Controversial Alleged Weapons Sale to Russia Creates Uncertainty, Impacting Rand’s Value

Investors were already worried about the rand’s value when reports surfaced about a ship purportedly transporting weapons and ammunition from South Africa to Russia.

Down as much as 2.4% on the day, the rand’s low versus the dollar was 19.3250, its lowest level since early April 2020 during the onset of the COVID-19 epidemic. The news was blamed by market participants and analysts for contributing to the currency’s decline.

If it is discovered that South Africa provided Russia with weaponry when Russia was at war in Ukraine, traders and analysts on the currency markets expressed fear that the country will face Western sanctions.

As a result of the steep decline in value, the yield on South Africa’s benchmark 2030 local government bond ZAR2030= jumped by 22.5 basis points.

In this article, we take a closer look at the socio-political and economic ramifications of the news that South Africa facilitated a weapons sale to Russia amidst heightening global tensions surrounding the Russia-Ukraine conflict.

Understanding the Russia-Ukraine conflict

The Russian invasion of Ukraine in February 2022 represented a historic turning point for European security, since it marked a major escalation of a conflict that had been going on for eight years, beginning with Russia’s annexation of Crimea.

After a year of combat, many experts in defence and foreign affairs have concluded that Russian President Vladimir Putin made a fundamental strategic error.

Ukraine has always been pivotal, but sometimes underappreciated, in maintaining international peace and stability. The country is currently at the forefront of a revived great-power rivalry that many experts predict will shape global politics for the foreseeable future.

Rather than expecting a diplomatic resolution in the coming months, many experts are bracing for a deadly escalation that might lead to Russia’s use of nuclear weapons. The conflict has accelerated Ukraine’s drive to join Western political blocs like the European Union and NATO.

Ukraine, in its three decades as an independent nation, has pursued its own path while also seeking closer ties to Western institutions like the European Union and the North Atlantic Treaty Organisation.

Kyiv, however, had a hard time maintaining a stable foreign policy and healing its own internal fractures. Those who spoke Ukrainian in the west were more likely to prefer closer relations with Europe, while those who spoke Russian in the east were more likely to support closer links with Russia.

Following the fall of the Soviet Union, many Russian leaders saw the breakup with Ukraine as a historical error that endangered the country’s great power status.

Many would consider it a tremendous setback for Russia’s international image if it allowed Ukraine to slip permanently into the orbit of the West. Putin framed Russia’s developing conflict with Ukraine as part of a larger fight against Western powers in 2022.

South Africa’s stance on the Russia-Ukraine conflict: is neutrality at an end?

South Africa’s position that the crisis between Russia and the Ukraine must be handled via discussion and peaceful methods was reaffirmed by President Cyril Ramaphosa in his weekly communication to the country.

However, The Lady R, a Russian vessel, docked in South Africa in December of last year, prompting allegations from US Ambassador Reuben Brigety that South Africa had given weaponry to Russia.

In response to this activity, the Ukrainian Association of South Africa (UAZA) stated that “at a time when Russia is engaging in the invasion of the sovereign state of Ukraine,” it is terrible that South Africa invited Russia to join in the Mosi II naval drill.

In December of last year, the mystery ‘Lady R’ cargo vessel moored at the naval station in Simon’s Town near Cape Town, sparking widespread conjecture about its true purpose. Cargo ships typically use the civilian harbour in Cape Town rather than the naval installation.

Kobus Marais, a member of parliament and the opposition’s shadow defence minister, claimed in a statement that the government should explain why cargo was loaded onto and unloaded from the ship overnight.

In May of last year, the US Treasury’s Office of Foreign Assets Control placed the Lady R and a number of other Russian-flagged cargo boats to its sanctions list for alleged weapons trafficking.

The impact of the alleged weapons sale on the Rand’s value

After a week of sour attitude, compounded by suspicions the South African state armed Russia in its war against Ukraine, the rand plummeted to an all-time low during morning trade on Friday, hitting R19.47 versus the US dollar.

Last Thursday, the rand hit a new record low against the dollar, coming within a hair’s breadth of breaking the record.

The rand opened Thursday around R18.90 and has been hovering near the R19 mark all week. It fell below R19 just after noon versus the dollar, but has since recovered some of its earlier losses.

Independent economist Professor Bonke Dumisa claimed that the US is engaging in a “very malicious political game aimed at bullying South Africa into taking the side of Ukraine” after news of Brigety’s assertion became public, and that the rand subsequently underwent a “second phase” of weakness.

He argued that South Africa should not be forced to help Ukraine despite the fact that it must avoid giving the impression that it is embracing Russia.

According to a recent agreement between a South African delegation and US officials, the Lady R problem will be probed, as stated by President Cyril Ramaphosa’s spokesperson Vincent Magwenya on Thursday evening.

As Brigety makes his provocative statements, South African business leaders have spoken out against the government’s “enthusiasm” for its “close ties” with Russia.

While Standard Bank group CEO, Sim Tshabalala, cautioned that the government must be careful in its stance, not to impact the role of financial institutions, FirstRand CEO Alan Pullinger previously said that the state’s relations with Russia were extreme, adding that these present geopolitical risks.

How the Rand affects investment returns

Currency risk refers to the potential gain or loss in value of a portfolio due to changes in the value of a currency, in this case the Rand.

To make sure that you can still meet your investing goals despite currency volatility, it is important to think about how changes in the Rand effect various elements of your portfolio.

Managing the risk associated with fluctuations in the value of the Rand relative to other currencies can be done by keeping an eye on the relevant exchange rates. To what extent the Rand affects your returns depends, therefore, on how much of your portfolio is exposed to other currencies and economies.

Businesses with no international operations could be relatively immune to Rand volatility. However, they will still be indirectly affected by Rand movements through the influence on other economic factors including the currency risk for the cost of materials for their products, inflation, and the impact on their customer base.

However, foreign exchange rate swings will have a more noticeable impact on domestic firms and industries that operate in or directly serve international markets. For instance, as the rand weakens, export-oriented businesses gain because their products become more competitively priced in international markets.

As a result, if you invest in the stock of such a company and the rand decreases, your return on investment may improve. The converse is true for importers, whose profit margins will be squeezed by the higher cost of goods in the short run.

Companies that receive a sizable portion of their revenue from markets outside of South Africa would also benefit from a weak rand because the translation of their earnings will be more beneficial.

Offshore investments benefit from a lower Rand as a rule. A weaker Rand means a higher return (in Rand) for anyone who has money stashed away in a foreign bank or who trades foreign exchange.

When the rand is weak, an investment in dollars purchased at an exchange rate of R14/US$ will yield a positive return, whereas an investment in dollars purchased at an exchange rate of R7/US$ will yield a significantly smaller return.

Final Thoughts

In the best of circumstances, investors must expect market and currency volatility, particularly at times of such geopolitical upheaval as are being caused by the ongoing Russia-Ukraine conflict.

Diversification is crucial since not all asset classes and industries will move up or down in response to the same market events.

Diversifying your portfolio across low-risk to growth assets, industries, markets, currencies, and locations can help you mitigate the effects of risk and volatility, such as rand volatility, on your returns and achieve more consistent long-term results.

Even while investment returns can be volatile and downside risk is always present, a diversified, risk-adjusted portfolio that is examined on a regular basis stands a good chance of helping you achieve your long-term financial goals.

The complex interplay between national and international markets, economies, and currencies has a cumulative effect on your investment returns. Making educated investment decisions is crucial for making the most of possibilities and mitigating the Rand’s effects.

Other Resources

Advantages of Volatile Market Conditions

Impact of International Regulatory Bodies on Our Products

The Hidden Advantages of Volatile Market Conditions

Risk and Reward: The Hidden Advantages of Volatile Market Conditions

Volatility in the market is the rate and size of price changes in either direction over a given period of time. The term “volatile” is used to describe a market where large and frequent price fluctuations are common.

How well you can anticipate and capitalise on price fluctuations in volatile markets will determine whether you lose money or make money. Volatility opens the door to both risk and opportunity.

Thankfully, it is not a zero-sum game. It’s not a case of all or nothing. You’ll be relieved to find that volatility can be managed. Even better, taken advantage of it. There is great wealth hidden inside volatility. We simply need to find it.

Understanding the relationship between risk and reward during volatility

Risk and reward are inextricably linked, if not inseparable. In other words, you can choose one to leverage the other.

Minimise your risk for a lower reward or maximise your risk for a higher reward. The truth is that accurate measurement is impossible. Risk is defined as the “probability of loss” if we distil it.

There are indicators and algorithms, but even when done properly, there is always some unpredictability owing to unforeseen circumstances. One of the most prevalent methods for determining risk is standard deviation, which is a statistical measure of dispersion around a central tendency.

The outcome of any risk-reward decision can only be accurately judged by glancing in the rear-view mirror as the previously predicted probability crystallises into a tangible certainty. You’re either laughing or weeping at this moment.

Making quick, precise, and unbiased decisions in unpredictable markets like cryptocurrency and Forex is both financially and emotionally difficult. But what if this was done methodically such that we could give consistent results?

The Risk-Reward trade-off is always a personal metric. Everyone maintains their equilibrium. All that remains is to discover this equilibrium and manage it properly.

Many considerations must be made for each decision, including the market situation, the magnitude of the risk, the size of the return, our risk tolerance, the investment duration, the possibility to replace losses, and others.

It is not an easy task to evaluate. After removing the noise, estimating risk reward comes down to weighing probabilities. Probabilities are capricious (because if the probability is not correct, it is incorrect), and being incorrect entails losses – not what you want, especially when your hard-earned money is at stake.

As a result, we are continually faced with a dilemma: if we overestimate risk, danger may strike. You might lose everything. However, if you over-minimize, the size of your award will be reduced.

Your goal is to obtain the best remuneration for the risk you are willing to take. You adapt your risk gladly, embracing and accepting the possibility of reduced rewards.

Different types of market volatility

Volatility is one of the aspects that financial market participants consider when making trading decisions. There are two main approaches to volatility, each with advantages and disadvantages:

Realised volatility

Realised volatility, often known as historical volatility, is a statistical measure of how the returns on a specific asset or market index are distributed over a specified timeframe.

Typically, historical volatility is calculated using a financial instrument’s average deviation from its average price over a certain time period. The standard deviation is the most commonly used measure of realised volatility, while there are several approaches for calculating this metric.

A risky security is one with a high historical volatility value, yet this is not always a negative aspect in certain types of transactions because both bullish and bearish conditions can be risky.

In this context, historical volatility (backward-looking) acts as a baseline measure, whereas implied volatility (forward-looking) defines the relative values of asset prices.

Implied volatility

The term implied volatility refers to an asset’s projected volatility and is a common component in options trading.

Implied volatility represents how the market expects volatility to be in the future, but it does not predict how the asset’s price will move. In general, an asset’s implied volatility rises during a bear market because most investors expect its price to fall more over time.

It falls in a bull market because traders expect the price will climb over time. This is due to the widely held view that bear markets are intrinsically riskier than bull markets.

Implied volatility is one of the measurements used by traders to forecast future price changes of an asset based on a variety of predictive factors.

Navigating market fluctuation

Buy and hold strategy

Volatility can benefit all types of investors. Typically, more conservative traders choose the buy-and-hold approach, in which a stock is purchased and then held for a protracted period of time, frequently several years, to reap the benefits of the company’s incremental growth.

This technique is predicated on the notion that, while the market may fluctuate, it generally delivers long-term profits.

While a highly volatile stock may be a more stressful option for this technique, a modest amount of volatility might actually mean higher returns. As the price fluctuates, it allows investors to acquire stock in a solid company at a low price and then wait for cumulative growth down the line.

Swing traders

Volatility is considerably more important for short-term trading. Day traders deal with changes that happen second by second, minute by minute. There is no profit if the price does not move.

Swing traders use a little longer time frame, usually days or weeks, but market volatility remains a key component of their strategy. Short-term traders can utilise chart patterns and other technical indicators to assist timing the highs and lows as price swings back and forth.

Swing traders can identify potential reversal points as price oscillates by using indicators such as Bollinger Bands, a relative strength index, volume, and established support and resistance levels.

This means that they can go long on the stock, or buy calls, when the price approaches a low, then ride the rebound to sell at or around the high.

Predicting when a volatile stock’s present bullish momentum is exhausted can mean shorting the stock or buying puts just as the downturn begins. Individually, these types of short-term transactions may provide smaller gains, but a highly volatile stock might afford nearly endless opportunities to play the swing.

Numerous smaller payoffs over a short period of time may wind up being more profitable than one major cash-out after years of waiting.

VIX trading

The Cboe Volatility Index, or VIX, is a market index that is updated in real time and indicates the market’s estimate of 30-day forward-looking volatility. It gives a gauge of market risk and investor sentiment based on the price inputs of S&P 500 Index options.

It is also known as the “Fear Gauge” or “Fear Index.” Before making investment decisions, investors, research analysts, and portfolio managers use VIX levels to gauge market risk, worry, and stress.

Volatility-based securities that monitor the VIX index were developed in the 2010s and have proven extremely popular among traders for both hedging and directional plays.

As a result, the buying and selling of these instruments has had a substantial impact on the original index’s functioning, which has been turned from a lagging to a leading indicator.

VIX futures provide the most direct exposure to the indicator’s ups and downs, but equity derivatives have gained popularity among retail traders in recent years.

Options trading

Options are a very important asset to any portfolio during times of high volatility. Put options provide the holder the right to sell the underlying asset at a fixed price.

If an investor purchases a put option to bet on a decline in the underlying asset’s price, the investor is pessimistic and wishes for prices to fall.

The protective put, on the other hand, is used to hedge an existing stock or portfolio. When building a protective put, the investor wishes for prices to rise but is purchasing puts as insurance in case stocks fall instead. If the market declines, the puts grow in value and offset portfolio losses.

While puts increase in value in a falling market, all options increase in value when volatility rises. A long straddle combines a call and a put option at the same strike price on the same underlying. The long straddle option strategy is a wager that the underlying asset’s price will go significantly higher or lower.

The profit profile is the same regardless of which direction the asset moves. Typically, the trader believes that the underlying asset will go from a low volatility state to a high volatility one as a result of the impending revelation of fresh information. Aside from straddles and puts, there are various additional options-based strategies that might profit from volatility rises.

Final Thoughts

Any market can be profitable if you know how to approach it. Traders with experience in volatile markets may tell you that there are a variety of approaches that can assist produce profitable results.

One is to enter the market cautiously and slowly, and another is to pick your trades carefully. Since market volatility can lead to “whipsaws,” investors should maintain a healthy dose of humility and be ready to pivot quickly if things start to go south.

Don’t let your emotions get in the way of your trading; instead, stay concentrated, keep tabs on your transactions, and accept little gains as they come.

Other Resources

Impact of International Regulatory Bodies on Our Products

Alleged Weapons Sale to Russia Impacts Rand’s Value

Impact of International Regulatory Bodies on Our Products

Understanding International Regulatory Bodies and Their Impact on Our Products (Khwezi FI)

Beyond Borders: Understanding International Regulatory Bodies and Their Impact on Our Products

Regardless of a country’s degree of economic development, securing stable finances, expanding the economy, and improving people’s standard of life are all constant challenges.

Given the unique characteristics of national economies and political systems, there is no single best way for any country to accomplish these goals. High growth rates in nations like Malaysia and Malta contrast sharply with the factors that have fuelled China’s rapid expansion over the past two decades.

The impact of laws and regulations on businesses and individuals is all-encompassing. They play a crucial role in national policymaking. While many of today’s most serious policy concerns cut across borders, laws and regulations generally only apply within their own borders.

This discrepancy undermines nations’ chances of realising their public policy goals and protecting their citizens’ interests.

Understanding international regulation in the context of globalisation

The so-called “globalisation” of the economy is a by-product of human ingenuity and technical development. Globalisation describes the growing interdependence of national economies as a result of cross-border trade and investment.

The phrase is often used to describe the flow of labour and information across national boundaries. The effects of globalisation extend to other spheres, including as culture, politics, and the environment.

The major technological advances of the last 30 years have contributed significantly to the greater interconnection of countries and the integration of the world economy. The efficiency and capacity of national regulatory systems are being put to the test by the increasing flow of goods, services, people, and finances across borders.

Because of this, the global environment in which policymakers and regulators function has undergone significant change. Policymakers and regulators in the modern era face possibilities and changes brought on by globalisation and an increasingly interconnected globe that cannot be tackled separately.

However, a number of universal truths appear to underpin increased affluence. Foreign direct investment, technological advancement, well-established institutions, prudent monetary and fiscal policies, a highly educated labour force, and a functioning market economy are all crucial factors.

Moreover, it appears that high-growth countries share a common factor: active participation in and integration with the global economy.

South African trade in the international regulatory framework

The importance of South Africa as a logistics and services hub in the region is best demonstrated by its massive manufacturing trade with the rest of Africa. There is also a strong emphasis on localization, and effective rates of protection remain high in some industries, while the country takes a cautious approach to trade agreements.

When taken together, these structural, environmental, and policy variables raise the bar for new entrants and reduce competition for established enterprises, increasing the incentive to produce for the protected local market over exploring new export potential.

Below, we explore the major regulatory bodies and the role they play in importing and exporting products across South African borders. We start by examining the financial sector in South Africa and the regulatory framework around the trade of financial products.

Financial regulation in South Africa

South Africa has redoubled and refocused its efforts to ensure that the financial sector offers individuals and businesses good-value options for receiving and making payments, saving, borrowing, and insuring against everyday hazards.

The National Development Plan emphasises the role that an efficient financial sector may play in delivering innovative intermediary services, so contributing to increased economic inclusion – particularly of historically marginalised populations – while also encouraging growth and creating jobs.

A strong market conduct policy is a vital pillar in constructing a financial sector that achieves these results. It can promote and facilitate increased competition and involvement in the financial industry, including the establishment of new black-owned financial institutions.

Market conduct regulation seeks to prevent, and manage when prevention fails, the negative consequences of financial institutions conducting their business in ways that are unfair to clients or damage the integrity of financial markets and public trust in the financial system.

Customer protection in the financial industry and genuine financial inclusion in South Africa are mutually reinforcing goals.

As a result, the market conduct policy approach should be viewed as a supporting pillar of South Africa’s financial inclusion policy; stronger levels of customer protection can generate greater inclusion as customers feel more comfortable in their involvement in the financial sector.

Following the global financial crisis, which was caused by poor financial sector practises combined with weak regulatory monitoring, financial sector reform has become a key focus of international concern.

International developments have undoubtedly accelerated South Africa’s reform agenda. However, prior to the global financial crisis, financial sector regulation in South Africa was under examination.

The next stage of the reform effort in terms of market behaviour was therefore to streamline and harmonise the legislative framework within which financial institutions will operate.

This comprised a thorough examination of existing financial sector regulations with the goal of adopting a single, comprehensive legal framework for market conduct regulation in South Africa that is consistently applied to all financial institutions. The drafted Financial Institutions Conduct Bill represents this new legal structure.

As a result of this streamlining process, institutions such as the FSCA were created in order to ensure a strong regulatory oversight for financial products and businesses within South Africa.

The Financial Sector Conduct Authority (FSCA)

The Financial Sector Conduct Authority (FSCA) is the market conduct regulator of licenced financial institutions such as banks, insurers, retirement funds and administrators, and market infrastructures that offer financial products and services.

Market conduct regulation and supervision fall under the purview of the Financial Sector Conduct Authority (FSCA). By encouraging financial firms to serve their clients fairly and by providing financial education, FSCA hopes to boost the effectiveness and stability of financial markets and to safeguard consumers. The Financial Stability and Consumer Act will be of great help in this regard.

The US Securities and Exchange Commission

The SEC is an abbreviation for the US Securities and Exchange Commission. It is a government agency tasked with regulating markets, protecting investors, and overseeing mergers and acquisitions in the United States.

The SEC was established in 1934 with the mission of enforcing US laws governing the trade of securities (financial assets), ensuring fair and efficient markets, protecting investors from exploitation, and assisting in the maintenance of a well-functioning economy.

Any individual who purchases more than 5% of a company’s ownership shares is required by the SEC to declare it. It also requires public corporations to publish regular profit reports and prosecutes those who violate securities rules.

The SEC is composed of a five-member commission, each of whom serves a five-year term.

The South African Bureau of Standards (SABS)

SABS South Africa has a well-developed standards regime based mostly on mandatory, regulator-led definition and qualification. Over numerous decades, South Africa has produced several standards that represent unique conditions related to the natural and human environment.

The South African Bureau of Standards (SABS) is a specialised South African government organisation that promotes and maintains standardisation and quality in commodities and service delivery. It is a division of the Department of Trade and Industry.

SABS is accredited nationally by the South African National Accreditation System (SANAS) and is recognized internationally by Netherlands-based Raad voor Accreditatie (RvA).

SABS belongs to both the International Organization of Standardization (ISO) and the International Electrotechnical Commission (IEC). Accordingly, it issues pharmaceutical and industrial standards that conform to those of the ISO.

SABS follows the standards of the ISO, the IEC and the European Committee for Standardization (CEN) and does not automatically recognize the standards of the United States.

British Industry Standards and the Deutsche Industry norm are favoured in the SABS systems for historic and technical reasons. Products sourced from these countries enjoy quasi-automatic accreditation.

In practise, while importing goods into South Africa, US corporations have been able to comply with South African norms. According to a survey of US corporations already established in South Africa, SABS standards have not been a major trade impediment; the automotive and pharmaceutical sectors are exceptions and deserve more attention.

All overseas vendors pursuing conformity with South African standards have experienced sluggish processing of Letters of Authority (LoA) applications, in some cases to the point of jeopardising technology redundancy.

The Consumer Goods Council of South Africa (CGCSA)

The Consumer Goods Council of South Africa (CGCSA) is an industry group that represents Retail and Manufacturing member companies in South Africa’s largest employment sector.

Their vision is at the heart of CGCSA’s mission: to become Africa’s top Consumer Goods industry platform for advocacy, collaboration, and best practise.

In an ever-changing environment influenced by regulatory requirements, risk management capabilities, and the quest of standardised operational solutions that allow members to trade more effectively, CGCSA is ideally positioned to provide members with confidence in value chain transparency.

They provide global standards that allow organisations to easily identify, capture, and share information; expertise in food labelling, food safety, and food waste best practises; sustainability and regulatory advisory services, as well as crime risk management and skills development and training, allowing us to support, advocate for, and advise organisations in the Retail and Manufacturing sectors at every stage of the value chain, from farm to fork.

Other Resources

Alleged Weapons Sale to Russia Impacts Rand’s Value

Hidden Advantages of Volatile Market Conditions

What are CFDs and How can CFD Trading Be Advantageous

What is a CFD and how can it be advantageous (Khwezi FI)

CFD Trading Definition & Advantages

When two parties enter into a contract for differences (CFD), one agrees to pay the other the difference between the asset’s current market value and the value at the time of the contract.

With CFDs, traders and investors can speculate on price changes but are not required to actually own the underlying assets. The value of a CFD is determined only by the difference in prices at the time of entry and exit, regardless of the value of the underlying asset.

Here, we take a closer look at how CFDs work and why CFD trading can be advantageous.

A closer look at how CFDs work

An investor and a CFD broker make a deal to trade the fluctuation in value of a financial instrument (either a security or a derivative) between the opening and closing prices of the contract.

This trading method is only used by seasoned professionals because of its complexity. With CFDs, you are not guaranteed to receive any certain stock or product.

An investor in a contract for difference (CFD) does not take physical possession of the underlying asset but instead profits from fluctuations in the value of that asset. A trader, for instance, need not actually purchase or dispose of gold in order to engage in gold price speculation.

CFDs allow traders to speculate on the future price movement of an underlying asset or security. Traders have the option of betting on an increase or a decrease in value.

The investor who bought the CFD will put it up for sale if the price of the underlying asset rises. The difference between the buy and sell prices is calculated. The investor’s brokerage account is used to settle the difference, which represents the profit from the trades.

Conversely, a trader can initiate a sell position if he or she anticipates a fall in the asset’s value. A trader who wants to exit a position must first buy an opposite transaction. The remaining cash settlement deficit is paid out of that account.

The advantages of CFD trading

CFDs’ rise to prominence over the past few years is not hard to fathom given the many advantages they provide, such as exposure to a wide variety of markets, leverage, and lenient short selling options. Here are seven benefits of trading CFDs to consider if you still aren’t convinced.

Ability to profit from declining markets

The key distinction between CFDs and regular trading is that CFD holders never actually acquire ownership of the underlying market. There are a number of benefits to this, including the flexibility to both short and long distances.

Instead of buying a specified number of contracts when opening a short CFD position, the trader sells them. When you’re ready to get out of the transaction, you buy the same amount of CFDs that you sold.

This adds a whole new dimension to your trading, as it allows you to make money during market declines.

Let’s pretend you’ve done your homework and know that a certain stock is headed for trouble. You could short the company with a CFD instead of looking for a new opportunity, and make money if the share price drops. On the other hand, if the stock price goes up, you’ll end up losing money.

When shorting a CFD, you won’t need to borrow money like you would when investing. Going short is equivalent to going long, but in reverse. In addition to buying stocks, indices, commodities, and even bonds, you may also sell them.

You don’t need to use your own capital

Leverage is an additional perk of never having to actually own the assets you trade in. With leverage, you can open positions without putting up the full value; instead, you put up a deposit called a margin.

The reason this is possible is that you are not actually purchasing any market assets, but rather betting on their future price changes.

For example, if you want to trade R10 000 worth of GBP/USD, you may just need to put down R2,000. Therefore, you won’t have to risk your entire investment on a small number of positions.

Remember, though, that whether you make a profit or lose money will be calculated using the whole R10, 000. You would lose a sizeable portion of your margin, R500, if the GBP/USD exchange rate moved against you by just 5%.

Therefore, it is recommended to employ risk management strategies such as stop-loss orders, take-profit targets, and guaranteed stop-loss levels.

Similarities to traditional trading

CFDs aren’t your only option for speculating on the stock market without really buying anything. In addition to futures, options, and spread betting, there are many additional types of derivatives.

CFDs may seem a little more conventional than other derivatives if you’re used to more conventional trading and investing. Because in CFD trading, you are actually buying and selling contracts that are meant to function similarly to the assets they stand for.

The typical trading unit of a given market is one contract for difference (CFD). The size of your position is determined by the number of contracts you buy or sell.

You can buy a contract for difference (CFD) representing the value of 50 Apple shares if you want to trade the equivalent of that number of shares. By selling a contract for difference (CFD) on the South African Rand/United States dollar, one can short one currency pair.

Ability trade on a wide variety of asset types

You can trade virtually anything with a CFD broker because they often provide access to a large variety of asset types. Some markets which you can access through CFD trading include:

stocks and shares, including major market players like Apple and Amazon
Stock market benchmarks from around the globe, including the FTSE 100, DAX, and more
Currency pairs that are major, minor, and exotic
Gold, silver, and other strategic commodities
Digital currency
Also, all markets may be accessed from the same place, making it easy to transition from trading indexes to energy.

Ability to hedge

Keep in mind that short positions can be taken using CFDs. This strategy can help you protect your portfolio from the negative effects of market fluctuations while also allowing you to profit from lowering prices.

Let’s imagine you own 1,000 shares of Sasol and are concerned that a recent increase in oil prices would have a negative impact on the company’s short-term profitability. You might close your entire position by selling your stock.

One can short one thousand shares of Sasol using contracts for difference. Then, if your portfolio takes a hit, you can offset that loss with a gain from your CFD position. You may decide to liquidate your CFD position if and when airline stocks begin to rise again.

Reduced tax requirements

Trading without ever owning the underlying asset has significant tax benefits, such as avoiding stamp duty on market purchases and sales.

However, tax regulations might shift and rely on a person’s specific situation. Seek outside counsel if you feel the need.

Ability to practice trades

Opening a demo account is the best way to learn the ins and outs of CFD trading. You can practise trading with no risk using a demo account, which provides access to the price changes of thousands of financial marketplaces using virtual funds.

Tips for trading CFDs

Due to the many advantages they provide to investors, CFDs have been increasingly popular in recent years. Trading CFDs, however, is not without its risks. To aid you in your understanding of CFDs, we have provided some useful tips below.

It is crucial that you fully grasp the nature and operation of CFDs before you begin trading.
Learning more about yourself and your trading objectives is a crucial part of becoming a good trader.
The aspects of trading can be laid out in detail with the use of a trading plan. It will aid in shaping behaviour and preventing emotional decision-making.
Sticking to your CFD trading strategy is essential, since doing so will reduce the temptation to trade based on emotions such as fear and greed. Understanding when your trading plan is failing is equally crucial. To do this, you can back-test your trading technique and keep track of your wins and losses.
Determine what kind of market analysis you will employ to determine when to enter and quit the market as you construct your CFD trading strategy. Technical analysis and fundamental analysis are the two main tools used by traders.
External factors, such as macroeconomic statistics, company announcements, and breaking news, are the primary focus of fundamental analysis. The goal of technical analysis is to anticipate price movements by studying price charts from the past.
The size of your position in the market is your entire exposure. Consider your financial resources and your tolerance for risk before committing to a new venture.
You should specify in your trading plan the maximum amount of capital you are willing to lose on any given deal when trading CFDs.

Other Resources

Advantages of Trading with a Local Broker

Understanding Forex Trading Sessions

Hawkish vs Dovish Monetary Policies

Why is trading with a local broker advantageous

Advantages of trading with a local broker

South Africa has a thriving economy and is the only African nation to belong to the Group of Twenty, an international forum for economic cooperation.

The country’s flexible economic climate has contributed greatly to the growth in popularity of foreign exchange trading among locals in recent years. When it comes to retail Foreign Exchange, South Africa dominates the rest of the continent.

A growing number of brokerages are showing interest in the South African Forex market as a result of the region’s proximity to Europe and the region’s tightening regulatory frameworks and reduction in leverage ceilings. The country is becoming a popular choice for brokers who want to save costs and increase their clientele.

At the same time, a great number of local South African brokers have emerged to provide unique advantages for local traders. Here, we explore some of the many reasons why trading a with a local broker is advantageous to South African traders.

Access to local regulation

Trading foreign currency is allowed in South Africa, and it is becoming increasingly popular among locals.

The Financial Sector Conduct Authority (FSCA) acts as the local regulator in the foreign exchange market to safeguard traders, promote honest exchanges, and forestall criminal activity like money laundering.

In order to lawfully operate in South Africa, foreign brokerage firms must first obtain permission from the Financial Sector Conduct Authority (FSCA). Brokers in South Africa should have sufficient liquidity and a physical presence there.

Over-the-counter derivatives transactions are authorised in addition to spot Forex trading for locals. A valid ODP (Over-the-Counter Derivative Provider) licence issued by the FSCA is required for the marketing of derivative products.

Foreign exchange, commodities, interest rate, and equity derivatives are just some of the derivative products that licenced brokers can provide. Derivatives are governed under the Financial Markets Act of 2012, which has been amended in numerous ways over the years.

Access to local deposits

To fund your live trading account, South African brokers accept a wide range of payment methods. Some of the most hassle-free methods include using an electronic wallet service like Skrill, PayPal, or Neteller.

All that is required of you is to sign up, validate your account information, and add funds to your electronic wallet.

Some brokers on this exchange let South African buyers and sellers to use their country’s domestic EasyEFT payment system.

Direct money transfers from your online banking account are now possible with this relatively new online payment method. The service is cheap, easy to use, and does not require customers to have credit cards.

EasyEFT makes it quick and easy to add funds to your account. To use this option, if it is offered, simply log in to your trading account and select the payment system. The next step is for you to select your bank from the available options and proceed with the payment as directed.

Access to Forex trading software

Trading any currency pair from the convenience of your own home is a major perk of the Foreign Exchange markets.

During market trading hours you can trade any time during the day or night. To do this successfully, though, you will need Forex trading software. An easy-to-navigate interface is a must-have for every trading platform.

Traders of varying skill levels should be able to use the platform with ease. Complexity is bothersome since it makes navigating more difficult and it might create trading errors. The simpler, the better, is the rule of thumb.

The software should also allow users to access many charts simultaneously and make use of a variety of market analysis tools. Backtesting and the flexibility to choose between different time frames are always welcome features.

You can always sign up for a practise account with a South African broker to see whether they match your needs. You can check out the trading platform’s interface and functionality before committing to it.

The MetaTrader 4 platform is widely used in South Africa. In 2005, MT4 was released to the public.

Charts can be viewed and annotated, and several periods and technical indicators for studying the market are available. Because of how user-friendly it is, the platform is popular among first-time traders. With the help of so-called Expert Advisors, automated trading is also a possibility.

In addition to MT4, several South African brokers provide access to the more feature-rich MT5, which allows traders to trade not only forex but also equities, bonds, futures, and options.

Either version can be accessed through a specialised WebTrader in a web browser. The latter provides similar features to the downloadable programme but without the need for any further set up on the user’s end.

Access to mobile trading

The prevalence of mobile phones in South Africa is rather high. As of early 2019, there are around 22 million smartphone users in the United States, or about one-third of the total population. Several million more are expected to join them in the years to come. As of the year 2020, South Africa will be home to more than 58 million people.

Investors in the country have a wealth of trading options at their fingertips thanks to the availability of cutting-edge mobile programmes for iOS and Android smartphones from all reputable brokers operating in the country.

Each brokerage’s app is available for free download on their website and in app stores like Google Play and the Apple App Store.

There are a number of advantages to conducting business in the field. For one, you may always be up-to-date on the newest market trends thanks to the apps’ real-time feeds. You may check out the latest market prices by pulling out your phone from your pocket.

The apps’ design for touchscreen devices makes placing orders a breeze even while you’re on the go. In most cases, you can increase the magnification to see every last detail.

Traders who use mobile devices also have the option of seeing and adjusting many charts simultaneously. Newcomers to mobile trading can profit greatly from the abundance of available educational resources.

Choosing a Forex broker in South Africa

It’s important to do your research before settling on a broker in South Africa. You can’t participate in the foreign exchange market as a sole trader. The forex market is entirely digital. It’s not based in any specific place .

Brokers act as middlemen between buyers and sellers of foreign currency, holding their funds in segregated accounts and providing the necessary trading software.

Brokers play the role of market makers for contracts for difference (CFD) share trading, arranging execution and settlement internally based on the stock prices from the underlying national exchanges.

You can’t trade currency pairs or CFDs without brokers, as you can see. Therefore, if you want to work with the best Forex brokers in South Africa, you should pick the broker that suits your demands the best.

Focus on regulation first

The Financial Sector Conduct Authority (FSCA) in South Africa requires all currency brokers and top Forex brokers to display their regulatory information (licence number, etc.) on the home page of their websites.

Regulation indicates that the currency broker has been registered and licenced by the country’s financial market regulators to handle, process, clear, and settle traders’ monies.

You don’t have direct market access. This requires the use of a broker. How else can you ensure that the broker will not disappear with your assets if not through the regulatory process?

Make sure they ringfence your deposits

Account segregation, sometimes known as ringfencing, is a legal requirement in many jurisdictions. This aspect determines whether clients’ monies are protected in the event of insolvency or whether they are completely lost.

Ringfencing means that the brokerage company will maintain all funds belonging to clients in a separate bank account from the bank account(s) that hold the brokerage’s operational funds.

Look into their track record

Choosing the best currency or stockbroker in South Africa is more than just looking at regulations. A broker may be well-regulated and follow all regulations, yet there may be some difficulties that influence the whole experience.

Trading is more than just placing buy and sell orders on equities or currencies. You may have questions that require answers, in which case responsive, courteous customer service is preferable.

You could also want to look for features that will improve your experience, such as the addition of payment options that allow for speedy deposits or withdrawals.

Some currency traders may prefer a cold wallet that allows them to withdraw winnings from their trading account and reserve what they have made while working with the rest. Every forex trader has specific expectations from their employment with a currency broker. If this is missing, there will be issues.

The only way to tell if a broker is right for you is to look at their track record. Fortunately, there are numerous internet forums and blogs.

On these sites, you can learn first-hand from other traders about how excellent or awful a South African broker is. Such unbiased sources of information might reveal a lot about a forex broker’s track record.

Other Resources

Trading on Knowledge vs. Experience

Understanding Forex Trading Sessions

Ultimate Guide to CFD Trading

What is the difference between Hawkish and Dovish sentiment regarding the US FED

Monetary policymakers in the United States are often classified as hawks or doves. The phrases designate contrasting theories about how monetary policy ought to affect the economy.

Several schools of thought on how monetary policy should affect the economy are reflected in these terms.

Conservatives, or “hawks,” are focused on keeping inflation low. Raising interest rates is a common strategy for controlling the money supply.

The goal of most “doves” is to get interest rates to drop. They advocate for a rise in the money supply, increased economic growth, and, above all else, more employment opportunities. The goal for investors and traders is to build a portfolio that is resilient against both types of monetary policy.

Here, we take a closer look at Hawkish versus Dovish policies.

The development of US monetary policy

The central bank’s dual mandate of price stability and full employment is the bedrock of the dove-hawk divide.

In order to achieve both aims, it is necessary to strike a balance between reducing the rate of inflation through monetary policy tightening (so that prices remain constant) and increasing the rate of interest (to ensure full employment).

To place more emphasis on the former is hawkish, whereas to place more emphasis on the latter is dovish.

The two terms are commonly used to refer to the 12 members of the Federal Open Market Committee who serve on the Federal Reserve System’s board of governors (FOMC).

The Federal Open Market Committee (FOMC) is the primary institution in charge of formulating monetary policy. Both hawks and doves can be found among the Fed’s officials.

There is more than one kind of politician in the world who makes policy decisions, not just hawks and doves. Centrists are officials who take a moderate stance, falling neither in the hawkish nor dovish camps. And hawks might flip to dovishness or vice versa depending on the situation.

After the financial crisis of 2008, the government adopted a highly dovish stance on monetary policy, maintaining interest rates around zero for years.

About 2015, policymakers became slightly more hawkish and began raising rates, in part to provide themselves room to cut rates in the case of another economic collapse. As a result of the COVID pandemic’s effect on the economy, central banks have recently become more dovish again.

A closer look at dovish policymakers

Rather than trying to slow the economy down, a dovish policymaker or politician would work to speed things up. This is accomplished by adopting a more accommodative monetary policy, one that is more likely to expand rather than contract the money supply.

The primary strategy of dovish policymakers in their pursuit of this objective is the reduction of interest rates.

It’s more affordable for people to use credit to buy things when interest rates are low. As a result, businesses are encouraged to increase their workforce and infrastructure to meet the rising demand.

When interest rates are reduced, it becomes more affordable for companies to take out loans to fund growth.

When the economy grows, it creates more opportunities for people to work, which in turn lowers the unemployment rate. Yet, rising prices and incomes are typically associated with an increasing economy.

This can set off an inflationary cycle, which can have the opposite effect of what was intended (reduced demand) if price increases outpace salary increases. The elderly and others on fixed incomes are particularly vulnerable to the negative effects of inflation.

A closer look at hawkish policymakers

The possibility of inflation is a primary concern for hawkish policymakers and their initiatives. By raising interest rates, cutting the money supply, and slowing economic development, they hope to prevent inflation from pushing up prices and wages.

When interest rates rise, it becomes more costly to borrow money, hence borrowers (including individuals and corporations) are less willing to do so. Constraining consumer spending and corporate hiring both help keep inflation in check and keep wages from rising too quickly.

Employment opportunities are less likely to expand under hawk rule, which can be particularly challenging for those who are actively seeking job. Those on fixed incomes, however, benefit from hawkish measures because their dollars retain more of their purchase power than they would in an inflationary climate.

In general, hawkish policies benefit both savers and lenders (who can enjoy higher interest rates). They lower the cost of importing goods and going on international trips.

Borrowers and domestic producers often feel the wrath of hawkish policies. Also, they raise prices for both international trade and local vacationing.

Advantages of hawkish policy

High interest rates can be beneficial to the economy, despite the fact that the term “hawk” is often used as a pejorative. They discourage people from taking out loans, but they encourage savings.

The reverse is also true; sometimes, when interest rates are higher, banks are more willing to lend money. Loans to applicants with less-than-perfect credit histories may be granted if interest rates are high enough to mitigate the banks’ perceived risk.

Also, if a country raises interest rates but its trading partners do not, import prices may decline.

Disadvantages of hawkish policy

In some cases, higher interest rates can have a deflationary effect, resulting in lower prices. Yet, while this may be beneficial in the near term, deflation is typically worse than low or moderate inflation.

As deflation continues, the value of a dollar increases over time. This encourages consumers to save up for the future, when the dollar will have more buying power but the prices would be higher.

A rise in interest rates causes people to delay large purchases made on credit. When mortgage rates rise, it tends to slow the housing market and can lead to a decline in home prices. Increases in interest rates for auto financing can have a similar impact on the car industry.

Increases in the cost of loans and bond interest rates are two ways in which hawkish policies can discourage borrowing and investment by businesses. It also makes businesses less likely to acquire new employees or invest in employee retraining.

Domestic production and exports may suffer as a result of hawkish measures. If domestic inflation is declining relative to that of a trade partner, then the domestic currency’s exchange rate should rise in order to maintain price parity.

When the value of a country’s currency rises, it lowers the price of imported goods relative to domestic ones. Domestic production suffers as a result, and domestic exports become relatively more expensive for international buyers.

Economic circumstances that give rise to either hawkish or dovish policies

Government monetary officials as a whole swing from hawkish to dovish when the economy shifts between growth and recession. For instance, a dovish reaction is typically implemented by central banks when the economy shows signs of entering a recession.

This entails loosening monetary policy, reducing interest rates, and boosting spending and employment. Contrarily, hawkish tendencies become more apparent if the economy has been growing for some time and inflation is rising.

This trend seeks to increase interest rates and tighten the money supply to slow the growth of prices and wages.

How to trade in either dovish or hawkish conditions

Understanding whether government leaders are hawkish or dovish requires close observation, and much experience is required to predict the expected implications of hawkishness and dovishness on investment.

Markets tend to react swiftly to announcements made by central banks, so keep an eye out for sudden shifts after such remarks.

Interest rate announcements (increases, cuts, or holds), discussion of economic growth metrics and projections, and announcements of future monetary policy shifts are all fair game for these types of public addresses.

When an important speech or announcement is made, news outlets all over the world immediately publish the details.

When interest rate shifts or economic growth information is announced, analysts and traders of foreign exchange pay extra attention to the tone and language of the statement.

Forex traders react more strongly when central bank activity and interest rate changes are not in accordance with current market expectations, just as the market does when other economic data or indicators are released.

Since central banks are becoming more open, it is easier to predict the future of monetary policy. But, central bankers could make a change in their outlook of either greater or lower scale than is currently anticipated.

Volatility in the market is high during these times, therefore traders need to be cautious about entering or expanding current trade positions.

Final Thoughts

Hawkish policymakers prioritise containing inflation as a top priority when formulating monetary policy. Policy-makers who adopt a Dovish stance prioritise economic growth and employment creation.

Interest rates are a tool that hawks and doves use to further their agendas. Hawks want higher interest rates because they reduce inflation, while doves favour lower rates because they encourage spending by individuals and investment in human capital and physical infrastructure by firms.

Many monetary policymakers are “on the fence,” displaying characteristics of both hawks and doves. The market’s extremes, however, often reveal people’s actual colours. Knowing the future of possible monetary policy shifts is crucial. The good news is that governments are become more adept at sharing information with the market.

Other Resources

Trading on Knowledge vs. Experience

Understanding Forex Trading Sessions

How the Silicon Valley Bank Collapse Affects Traders

How recent bank collapses affect traders

How Recent Bank Collapses Affect Traders

The failure of Silicon Valley Bank (SVB), a US-based banking company that catered primarily to the technology, life science, and venture capital industries, sent shockwaves through global financial markets.

A bank run of $42 billion was sparked when investors and depositors heard that SVB was in trouble. Silicon Valley Bank was closed by the California Department of Financial Protection and Innovation on March 10th.

The US government declared that it is taking extraordinary measures to ensure depositors get their money back. Meanwhile, HSBC bought out the UK branch of SVB.

Tim Mayopoulos started his new role as SVB’s CEO on March 13. When he arrived, his first order of business was to reassure customers that the bank will soon be open for business and accepting deposits once more.

He pleaded with VC firms and IT clients to restore SVB’s financial health by entrusting the bank with their money again. As Mayopoulos emphasised, the FDIC insures all deposits, both new and old, so depositors need not worry about losing their money.

Here, we will take a closer look at the SVB collapse and what this means for traders going forward.

A closer look at the collapse of SVB

The trouble began when the SVB Financial Group, which owns Silicon Valley Bank, released some unfavourable news. Silicon Valley Bank is a rather obscure bank outside of the tech startup scene (and most commonly known simply as SVB).

The tech industry went into a tailspin, but it also caused alarm in the retail banking sector of the United States, with ripple effects felt at the nation’s largest financial institutions.

Many investors are concerned about the state of the banking system as a whole in light of the Fed’s efforts to drain liquidity from the market, and the root reason of the crisis at SVB is still unclear.

When SVB’s parent company disclosed that it had sold $21 billion in securities from its portfolio, the issue surfaced, and it subsequently filed to sell $2.25 billion in shares to strengthen its capital position.

The resulting 60% drop in stock price had a domino effect on the financial sector as a whole. The reason for this was a sudden and significant decrease in bank deposits. Concurrently, SVB reduced its projected net profit.

The ripple effect

It wasn’t enough that too many depositors were pulling their money out of the bank; the situation quickly deteriorated when numerous venture capitalists did the same.

That group included prominently Peter Theil’s Founders Fund, which had previously asked its portfolio managers to reduce their holdings in SVB.

The action triggered what was essentially the beginning of a bank run. The company’s CEO called their biggest clients to reassure them and head off a mass exodus. Many venture capitalists have expressed their intention to maintain their current banking relationship.

Coincident with the SVB collapse was the unexpected shutdown of Silvergate Capital, which had significant holdings in cryptocurrencies. Only SVB, which is listed on the stock market, caters to the needs of Silicon Valley’s many tech startups.

Startups in the technology industry in particular have had a hard time attracting venture capital since interest rates have risen while actual rates have fallen due to inflation. That made SVB especially susceptible to the tech industry’s collapse as entrepreneurs withdrew funds to survive the rising cost of doing business.

This, in turn, was followed by trouble at Signature Bank.

Around USD 110 billion in assets and over USD 88 billion in deposits were reported to the New York Department of Financial Services.

Given that Signature Bank is the third regional bank to fail in the last two weeks following Silvergate Bank and SVB, many investors are worried that we may be heading back towards the financial crisis of 2007-2008. Investors are on high alert now, fearing broad financial vulnerability as a result of this.

Signature Bank’s stock price dropped about 25%, from USD 87 to USD 70, despite the bank’s publication of new financial statistics and limited crypto deposit levels on Thursday to improve diversity.

Customers of Signature Bank who expected the bank to fail shifted their money to more stable institutions like JPMorgan Chase and Citigroup.

The fate of the markets going forward

Runs on other banks with comparable lending and liquidity profiles may be triggered by the collapse of SVB and Signature Bank. The majority of depositors still worry despite efforts made by the Fed and The Treasury.

Foreign contagion, additional crypto market failures, and larger contamination of other financial markets are also possible outcomes. The world economy would suffer severely in the worst-case scenario.

Moreover, the collapse of SVB could leave a gap in the market for financing technology companies, prompting a retreat to traditional banks that are simpler but less likely to give bespoke funding.

Because of this, financial institutions may be compelled to liquidate assets at a loss in order to restore their balance sheets and maintain liquidity. The FDIC’s decision to exempt the two failing banks from systemic risk may have unintended consequences for the industry as a whole.

Since the SVB collapse, attention has been focused on private investments in technology. This fallout, for instance, may cause investors to pay closer attention to the investments of SoftBank Group Corp.

Japan’s SoftBank Group Corporation is a holding corporation that focuses on making investments in the electronics, energy, and finance industries.

SoftBank Vision Fund investors are worried about the safety of their investments in young companies. The price of SoftBank stock has dropped by 13%, passing below the 5,000 yen threshold that could prompt a repurchase announcement.

Several sectors of the tech industry may feel the effects of this chain of events differently. Startups may have to adjust their business strategies if getting finance becomes more difficult.

The collapse of Signature Bank is likely to prompt a closer look at banking laws, risk management measures, and collaborations with cryptocurrency firms.

Major cryptocurrencies like Bitcoin and Ethereum have already recovered, showing renewed confidence in decentralised assets, suggesting that the impact on the crypto market will be temporary.

Because it is a specialised bank with numerous unique tools, networks, and information, the closing of SVB will have far-reaching consequences, both in the near and long terms. The networking events hosted by SVB were essential in bringing together investors and business owners.

It turned around mortgage applications quickly, helped startup founders with advice and mentoring as they built their companies, made investments in new companies, and backed the VC firms that worked with them.

Traders and the option of safe haven assets

It’s common practise for investors to shift their holdings towards “safe-haven” assets during moments of market turbulence. It is possible for investors to better weather market fluctuations if they anticipate which assets will increase in value while others decrease.

In times of economic distress, it is common practise to put money into “safe-haven” assets like gold and government bonds. These assets are either uncorrelated with the economy or have a negative association with it, so they may increase in value during a market downturn.

Investors should consider the specifics of the current economic climate before deciding which safe haven to put their money in. This highlights the need of investors clearly articulating their objectives in the context of safe-haven investments.

The precious metal gold is often seen as a haven in times of market uncertainty. As a physical commodity whose supply cannot be altered by measures like printing (also known as quantitative easing), the price of gold is unaffected by interest rate choices made by central banks.

The example of gold’s use as a safe haven asset following the financial crisis of 2008 is instructive. In 2009, for instance, investment drove the price of gold up by more than 24 percent, and it has continued to rise consistently ever since, all the way into 2011.

Because of gold’s long history of serving as a currency backbone and a store of value, many people mistakenly assume that the desire to buy gold is driven by irrational ideas.

The traditional thinking is that investors flock to buy gold when they spot precursors to a large market catastrophe, as the precious metal has a history of acting as a safe haven. Holding gold as a safe haven investment has become a self-fulfilling prophecy.

Your exposure to market volatility can be lowered and your wealth protected with an investment in a safe haven asset. When the market is falling, the value of safe haven assets tends to rise relative to that of other markets.

Knowing which assets are considered safe havens in the case of a financial crisis is essential for investors.

They can then use the most appropriate risk management strategy, such as selling long positions or buying short ones, in anticipation of the price movement of other assets that are declining in value.

Final Thoughts

Events like stock market bubbles, crashes, and economic recessions can have long-lasting, negative consequences on an investor’s portfolio value.

A market slump is a natural and inevitable aspect of the market cycle, therefore it’s best for investors to take as many safety measures as they can to prepare for it, such as the one which may arise from the recent banking collapse.

During economic downturns, safe-haven assets tend to outperform the broader markets.

Other Resources

Trading on Knowledge vs. Experience

Understanding Forex Trading Sessions

Hawkish vs Dovish Monetary Policies

Trading on Knowledge vs. Experience

Trading on Knowlegde vs Experience (Khwezi FI)

Trading on knowledge vs. experience

Trading is like any other skill in life, experience is everything

These days, thanks to the internet, anyone may try their hand at trading currency pairs on the vast and volatile Forex market. But it doesn’t mean you should go out and put all your money into this potentially risky trading opportunity just yet. Learning to trade Forex is like any other skill set, which can be learned with time. In order to succeed at Forex trading, knowledge is key.

Here we take a closer look at the difference between skill and knowledge, and show you how it is applied in Forex trading.

The difference between skill and knowledge

Knowledge is the intellectual grasp of information, the possession of the correct responses.

Skills are useful in everyday life. These are the steps that individuals take to apply the knowledge which they have learned.

This is the key difference between knowledge and skills.

All of your Forex training should result in newfound knowledge. After completing a course, students should have a firm grasp of the material. Plus, you’d like it to develop even further. After completing a training programme, you should see measurable improvements in performance that correlate with your overall trading objectives.

The importance of gaining knowledge through Forex education

In the Forex market, some traders fail because they try to run before they can even walk. In spite of your enthusiasm, diving headfirst into Forex trading is not a good strategy.

Trading foreign currencies (Forex) requires knowledge just like any other career. The best way to prepare a trader for the real world is through a combination of knowledge learning and real-market skills development.

Do you ever ponder the reason why accountants earn more than minimum wage workers? Why are doctors paid so much more than these accountants, anyway?

How much money you make in a career depends on how much time and effort you put into learning the skills required to do that job. And to develop those skills, you need to have the knowledge of the system in which those skills are learned.

A good Forex trader can sort through mountains of information quickly. Then, he or she can quickly examine the data, find patterns, and act accordingly. Doing so requires a certain level of expertise. It is a talent that requires time and effort to cultivate, and then further practise to perfect.

Forex trading is not a “something for nothing” deal, despite what certain shady online resources might have you believe. Financial success is possible for those who trade in foreign exchange. However, that comes after they have spent countless hours gaining market knowledge, honing their skills, and developing trading strategies.

So, it is crucial for a Forex trading newbie to make an investment in Forex courses and education. This is an investment, not a cost. It will yield substantial benefits in the long run thanks to your hard work and newfound expertise.

Start with the basics

Beginner traders can benefit from taking a Forex course because it teaches them the fundamentals of the market. The foreign exchange market (Forex) has its own jargon.

The uninitiated may be confused by terms like “lot,” “pip,” and “strike price.” Yet they are quite helpful for the Forex trader. With these terms, you can say a lot with relatively few words.

In addition to learning the terminology, a beginner’s course in Forex will also teach you some simple mathematics, such as how to convert an indirect quote into a direct one.

Without this foundational understanding, you cannot succeed in trading. It is up to the trader to decide whether or not they would like to learn Forex trading in one comprehensive course or by ad hoc internet research.

Learn how to interpret macro developments

Global and economic events are covered by the macro news. This type of news is known as “macro news” since it covers widespread occurrences.

The foreign exchange market reacts strongly to news of this nature. As the government reports changes to macroeconomic indices like inflation or unemployment, the value of a currency might rise or fall.

Massive volatility guarantees that prices will reach irrational highs or lows, giving traders the chance to make a killing. However, this requires the trader to have a stake in the underlying currency and anticipate the magnitude of any price change that may result from the macro news.

This calls for a comprehensive knowledge of macroeconomics, which is often imparted to Forex traders through a dedicated educational programme.

Learn how to create your own trading strategy

A “guaranteed system” that promises risk-free returns is a myth in Forex trading. Instead, a strategy will provide a broad framework of rules to follow as you ride out the market’s ups and downs.

A trader can save the hassle and cost of developing this method from beginning. Academics have studied the topic of what works and what doesn’t in Forex trading at length. By learning about these established trading strategies, a Forex trader can construct a relatively advanced strategy with less time spent learning the ropes.

Skills to apply to Forex trading

Once you have taken the time to gain the sufficient trading knowledge, you can use this insight to apply certain skills to your daily Forex trading. Here are some of the best skills to apply to Forex trading.

Develop an analytical mind

The stock market is a numbers game. No matter where you go, you won’t be able to escape them. If you want to succeed as a trader, you need to develop the ability to read and interpret data fast.

A lot of work can be saved by using automated methods to convert data into visual representations. But, analytical skills are still required to sift through these and discern market trends and patterns.

Your ability to quickly analyse currency pairs and calculate prospective gains and losses depends on your proficiency with mathematics and analysis. You’ll be in a better position to decide how much to invest in the trade.

Hence, you’ll need a sharp, analytical mind to grasp various trading techniques and develop your own successful approach. The more quickly and easily you can understand the information, the better you’ll be able to translate the numbers into currency values.

Become good at keeping records

Training your analytical abilities will require data, and lots of it. All of the information must be correct, comprehensive, and safely stored. The trader must keep detailed records and be diligent to do this.

To get a handle on your trades, you need to keep meticulous records of everything you do. Using this tool, you may look back and see how your trading strategy performed in the past.

The information gathered can show you where there are gaps in your strategy and where there are opportunities in the market, both of which can lead to increased profits.

In the volatile foreign exchange market, situations can deteriorate rapidly. Before you completely lose your bearings, make sure you keep up with your data.

Learn to be disciplined

Lack of self-control will render useless even the most well-thought-out trading plan. If you’re having a rough day on the markets this is extremely crucial. In the midst of confusion, discipline can help you stay on course.

One’s integrity can be preserved through the use of a trading log. It displays whether or not you had the self-control to stick to the strategy even when things were tough.

Have a strong mental game

Experienced traders know how taxing the foreign exchange market’s frequent swings can be. It’s like running a marathon without training.

In the event that you believe things are escalating out of your control, take a step back. There’s no shame in taking a break from the market to collect your thoughts.

One of the best ways to prepare oneself mentally for the challenges of today’s market is to practise meditation. It helps you relax and concentrate at the same time.

Learn how to stay calm

It goes without saying that forex traders need to keep their cool when the market is wildly fluctuating.

If you give in to your feelings, you might make rash choices that end up costing you more. Making use of your emotions on the trading floor is a recipe for disaster, thus it is important to set entry and exit levels in advance. Then, use them as a map to avoid making rash trading decisions.

Cultivate a patient approach

The ability to wait patiently for the price to reach your entry and exit targets is essential after you have established them.

Have the resolve to see things through, no matter how bleak the market looks.

To accurately forecast the future value of a currency requires an extraordinary level of knowledge and experience, neither of which the average person possesses.

You need to be patient and willing to stick to your trading strategy, no matter what comes your way. Have an open mind. Improve as much as possible. Regularly evaluate your trading approach and make adjustments as needed. There is a need for patience in order to achieve a system that is resilient.

Other Resources:

Trade Safe Haven Assets (Focused on Dollar & Gold)

Forex Brokers with the Best Customer Service

MetaTrader 4 versus MetaTrader 5

Trade Safe Haven Assets in Volatile Times

Safe Haven Assets in Volatile Times

A Look at Dollar and Gold

During periods of market volatility, investors often turn to safe-haven assets as a way to reduce their overall risk. To better weather market swings, investors can plan ahead by determining which assets will rise in value while others fall.

A safe-haven asset is a type of investment that usually holds or even increases in value when the economy is in a bad spot. In the case of a market recessions, these assets may rise in value since they are either uncorrelated with the economy or negatively associated with it.

It is up to investors to determine which safe haven is best for the current economic scenario, as not all safe havens will share these features. Because of this, investors need to know exactly what they hope to gain from safe-haven assets before making any decisions.

In this article, we take a closer look at two of the most popular safe haven assets amongst investors – namely gold and the dollar – and show you how to trade with safe haven assets.

The dollar as a safe have asset

During times of economic uncertainty, the US dollar has been one of the most widely used safe haven assets for almost 50 years. It has many features that make it a safe haven, the most important of which is that it is the most actively traded currency in the foreign exchange market. The 1944 Bretton Woods agreement established the fixed currency system and established the US dollar as the world’s principal reserve currency, establishing its credibility in the eyes of the investing public. The US dollar continued to be seen as a safe haven even after the system was disbanded since it represented the strongest economy in the world.

Although many predicted that increasing volatility due to US President Donald Trump’s contentious politics would hurt the dollar’s standing as a safe-haven, it appears that the currency is still benefiting from safe-haven flows.

The US Dollar Index, for instance, rose by 5.29% between January and August of 2018, despite trade tensions’ impact on financial markets and commodities generally.

Gold as a safe haven asset

Gold is commonly associated with the concept of a safe haven. Gold’s price is unaffected by interest rate decisions made by central banks because it is a tangible good, and its supply cannot be artificially increased or decreased by means such as printing, a policy also known as quantitative easing.

Gold’s role as a safe haven asset after the 2008 financial crisis is illustrative. As an example, gold’s price increased by over 24 percent in 2009 due to an increase in investment, and it has continued to rise steadily since then, all the way into 2011.

Gold’s historical role in supporting currencies and as a store of value has led many to conclude that the decision to purchase gold is influenced by irrational beliefs.

According to the conventional wisdom, when investors see warning indications of a major market crash, they rush to buy gold because of its reputation as a haven in times of uncertainty. Investing in gold as a haven has turned into a self-fulfilling prophecy.

What makes an asset safe in times of market volatility?

An investment in a safe haven can reduce overall portfolio risk and protect you from market fluctuations. Safe haven assets typically do better than other markets during market downturns.

Many of the features of safe haven investments are the same:

High liquidity
Stable demand
Relevance and assurance that it won’t be replaced
Expected to retain or rise in value during times of economic turmoil

In the event of a financial crisis, it is crucial for investors to know which assets are viewed as safe havens.

This allows them to better anticipate the price movement of other decreasing assets and employ the most appropriate risk management technique, such as closing long holdings or initiating short ones.

Negative effects on an investor’s portfolio value from events like stock market bubbles, crashes, and economic recessions can persist for years.

How to trade safe haven assets

The wisest course of action for any investor is to take as many precautions as possible to ensure that they are ready for a market downturn, which is a normal and expected part of the market cycle.

Safe-haven investments typically outperform the bulk of markets during times of financial crisis.

Traders need to be able to recognise safe-haven assets and use this knowledge to foresee price fluctuations and apply their own strategies, even though investors often utilise safe havens to shield their portfolio’s value.

You may want to consider closing out any open long positions or opening new short ones if you anticipate a dramatic decrease in the market price as investors flee ‘riskier’ assets for safer ones.

Yet, you might benefit from price increases if you are confident in your ability to determine which assets will serve as safe havens in the near future.

Safe-haven asset trading patterns are very subjective and cannot be predicted. In order to profit from price changes or hedge against price declines, knowing how the market feels about safe-havens at any given time is essential.

Trading gold and the dollar

The European economy shifted its minting system from silver to gold between the thirteenth and fourteenth century.

This evolved as people realised that gold’s intrinsic durability and appeal made it a more reliable standard for establishing the prices of items in exchange.

The agreement to peg the world’s currencies to the dollar has heightened the importance of the inverse relationship between gold and the dollar.

The price of gold is a barometer of the health of the US economy; a rise in gold prices indicates economic distress.

When gold prices are low, however, other investments like equities, bonds, or even real estate tend to do better.

Investors acquire gold as a hedge against economic crises and inflation, with the gold price serving as a barometer for economic success.

Traders’ faith in the commodities market is reflected in the gold price, making it a credible barometer of market sentiment.

To hedge their bets against a possible economic downturn, these investors will buy more gold, and vice versa when times are good.

A stock market correction occurred in 2016 in the United States as an illustration of this mechanism in action. Gold prices increased as the Dow Jones Industrial Averages declined.

When the market looks hazardous, gold is a safe haven.

The wartime suspension of the Gold Standard eroded faith in that system and prompted calls for a more malleable currency.

As the world economy expanded and the gold supply shrank, the British pound and the American dollar rose to prominence as the world’s reserve currency.

In turn, the dollar may be exchanged for gold at a set rate of $35 per ounce. Although the dollar is currently only tied to gold through indirection, the global financial system still operates on a gold standard.

Given that the United States maintains significant trading relationships with countries in Asia, Europe, and North and Central America, the dollar continues to enjoy safe-haven status.

Nonetheless, the United States still has not entirely recovered from the past economic calamity, as seen by persistently high unemployment rates (approaching 10%) and sluggish economic growth (which has persisted for a considerable while).

And the fact that investors can trust the United States Treasury to make good on their investments is what gives the US dollar its status as a safe haven currency. Investors fleeing the last financial crisis flocked to US Treasuries and the US dollar.

Treasury bills and notes are examples of government bonds. They are effectively a “I owe you” from the government with a defined maturity date and interest payments.

The only distinction between the two is the length of time you’ll have to wait to get your money back in full. In contrast to government bonds, which might have maturities of ten years or more, treasury bills mature in one year or less.

Government bonds from developed economies are more trusted by investors; US treasury bills are the most widely held of these bonds.

Their status as a safe haven stems from the United States’ stellar credit rating and the excellent quality of income denominated in US dollars. Investors view government bonds as a risk-free safe haven because of the consistent income they generate and the guarantee of full repayment upon the bonds’ maturity.

Final Thoughts

During times of market instability, the aforementioned assets’ values may fluctuate. Also, the definition of a safe haven evolves throughout time.

Even if an entire economic sector is doing poorly, the stock of one company operating inside that area that is doing well may be seen as a safe haven.

Investors wishing to put their money in safe havens would be well to complete their research ahead of time, as an asset that is viewed as such during a market slump may not be such a good investment during a market upturn.

That said, the dollar, and gold in particular, have shown dependable longevity as safe haven assets.

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Understanding Forex Trading Sessions

The foreign currency market is unique since it operates 24/7. With the advent of 24/7 trading, investors can now place trades at any time of the day or night, regardless of their time zone. However, when it comes to foreign exchange trading, not every time of day is made equal.

There is always a market for the most liquid asset class there is, forex, however there are times when price activity is continuously volatile and times when it is quiet.

Furthermore, different currency pairs display varying activity during specific times of the trading day due to the overall demography of those market players who are online at the time.

This article will discuss the three main trading sessions, discuss the types of market activity that may be expected during each session, and demonstrate how this information can be incorporated into a trading strategy.

How the 24-hour Forex market works

Many institutional and individual traders benefit greatly from a 24-hour forex market since it ensures liquidity and allows them to trade at any time of the day or night. Although currency trading is possible around the clock, a single trader can only keep tabs on a position for so long.

Since most traders can’t monitor the market around the clock, they’ll miss opportunities occasionally, and may even see their positions eroded by a sudden spike in volatility that occurs when they’re not available to protect them.

Since market volatility can affect any trader’s profits or losses, it’s important for traders to recognise periods of high and low volatility and adjust their trading accordingly.

Market activity often peaks during the Asian, European, and North American sessions (also known as the Tokyo, London, and New York sessions, respectively). These terms are used interchangeably because all three cities are considered to be regional financial hubs.

Most banks and enterprises in the respective regions perform their daily transactions, and there is also a bigger concentration of speculators online, while these three super-economies are open for business.

The Asian Session

Whenever the foreign exchange (FX) market regains its footing at the start of the week, all eyes are naturally drawn to the Asian markets. Unofficially, this region is represented by the Tokyo capital markets between the hours of midnight and six in the morning (GMT).

Notable countries including China, Australia, New Zealand, and Russia are also present throughout this time. Because of the dispersed nature of these markets, the start and finish of the Asian session naturally extend over the typical Tokyo hours.

As a result of the time zone difference, the Asian market is typically considered to be open between the hours of 11 p.m. and 8 a.m. GMT. You can learn more about the Asia Session here.

The European Session

Just when the Asian trading hours are winding down, the European session begins its activity. Many of the world’s most important financial centres are concentrated in this FX time zone. To date, London has been tasked with setting the terms for the European session.

The existence of other capital markets (such as Germany and France) before the formal open in the U.K. additionally lengthens the trading period, while volatility persists until after the close, delaying the session’s completion. As such, the standard European workday begins at 7 a.m. and ends at 4 p.m. GMT.

The North American Session

By the time the North American session begins, the Asian markets will have been shut for several hours, while European traders will just be halfway through their day.

The United States, Canada, Mexico, and South American countries all participate in the North American session, although the United States is the session’s undisputed leader. Consequently, it is not surprising that the session’s highest volatility and highest participation rate may be seen in New York City.

How to trade the different Forex Sessions

North American hours effectively begin at 12 p.m. GMT due to the high volume of economic data releases and early trading in financial futures and commodities.

Since there is a significant lull in liquidity between when the U.S. markets close and when the Asian trading session begins, trading in New York is said to end at 8 p.m. GMT when the North American session ends.

There is typically higher trading activity during the overlapping Asian and European sessions, which can lead to greater volatility.

There will be a greater reaction to the Asian/European session overlaps and a less dramatic increase in price action during the European/U.S. sessions’ concurrence if the currency pair is comprised of cross currencies that are most actively traded during Asian and European hours (like EUR/JPY and GBP/JPY).

Regardless of the session in which the pair or its components are trading, the presence of scheduled event risk for each currency will still have a considerable influence on activity.

Trying to enter a trade during a currency pair’s most active hours can result in a bad entry price, missing the transaction entirely, or making a trade against the rules of a long-term or fundamental trading strategy.

Traders who don’t intend to hold positions overnight, on the other hand, depend heavily on volatility.

One of the first things a trader must do when dealing in foreign exchange is to decide whether high or low volatility is more suited to their trading approach. If you’re looking for significant price movement, trading during session overlaps or normal economic release times may be your best bet.

Once a volatility bias has been established, the optimal trading hours can be determined. The next step for a trader is to learn the time frames that see the most action for their chosen currency pair.

5-3-1: A strategy for trading the different Forex Sessions

Foreign exchange (FX) traders can use the tried-and-true 5-3-1 trading strategy as a simple framework from which to build the most effective trading approach according to their individual needs and preferences. Since there are so many currency pairs to choose from and since trading occurs around the clock, the 5-3-1 method is very useful for novice traders.

Here’s how it works:

1. Choose 5 major currency pairs

Only five major currency pairings should be your primary focus when employing the 5-3-1 trading method. Pick currency combinations based on the one or two major currencies you have the most experience with.

We’ll get to the phase of the method where you choose your pairs based on their busiest trading times in a little.

You can learn a lot about the behaviour of pairings by concentrating on only five of them.

2. Use 3 primary trading strategies

The next step is to settle on no more than three distinct trading strategies. Any combination of trading approach and technical analysis indicators above this cap will result in reduced profitability.

By narrowing your trading plan to only three techniques, you may do technical analysis using only the timeframes and indicators that are most relevant to your trading style.

It also prevents you from getting confused by employing too many indicators, which can lead to confusion if they start to contradict each other and show confusing signals.

3. Trade at 1 session each day

The 5-3-1 method advocates for a single daily trading window. The fact that the Forex markets operates around the clock is a major selling point. All-hours trading provides access to a large pool of buyers and sellers at any time of day.

In contrast, if you don’t check in on your trading account regularly, you risk missing out on profitable trades or being caught off guard by unanticipated market fluctuations.

The best time to trade depends on the activity level of the currency pairs you intend to trade. The foreign exchange market is typically broken up into three sessions: Tokyo, London, and New York. You can probably tell just by looking at the titles of the pairs which currencies are the most actively traded during each session.

The third element of this strategy is to choose how often you will check in on your deals. However, this is also the most important time for you to put your trading plans into action. You will be unable to follow your trading plan if you log in to trade a currency that has low liquidity at that moment.

Final Thoughts

You, as a trader, must decide when is ideal to enter or exit a market. In terms of trading styles, time zones, and your own availability. For example, the Asian trading session is ideal if you want to aim for a small number of pips in a somewhat stable market.

If you’re looking for large price swings and significant volatility, though, the London session and the New York open hours are your best bet.

However, if you’re free to trade whenever you like, experts agree that the overlap of trading sessions is the greatest time to make transactions. Trading occurs when people from all around the world’s financial hubs are present. There is adequate volatility, and numerous assets can be traded with ample liquidity and tight spreads.

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