There are so forex trading beginners out there who don’t know what and how forex trading works in South Africa. In this article, as a forex beginner in South Africa, you will learn more about how to get started with forex trading as a beginner. The goal of this article is to give you enough information about forex trading for beginners basics and how to trade by yourself. Forex also includes so many terms such as pip, tick, margin and many more. You will learn everything in this guide.
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Understanding currency trading as a forex trading beginner
As a forex trading beginner in South Africa, when you want to buy or sell stock, you select how many stock you want to sell or buy. You then choose a currency, whether US Dollar, ZAR (South African Rand), Australian Dollar or EURO. When buying a stock, you need to know your starting point. 1 lot is equivalent to 100,000 units of base currency. For example, 1 lot for EUR/USD equals to 100,000 Euros while 0.1 lot is equivalent to 10,000 Euros.
Knowing these forex trading terms, you will be able to decide how much base currency you would wish to invest. However, all this money won’t be available in your forex account, which is why you only have to split.
Losing money in forex trading
Most Forex beginners South Africa who don’t know leverage tend to lose lots of money. Some South African traders jump into things without understanding what is going on or what is really happening on the forex market. For example, if you have USD 10,000 you can open a position and make good money. However, if you close your position when the currency or the market is not doing well, you will lose lots of money or even your whole money.
With that being said, it is important for beginning Forex traders to start trading with lower amounts. Forex is not different from stock market, you cannot expect to trade with huge amounts because it’s too risky and you will lose your money. For beginners, it is advisable to start learning on smaller capital.
Getting started with forex trading as a beginner in South Africa
For all the forex trading beginners out there, it is now the time to put into practice what you have learnt about forex trading. Unlike back in the day, today it’s easier to start trading currency. As long as you have a good internet connection, a trust worthy broker, and a personal computer, you can open a forex account. Below are the steps that you need to follow in order to start forex trade:
- Forex Broker – in order to start trading, you need to have a forex broker. You will need to select a forex broker since there are so many brokers out there. If you are still new, it is difficult to choose the best one. However, you don’t have to worry because most forex brokers offer demo accounts so that you can test and practice your trading skills before you start using real money. To get a demo account, you need to register with a forex trading company. A real forex broker should give you an option to trade with lower amounts such as micro and nano amounts.
- Forex trading software – after registering your trading account, you will then need to install forex trading software into your computer or laptop. Popular trading software include MetaTrader4 platform or eToro. Others offer you custom platform which best suits your needs.
- Trading using Mac – MetaTrader is a Windows application. Meaning it won’t work on your Mac. You will then need to install Wine software in order to run MetaTrader4. Whichever works for you, choose it or do an intensive research about different types of forex trading software for a better trading experience.
- Add funds – after registering an account, you then need to deposit money. It is easy to get started and you can start with as little as $100, but different traders require different minimum amounts.
- Testing the platform on demo account – after installing MetaTrader4, you can now test it on your demo account. Test how forex trading works, how to open and close a position or how to stop loss.
Trading on forex demo accounts
Now that you understand what it takes to start currency trading in South Africa. You need test trading on a demo account. Demo accounts are funded with virtual money and they simulate real money forex trading accounts. This way, it is better for beginners because you will learn more about how to close a trade before losing money.
Advantages of forex demo trading
- Starting Forex traders trade with fake money. You won’t lose real money and there are risks involved
- You can test your trading skills
- Come up with forex trading strategies that help you as a beginner
- Forex demo accounts give you an opportunity to make mistakes
Disadvantages of forex demo trading
- You can gain more money but unfortunately, it’s not your real money since it’s fake account
- Your reaction is not sincere when losing money because you know it’s not real money
Learning to trade forex in South Africa
There are a few steps that you need to follow as a forex trading beginner in South Africa. Even though we’ve explained about demo accounts, there are lots of questions that are not answered. Below are the steps that you can take to learn more about trading forex.
- Mentor – you need to find a mentor. Finding a mentor is easy, just follow other traders and ask them to mentor you. However, most people don’t want to do things for free, you will need to fund him/her so that they teach you trading tips and strategies more faster. Don’t approach a mentor if you have no basic knowledge about trading forex. The mentor is there to guide you and not to teach you a basic understanding.
- Learn to trade on demo – before you start trading using real money, you need to practice your trading skills on a demo trading account. Test different currencies and come up with different strategies.
- Trading books – as a Forex trading beginner, you need to read forex trading books to learn more information. There are so many books out there which will help you understand forex trading even more. You can search on the internet or visit your nearest library.
- Articles and blogs – use search engines such as Google to research more information about trading.
- Forums – you can join online forums where fellow traders share their forex trading experiences, their skills and how to better themselves.
- Social media – use social media to connect with other traders. Follow them on Twitter and add them on Facebook so that you will stay in touch and learn more.
Trading currencies with real money
Now that you know a little bit about forex trading, it’s time to start trading with real money. After practicing using your demo forex account, you need to fund your account. Most forex trading beginners might be wondering how much do you need to start forex trading in South Africa.
Depending on the South African forex broker that you chose, you will be required to deposit anything between $5 and $250 to open a forex account.
The money deposited into the account will impact the amount of leverage you, as a forex trader, will be able to use in our trades.
The forex market moves in Pips. A pip, stands for point in percentage, is a very small measure of change in a currency pair in the forex market. The USD/ZAR may be priced at 14.3025 the fourth decimal place represents one pip of movement. If the USD/ZAR moves to 14.3026, that is a one pip move, if it moves up to 14.3125, that is a 100 pip move.
Forex pairs trade in 1000, 10,000 and 100,000 units, called micro, mini and standard lots. Forex trading beginners are advised to open a micro lot account when they start forex day trading. Trading micro lots enables for more flexibility so risk remains below 1% of the account on each trade.
For example, a micro lot trader can buy R 6000 worth of currency, but if they open a mini lot account they can only trade in increments of R10, 000, R20, 000 or R60, 000 etc. If trading standard lots, a trader can only take positions of R100,000, R200,000, etc.
When the ZAR (South African Rand) is listed second in the pair, as in the USD/ZAR, the value of the pip is fixed. When you hold a 1000 micro lot, each pip movement is worth $0.10. If you hold a 10,000 mini lot then each pip is worth $1. If you hold a 100,000 standard lot then each pip move is worth $10. Pip values can vary by price and pair, so knowing the pip value of the pair you’re trading is critical in determining position size and risk.
Most South African Forex trading beginners initially struggle in understanding and predicting forex signals. Today, there are hundreds of forex trading software that help investors determine the signals in forex and also make them gain profit very easily.
The Importance of Patience in Forex Trading
The foreign exchange market, which is also known as FX or currency market, is a global market for the trading of different currencies. It facilitates buying, selling and exchange of foreign currencies around the world. It is considered to be the largest financial market worldwide.
Participants are central banks, local banks, commercial companies, investment firms, hedge funds, forex brokers and investors. Foreign exchange trading involves in-depth understanding of business trends, technical and fundamental analysis, current geopolitical events, and socioeconomic issues. The objective of foreign exchange trading is to gain net profit by buying currencies at low cost and selling at a higher price.
Foreign exchange rate, also known as the forex rate or currency rate, is defined as the price at which one currency will be exchanged for another. It is simply the conversion of one currency into another currency. It is variable in nature. The fluctuation of foreign exchange rate can be easily affected by several that which include inflation rates, interest rates, trade balance, political stability and economic performance, and many others. Trading in the foreign exchange market is risky, therefore it is necessary to consider the determinants of the forex rates before deciding whether you will buy or sell currencies.
Forex trading is all about good timing. Many believe that patience is a trader’s virtue. Patience is a key requirement for a successful and profitable trading transaction. The first and most important thing to do before engaging in a trade is to have a good understanding of the foreign exchange market, never rushing to trade without the proper knowledge. To ensure high chances of profit, one must be patient enough to research and gather all necessary information before engaging in trading. To avoid any potential loss in foreign exchange trading and to ensure a cost-effective trade, exchange rates must be closely watched and analyzed.
Forex trends must be regularly monitored including the trend correction, highs and lows. To be impatient in examining these factors could lead to a trading loss. A single transaction can result to losses if executed at the wrong moment. It always takes reasonable time and a lot of patience to wait for the market correction before engaging in any forex transaction.
Market timing is very important. Every trader should know when to get out and when is the right time to get back. Forex trading is not only about guessing or a gut feeling. It involves plenty of technical and fundamental analysis. Being up to date with the market situation, and keeping a forex diary are necessary. Learning to consistently analyze currency exchange patterns and trends are useful in deciding when and how to trade.
Going After a Profit or Loss
Many traders lose their money from foreign exchange trading. One of the main causes is because they become impatient, rushing things out in hopes of earning fast money. They fail to analyze the market trends and instead they just follow their gut feelings. They forget how tricky the foreign exchange market can get that sometimes, it sends out wrong signals. Loosing once could mean that you need to re-strategize and carefully re-analyze the currency trends, but for some traders, it even pushes them to overtrade, with their hopes of regaining their losses.
Emotionally biased trading causes an unfavorable outcome rather than good; it results to double losses, triple, or even a long-term loss. Failure to control emotions when facing losses or gains may lead to poor decision that eventually leads to an unfavorable outcome.
Foreign exchange trading is comparable to gambling. It is full of surprises, both good and bad. These unforeseen events could really test one’s patience. That is why it is very important to maintain a clean perspective, a good focus and a well analyzed plan of action.
Although most foreign exchange traders understand the value of patience in trading, patience is still one of the most difficult trading skills to learn and practice. Perhaps one of the weaknesses of some forex traders is that they are so overly confident with their trading opinion that they forget to follow their trading plans, causing their decision to become emotionally biased. Every trader needs to know how to self-motivate in order to stay focused and to practice self-discipline.
Every successful foreign exchange trader is disciplined and knows how to follow a systematic approach in forex trading. Successful traders have clearly defined trading objectives. They have a winning trading strategy, and they have a strict trading plan to follow regardless of their opinions or their gut feelings. Successful traders know their entry points as well as their exit strategies. They have the willingness to take and accept risks, and they take personal responsibility for their actions. They are humble enough to admit their trading mistakes and know how to learn and benefit from them.
Foreign exchange trading is risky, as every investment is uncertain. Good traders know when to stop and when to cut their losses. They say that even if you want a good profit, it is not bad to expect loses at some point in your trading journey; so when things are not going as smoothly as planned, you already have an idea on how and when to properly exit. Trading is a decision, so if you lose in a particular trading position, do not let your ego be the cause of a bigger problem. Also, never invest money that you cannot afford to lose. That will be the worst mistake you will ever commit.
A smart trading decision starts with staying up to date about the latest market movements and currency trends. Foreign exchange trading is not as simple as putting your money down, it requires good strategies and right attitudes. It does not depend on luck alone; it is a learned skill. Foreign exchange trading, like any other investment, is not without any risk. Every trader needs to learn the perfect timing; however, market timing is sometimes worthless because of the lack of patience that most of the time results to emotionally biased decisions.
Forex trading beginners in South Africa must learn to analyze and strategise. Make sure to learn from your mistakes. Never let your emotions take over. Stick to your trading plan and enjoy your forex trading journey.