 am on Monday to 11 pm on Friday.
One other feature that makes Forex trading attractive to South Africans is its high liquidity. As a result of this, your investment can grow very fast in the Forex market. Forex trading involves the movement of laughs amount of money with small spreads. The spread indicates the difference between the bid and ask-prices of any asset.
Low transaction cost
One other outstanding feature of Forex trading is its low cost of transactions. The cost is also the spread. It is the money or fee you pay to the broker each time you open a buy or sell position. The cost covers the work of the broker to facilitate that particular trade. The spread is measured in pips. Pip is the 4th place after the decimal point in the price of the asset. It is also the 1/100 of a percent. If the ask price is 1.3246 and the bid price I 1.3244, then the spread is 2 pips. Aside from the spread, you may also have to pay commission to the broker. The commission can be variable or a flat fee. The variable commons depends on the amount of that particular transaction.
Leverage is available
Leverage is a kind of money you borrow from the broker to trade Forex in South Africa. Forex leverage makes it possible for the trader to open a large position with a small amount of money. The extra amount you need for such a large position is provided by the broker. Leverage will make it possible for you to trade online Forex trading with a higher amount of money. The money you can stake will be far higher than what you have in your trading account if you use leverage. If you use a leverage of 50:1, it will boost your capital by 50. So, the broker will support every $1 you have in your account with $50. It will enable you to control up to $50,000 with just the $1,000 that you have in your trading account.
One other benefit of Forex trading is that you can make a profit without hassle. Trading Forex allows you to make a profit when the price of the asset is rising or falling. This means that the direction of the price of an asset will not be a hindrance at all. You can buy it when you think the direction of the asset will move up to make a profit. You can also sell to make a profit when you think the price direction will go down.
Buying is going long and selling is going short in Forex trading. Currencies in Forex are in pairs. The pairs are the Base Currency and the Quote currency. When you are buying or selling the base currency, you are automatically selling or buying the quote currency respectively. If you want to buy the EUR/USD, it means you are buying the Euro and selling the USD. This is also vice versa. This is not like what happens in the stock market. In the stock market, you will first borrow shares and sell short Forex trading allows you to sell a currency that you do not own. They call it the Contract for Difference (CFD).
Forex trading has a lot of benefits and we mentioned any of the above. At the same time, you need to understand that Forex trading has its challenges. If you want to become a profitable South African Forex trader, you need to be aware of these challenges too. Good knowledge of the challenges will help you to prepare better. It will also help you to focus better. In the next section of this write-up, we will enlighten you about some of the challenges in online Forex trading.
Challenges of Forex trading
Overtrading can “Kill”! Yes, it can kill your trading account. You should avoid trading too often if you want to be a successful Forex trader. You should also avoid risking too much of your capital on any trade. Overtrading is one of the reasons why many beginners in Forex trading lose money consistently in Forex trading. Why do people overtrade in Forex? It is usually because they have unrealistic expectations from Forex trading. They want to make big money quickly from trading and they get their fingers burnt as a result.
Overuse of leverage
Leverage can help to boost your account in that it increases how much money you can control as a Forex trader. Be that as it may, a responsible trader will use leverage very carefully. While leverage can boost your profit, it can also cause you a great loss. Responsible use of leverage will help you to manage losses better. It can help you to reduce the loss you generate and prevent a total loss of your capital. You should see leverage as a two-edged sword if you want to be a successful Forex trader in South Africa.
Leverage can make it possible for traders that have a very small capital to still make a huge profit. It can also cause you to lose all your capital if you are not careful. One of the best ways to manage leverage well is to develop a good money management strategy. You should only attempt to increase leverage as your account increases. You should only risk a small percentage of your capital per trade. Also, you should always use a stop loss each time you trade Forex. Stop loss will help to reduce the amount you record as a loss.
Trading addiction can be damaging
A successful Forex trader will never chase the price. You should only trade Forex if the signal is clear. It is not in your best interest to force the market. You should only trade if the situation agrees with your online Forex trading strategy. If you chase the market, there is a good chance that the market will move against you. Such a situation can put you in a very serious psychological problem. A good trader will have a good entry and exit strategy. If you enter and exit the market without a proper plan, you will never be a successful Forex trader this way. As a Forex trader, you do not have any control over the market. You need to always bear this in mind.
As a trader, you must have adequate patience to wait until the conditions are right before you one a trade. Unfortunately, many Forex brokers lack this patience. Always keep it in mind that the Forex market will always be there. Even if you miss an opportunity today, another opportunity welcome tomorrow.
Poor risk management
Many traders fail because they lack proper risk management. One of the ways to manage risk in Forex trading is to always set a stop loss and a take profit. This will help to improve your chance of success in online Forex trading. You need to know how to implement the mechanism of risk management. This way, you can easily put a lid on losses and increase your profit gradually. The volatility level of the market can also determine what you set as your take profit or stop loss.
You should also set your risk/reward ratio properly so that you can become profitable as you trade Forex. The risk/reward ratio can be 1:3 or 1:2, depending on what your trading goal is. Your ability to take a risk can also determine your risk-reward ratio. Before you venture into live trading in Forex, make sure you practice extensively via a demo. You should consider practicing for a couple of months before you go into live trading.