Forex trading is extremely popular in South Africa these days. There are social media accounts with photographs of successful forex traders that really make it appealing for many. Most of these traders carry out long term forex trades rather than short term trades in order to maximize their gains. So, firstly, what is forex trading and how do you do it in the long term?
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Forex trading is all about speculating on the worth and value of matched currency pairs, for example US Dollars to South African Rand. Forex traders sell in one currency (in this case US Dollars – USD) and buy in another (in our example, South African Rand –ZAR). Traders do this in the hope that the ZAR value will increase. When it does increase, the trader then sell the currency (ZAR) in order to make a profit. Foreign Exchange trading is done online with a Forex broker in order to connect you to the money markets internationally.
In terms of Long Term Forex Trading, this is also known as positional trading. It means that you make fewer transactions to produce larger separate gains. Traders aim to make more money this way but the opportunities to do so are more limited given the infrequency of them. Usually, traders who follow this method of Forex trading in South Africa have to prepare for a while and need to have significant knowledge of the markets already. Traders need to be able to identify trends and follow these trends for weeks or even months at a time. Some traders have even been known to follow trends for more than a year.
There’s one rule that long term forex traders swear buy: you should buy currency based on your expectations and sell currency based on the facts in hand.
You need to become an expert in predicting trends. For example, if there’s an up and coming election in either country, this will affect interest rates and currency exchange rates. To carry out long term forex trades in South Africa effectively, you need to pay attention to any such events and how they are predicted to affect this. Furthermore, you need to also pay close attention to events in the other currency’s country of origin too as the effects are felt in both directions. If you are confident that the currency will move in the way that you predict, you can start a long-term forex trade and open a pair position to reflect this. However, you also need to consider how stable the other currency is in your pair as, like we have mentioned, the scales can be tipped either way depending on the stability of the other currency too.
As an example, you could open up a long term trade of USD/ZAR based on the idea that ZAR the market conditions predict that ZAR is going to take a slump against USD. Forex traders will then place a purchase order on ZAR with the knowledge that when the USD takes its slump, their ZAR will buy them a higher number of dollars. To do this in the long term you need to take consideration of certain political and economic events on a long term basis.