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What is a demo trading account?

What is a demo trading account?

Before you begin trading on a forex platform with a Forex broker, it is essential to get familiar with how to make use of the capabilities offered by the platform.

Traders are fortunate in that they are able to test out each platform using a demo account with brokers like Khwezi Trade, which means that they do not put their own money at risk.

In this article, we will go through the benefits of demo trading and provide you with some pointers on what to look for while evaluating various trading platforms.

Understanding a Forex demo trading account

A free demo account trades with virtual money rather than real money on a real trading platform. The use of a practice account, also known as a demo account, comes with a number of advantages, including the following:

Real-world application within the context of an active market
The capacity to become acquainted with the operational specifics of the software platform.
Access to a variety of market charts, trading signals, forex news, and other resources
The capacity to put one’s forex trading techniques to the test without incurring any financial risk

Along with the rise of internet trading in the twenty-first century, the use of demo accounts also grew increasingly common.

They are advertised to customers as a method for users to evaluate the user experience and features of a platform before committing their own money to these investments or paying the trading commissions that are required by the platform.

You can sign up for a demo account online whether you are a prospective customer of the broker or if you are already a customer and you just want to spend some time learning trading methods without taking any risks.

Demo accounts are another popular option for traders who already have expertise trading equities but wish to try their hands at trading other asset classes.

Even if they have a lot of experience in the FX market already, investors may still find it beneficial to practice their skills on a virtual stock market by signing up for a trial account before they start trading futures, commodities, or currencies.

This is due to the fact that unlike stock markets, these markets are influenced by a distinct set of factors, permit a more diverse range of market orders, and have margin requirements that are structured in a different way.

Demo accounts were not very practical before the widespread usage of personal computers and the Internet. When trades were largely documented using paper, monitoring a virtual trade would have been time-consuming and costly, eliminating the principal benefit of a demo account – that it is offered for free.

Demo accounts began to be given by online brokerages in the 2000s, as high-speed internet was starting to be utilized by more traders.

The difference between a demo and a live account

The majority of foreign exchange brokers provide their customers with access to both live and demo trading accounts.

A live account is one that is used to really make deposits, open genuine trades, generate profits or suffer losses. These activities can all take place in a live account. In a nutshell, they are the ones that are risk their capital during actual trading.

Demo accounts are available from most brokers, due to the fact that real trading accounts come with a variety of financial risks and that there are many people who are just beginning out in the world of trading. Demo accounts might have fewer instruments available, and the spreads slightly wider, but is a great tool to back-test strategies with zero capital risk.

Traders can practice their skills without risking their own money by taking use of the demo account’s provision for the use of fictitious capital rather than real money when engaging in financial transactions.

Demo accounts and live accounts are typically quite comparable to one another in terms of their ability to reflect price patterns and swings, the trading tools and indicators they provide, and the general realism of the experience they provide.

People are able to choose their favourite trading instrument, determine the size of the position, and begin trading on the market, regardless of the sort of market they are trading in using a demo account, just as they would with a live account.

However, rather than making deposits from your own personal wallet, you are utilizing virtual funds provided by the broker.

This is in contrast to making deposits from your own wallet. It indicates that you are not trading foreign exchange, indices, commodities, or any other instruments with the money of another individual.

The procedures for setting up each type of account is another way in which they are distinct from one another.

On the one hand, there is the option of opening a live account, which normally necessitates the trader submitting some kind of identity for FICA to the broker, along with completing appropriateness and making a deposit.

A demo account, on the other hand, typically does away with all of those stringent requirements and instead only requests the most fundamental information, such as the user’s name, email address, and so on. In addition, there is no minimum amount required for the deposit.

The most significant distinction is that users of a demo account do not have to risk any of their own money when making trades.

Demo accounts are a great way to learn the fundamentals of trading in virtually any financial market, including foreign exchange (Forex), indices and commodities.

Who should make use of demo accounts

Beginners are the most evident group that can fully exploit the advantages of a demo account because they have the most to gain from doing so.

Many seasoned and successful traders believe that engaging in live trading and putting your hard-earned money at risk without having the necessary knowledge and experience is a much riskier endeavour than trading already is.

Therefore, it is ideal for them to hone and polish their trading skills utilizing an FX demo account before moving on to live trading. After that, they can proceed with live trading.

Beginner traders have the ability to efficiently answer some of the most crucial questions that every trader should ask themselves before to entering a financial market by using a demo account. These questions include the following:

Which tradable instrument is best suited for them; it is not a good idea to start trading the very first instrument that you come across, no matter how appealing it may appear.

Every instrument has its own quirks, such as varying levels of volatility, trading hours, and market density, all of which need to be taken into consideration before deciding which asset will act as the primary trading asset.

When is the most profitable time to start trading? This question is especially relevant for day traders, who are defined as investors who open and close positions within the same trading day.

Traders will have a better grasp of when the financial instrument is most active and volatile, as well as the optimal time to make a trade, if they experiment with a variety of different timing approaches.

What is the most effective strategy to execute trades – by utilizing several trading strategies on demo accounts, people can find the ideal one that delivers the biggest payment and minimizes the losses.

The question of what is the most effective strategy to execute trades is an important one. It is essential to put trading techniques to the test in real-world conditions, and a trial account can serve as an excellent training ground for this purpose.

This is due to the fact that trading strategies are not universal and that different approaches are successful for various traders.

Using demo accounts to test trading platforms

The majority of brokers provide access to many platforms. The prominent trading platforms MetaTrader 4 and 5, usually known as MT4 and MT5, respectively. In addition to that, the majority of brokers offer supplementary platforms.

While each platform may function and look slightly different, most provide roughly the same features. These features include forex quotes/prices, charts, technical analysis tools, news feeds, trade history, drawing tools, and functionality for buying and selling currencies.

Some platforms have more features than others. For example, some of them have integrated fundamental analysis tools. That may be important for a long-term investor, but it doesn’t matter for a short-term trader.

When you have a firm grasp on the fundamental features of a trading platform, you should switch over to the demo version so that you can practice trading using different techniques.

Demo trading is not the same as real trading, but it can help you become more prepared for the real thing. After suffering a significant loss in a demo account, a lot of people are completely unfazed by the experience.

On the other hand, some of them go completely off the rails after suffering even a moderate loss in a genuine account. You need to trade the virtual money in the demo account as if it were real money if you want to get the most out of the demo trading experience.

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Pros and cons of high vs. low leverage

Pros and cons of high vs. low leverage

High leverage is one of the main attractions of the foreign exchange market, allowing traders to trade larger positions with smaller amounts of capital. Higher maximum leverage ratios will allow South African traders to open larger positions in forex markets, increasing their chances of earning larger potential profit.

This is done when the broker offers a loan to the trader, requiring that the South African trader pay a margin requirement as collateral for the trade. While this tool is a trading advantage, leverage comes with increased risks.

Using a high maximum leverage ratio can result in larger losses and it can often clear out the trading account. Apart from using risk management protocols, traders are urged to use educational materials to ensure that they know how to trade using leverage and margin.

Another protective measure when trading with leverage is to ensure that the retail trading account has negative balance protection applied, protecting the investor from a negative account balance. South African brokers offer generous amounts of leverage and South African traders are not restricted from using high leverage ratios.

Therefore, we have compiled a comprehensive list that features some of the best forex brokers in South Africa that offer high leverage.

Pros and cons of high vs. low leverage

To master the art of trading foreign currencies, one must have in-depth knowledge of the economy and political climates of various nations, as well as global macroeconomics and the influence that volatility has on certain markets.

But the fact of the matter is that economics and international finance aren’t typically what causes first-time forex traders to make mistakes. Instead, a fundamental lack of information on how to make use of leverage is frequently at the base of trading losses.

In this article, we explore the advantages and disadvantages of using either high or low leverage, as well as how to mitigate the risks involved with using leverage with brokers like Khwezi Trade.

When to use high leverage

High leverage is essentially a personal perspective, however higher leverage is generally considered to fall between a ratio of 1:400 to 1:1000 and higher.

Using high leverage can be a good strategy when trading on a smaller account. In the world of trading, leverage generally refers to money that is borrowed.

Leverage is a tool provided by brokers that enables traders to open larger positions in the market than their current account balance would normally permit.

The most appropriate leverage for a small account is the kind that enables you to open sufficient positions in accordance with your trading strategy without putting you in danger of receiving a margin call during volatile conditions when the market moves against you.

This can be anywhere from 1:100 and 1:1000 for accounts that are between R100 and R5000 in value. Remember that one standard lot in foreign exchange (1.0) is equal to 100,000 worth of the base currency, and one micro lot in forex (0.01) is equal to 1,000 worth.

You will require at least approximately sixteen thousand rands in order to establish a 0.01 lot size position on the , and you won’t be able to add any additional trades if you don’t use leverage. A single position with a lot size of 1.0 will cost you a total of R160 000 to open.

Retail traders with modest accounts who would normally be excluded from the market are given the opportunity to participate by brokers through the use of leverage.

Everyone trading with less than sixteen thousand rand, those trading with one hundred and sixty thousand rand, and those trading several positions are included in this category.

Advantages of using high leverage

Ability to make higher profits

You can make more money with less work if you use high leverage in your trading strategy with brokers like Khwezi Trade.

Leverage’s primary function is to increase your profit from each available transaction by multiplying the stakes, regardless of the instrument being traded or the amount being staked.

To achieve the same result, you could spend more money in each position, but leverage works to ensure that you’re able to increase your available capital artificially, frequently hundreds of times over.

More efficient use of your capital

A higher profit per transaction also means better use of your capital because you can earn more money every transaction. Consider your capital as a yield-producing asset for the sake of argument.

Leveraging up will reduce the time it takes to make R1000 from unleveraged positions from two days to a matter of minutes, allowing you to reinvest your cash more frequently and use it to achieve the highest possible return.

Leverage has a tremendous impact on capital efficiency and ensures not only better potential profits in the short term, but also a considerably greater return on investment over a much shorter time period.

It can reduce the effects of low volatility

High leverage also has the effect of mitigating low volatility, which is an important consideration when trading forex. Because markets move in longer cycles than more stable instruments, the most profitable deals are frequently those that are most volatile.

Volatility tends to be lower in the forex markets because of the cautious character of currency traders and the limited number of external indicators that can predict currency price changes.

High leverage can help alleviate the stifling effect of low volatility by allowing for higher profits to be generated from fewer transactions. Leverage allows traders to profit from minor changes in market pricing, which can become significant when holding positions with high levels of leverage.

Disadvantages of using high leverage

Risk of higher losses

High leverage can be tricky since it facilitates larger losses. Even if you keep your gains and losses, leverage can wind up costing you a lot more than you paid for when you suffer losing trades.

The risk of margin call

There is always the possibility that you will fall short of your broker’s margin requirements.

As soon as you go below this percentage, your broker will initiate a margin call, which means your portfolio will be immediately liquidated in order to fulfill your obligations as far as meeting those commitments is concerned.

Positions which may have yielded huge profits are closed out early (creating an inevitable opportunity cost) in addition to liquidation losses that might recoup.

When it comes to managing your wealth, it’s important to remember that this is a constant danger posed by the presence of leverage.

When to use low leverage

Low leverage and proper capitalization allow you peace of mind because losses are smaller. Avoiding catastrophic losses is far more important than chasing profits in a market with unlimited opportunities.

Trading in volatile markets necessitates a low-leverage strategy for this same reason. It is possible to be exposed, but not overwhelmed by its potentially overwhelming dangers, with minimal leverage.

Advantages of using low leverage

Reduced losses

If you’re new to trading, you should know that leverage can be just as risky as it is profitable. It can help you gain more, but it can also cause you to lose more.

This means that the risk of losing money is greatly reduced when you have a lower level of leverage. Also, even if you lose a transaction, because of the low leverage, you can keep trading for a longer period of time with brokers like Khwezi Trade.

As leverage increases, the less room the market has to move before a margin call occurs. That’s why a lot of beginner traders begin with modest leverage.

Capital can be recovered more easily

When it comes to online trading of financial instruments and digital assets, it is impossible to avoid incurring losses. To be successful in trading, all that is required is for your profits to be higher than your losses.

The use of minimal leverage enables traders to recover their capital losses in the simplest and quickest manner feasible.

Reduced transaction cost

The transaction expenses involved in using leverage are one of the lesser known disadvantages. When it comes to trading CFDs online, spreads are typically of no consequence. However, the fees can pile up quickly when you use leverage, which can limit your profitability.

A lower leverage helps to keep your exposure low, which limits the size of the swings when the market is volatile.

You can also trade around unpredictable events, such as news releases, because the potential for widening spreads will not have a significant influence on the size of your bankroll.

In addition, you are able to open several transactions in a variety of markets without having to be concerned about incurring enormous transaction expenses.

Reduced stress when trading

When trading leveraged goods like contracts for difference (CFDs), emotions have been identified as one of the primary reasons why traders end up losing money. Emotions are a natural part of human life, but negative emotions can cause people to make poor decisions in the market.

When you have overextended your account and are staring at a loss that is going to wipe out your account, you have a greater chance of giving in to negative emotions such as fear, greed, and bias. This is because you are more likely to feel powerless in these situations.

You will have the mental clarity necessary to make objective trading decisions in the market if you engage in trading with a low leverage ratio.

Disadvantages of low leverage

Reduced chance of profits

When trading with low leverage you are only able to open smaller a position than you would of trading on higher leverage. Opening smaller positions means that your chances or earning higher profits are reduced.

Final Thoughts

Leverage is a tool that is used by traders to open larger positions than they would be able to using their own deposited funds. As such, the use of leverage allows for greater flexibility and access to more profitable trades on the Forex market.

There are advantages and disadvantages to using both high and low leverage, but deciding which to use ultimately comes down to your level of trading experience, the amount of funds you are able to risk, and your trading strategy.

To this end, when using leverage you should always have a risk-adjusted strategy in place in order to ensure that you can mitigate your potential losses as far as possible.

Other Resources

How traders can participate in the commodities market

How traders can participate in the commodities market

For investors, commodities can be an excellent means of diversifying their portfolios beyond standard assets. Because the prices of commodities tend to fluctuate in opposition to equities, some investors also lean on commodities during moments of market instability.

Formerly, commodities trading took substantial quantities of time, money, and experience, and was primarily reserved to professional traders.

Today, there are more opportunities for participating in the commodity markets with brokers like Khwezi Trade.

Understanding commodities trading

To speak in the most general terms possible, the fundamental concepts of supply and demand are what drive the markets for commodities. Alterations in the supply have an effect on the demand; lower supplies result in higher pricing.

Therefore, any big disruptions in the supply of a product, such as a war breaking out affecting the supply of oil producing nations can lead to a price spike in the demand for oil.

The progression of the global economy and developments in technology can also have an effect on prices.

For instance, the rise of China and India as prominent actors in the manufacturing industry (which has led to an increased need for a greater volume of industrial metals) has contributed to a decrease in the availability of metals such as steel for the majority of the world’s population.

Trading stocks and bonds has a far more recent history compared to the profession of trading commodities, which dates back much further in time.

It is possible to trace the creation of a great number of empires back to their capacity to develop sophisticated trading networks and to streamline the process of commodity exchange. Even in the present era, people all around the world continue to trade various commodities.

In recent years, a number of commodity exchanges have either consolidated into a single entity or ceased operations entirely. Although some exchanges focus only on one category, the vast majority of exchanges deal in a variety of different commodities.

Popular commodities to trade

Typically, tradable commodities are classified into the following four basic categories: metal, energy, livestock and meat, and agricultural.

Agriculture

Corn, soybeans, wheat, rice, cocoa, coffee, cotton, and sugar are all examples of commodities that come from agriculture. When it comes to the agricultural industry, the summer months and other times of the year when there are weather-related shifts can be times of extreme volatility for grains.

Population growth, when combined with limited agricultural supply, can provide opportunities for investors interested in the agricultural sector to profit from rising agricultural commodity prices.

Energy

Investors who are interested in entering the commodities market in the energy sector should also be aware of the ways in which economic downturns, any shifts in production enforced by OPEC and new technological advances in alternative energy sources can impact on the market prices.

Metals

Gold, silver, platinum, and copper are examples of the commodities known as metals. Because of its status as a reliable, dependable metal with real, conveyable value, precious metals, and particularly gold, are attractive investments for some investors during times of market volatility or bear markets.

In particular, gold is attractive because of its status as the most valuable precious metal. Investors also have the option of purchasing precious metals as a hedging strategy to protect their wealth during times of excessive inflation or currency devaluation.

Commodities in the energy sector include gasoline, natural gas, crude oil, and heating oil respectively. Oil prices have traditionally increased as a result of global economic advancements and decreased oil outputs from established oil wells around the world.

This is because demand for energy-related products has increased at the same time as oil supplies have decreased.

How to trade commodities

The commodity market of today is far more advanced than it was in the past. Not only is there a lengthy list of different commodities being traded, but it is also a global market with exchanges located all over the world.

During the week, it is possible to trade commodities for nearly the whole 24 hours of each day. There are a few distinct approaches you may take to trade commodities in your portfolio, each of which comes with its own set of benefits and drawbacks.

Commodities ETFs and Mutual Funds

There are three different types of funds that are based on commodities: exchange traded funds (ETFs), exchange traded notes (ETNs), and mutual funds.

These funds pool the capital contributed by a large number of individual investors in order to construct a large portfolio that attempts to replicate the price movement of a single commodity or a group of commodities.

One common example of this type of fund is a mutual fund that invests in a variety of energy commodities. Either the fund may purchase futures contracts in order to track the price, or it may invest in the stock of various companies that have exposure to various commodities.

If you make a modest investment, you can gain access to a significantly wider variety of commodities than you would be able to acquire if you tried to construct the portfolio on your own. In addition to this, the management of the portfolio will be handled by an experienced investment professional.

On the other hand, in order to participate in the commodity fund, you will be required to pay a higher management fee than you would have paid if you had handled the assets on your own.

In addition, depending on the strategy that the fund uses, it may not replicate the movement of the commodity price exactly.

CFDs

The purchase and sale of contracts for difference on the international financial markets is by far the most frequent method for the trading of commodities. The way that this system operates is that you purchase a CFD on a trading platform operated and offered by an online ODP broker.

You are not actually purchasing or selling the underlying physical commodity when you engage in the trading of CFDs.

Brokers do not actually take delivery of millions of barrels of oil or ounces of gold because the entire purpose of CFD trading is to speculate on fluctuations in price.

To participate in CFD trading, you will need to open an account with a specialized brokerage firm like Khwezi Trade that facilitates transactions of this kind before you can begin trading.

Having an account with a brokerage firm that provides CFDs is required for traders to participate in these markets. When you start or end a position in commodities CFDs trading, you will be responsible for paying the broker the spread, which is the difference between the bid and ask price.

Final Thoughts

Raw materials that drive the economy of the entire world include iron ore, crude oil, and precious metals, among other commodities.

Investing in commodities involves specialized knowledge and may carry greater risk than investing in conventional assets such as equities and bonds. However, they provide exceptional chances for astute investors to profit from the ever-changing values of the commodities they purchase.

Other Resources

How do interest rates affect traders

Calculating Forex lot sizes

How to trade while working full-time

How is Forex income taxed in South Africa

How does your bonus affect your leverage?

How does your bonus affect your leverage?

A bonus, in its most basic sense, is just a method of offering traders an incentive for choosing a particular broker over another.

After establishing an account with a Forex broker like Khwezi Trade, a trader will be able to trade currency pairs and will be required to bear the costs of the spreads that are incurred by every other trader in the market.

Once the trader has demonstrated that they are an active participant in the market, the broker will award the trader with the bonus when they deposit as a way of thanking them for their choice of trading platform and allowing them more buying power in the market.

Forex bonuses present several advantages to new and existing traders, and in this article, we explore the way that receiving a Forex bonus will affect your leverage.

Understanding how Forex bonuses work

There are a number of incentives that brokers like Khwezi Trade are willing to give to traders, and one of these is by providing the trader with a credit once they have finished making a deposit. The credit or bonus is normally a percentage of the deposited amount varying between 20% and 60%.

Forex No Deposit bonus

This Forex trading bonus is provided to traders at no additional cost to them and does not need a deposit on their part. In most cases, the amount of such a bonus ranges anywhere from R100 and R500.

In most cases, brokers will make such offers available to traders in the hopes that they will become more likely to carry out transactions and will learn how to trade currencies more successfully.

As the money that is traded takes place on live servers, these bonuses can provide a preview of live conditions.

Traders with more experience can benefit greatly from this type of bonus. When it comes to the construction of trading techniques, no deposit bonuses are among the most helpful tools available.

The fact that novice traders typically begin their involvement in the market by taking advantage of Forex trading bonus offers is the most significant drawback associated with these bonuses. It’s important to note that no deposit bonuses are not withdrawable and a trader should be familiarised with the brokers terms and conditions.

This is due to the fact that a no deposit bonus enables traders to test out new methods of trading and tactics without putting their live accounts at risk of suffering substantial losses. Trading can become less stressful when you open an account that offers a bonus with no initial deposit required. Khwezi Trade recommends rather starting with a demo account to test the trade execution times of the platform and get a feeling for the spreads applicable per instruments available.

Forex Deposit Bonus

The Forex deposit bonus is one of the most prevalent types of promotional incentives that brokerage firms use to encourage new clients to sign up for their services. Khwezi Trade likes to offer experienced traders a deposit bonus which varies between 20-50% depending on the promotion at the time.

The principle behind this is that investors will receive either a predetermined sum of money or a particular percentage of the money they initially deposited into their trading account in exchange for making the original financial commitment.

A first time deposit or welcome bonus is, in the vast majority of circumstances, only given out once, and it is restricted to new customers.

However, it is important to note that in this context, there are also some Forex deposit bonus brokers who offer their customers this kind of benefit each time they deposit money on their trading account. This is to the discretion of the broker and can be applied to clients depending on their trading style and history.

It is worth adding that there are Forex deposit bonus brokers. These are also referred to as reload deposits in some instances.

Many market participants find the deposit bonus offers to be appealing since it enables them to enhance the amount of trading capital they have at their disposal by a specified amount and then use that additional cash to create new positions.

Additional Forex Bonus Types

When traders make additional deposits of money into their trading accounts, certain brokerage firms reward them with bonuses. In some circles, these are sometimes referred to as “reload bonuses.”

It is important to note that in most circumstances, the percentage amount of the bonus can be less than what is often offered for welcome bonuses. This is something that should be kept in mind moving forward.

This makes perfect sense when one considers that the consistent payments that are associated with reload bonuses constitute a significantly greater amount of long-term expenditure when compared to the circumstances in which welcome bonuses are involved.

Despite this, it should come as no surprise that a sizable proportion of traders find these kinds of bonuses to be appealing.

Participants in this market have the opportunity, as a result of these reload bonuses, to significantly grow the size of their trading capital, as opposed to simply earning a single bonus payment.

In this scenario, the traders not only gain incentives for opening a new account but also for each and every time that they make a deposit into their existing account.

All traders should read the terms and conditions issues and available on the broker’s website to understand the offering and what it entails. For example, some brokers require traders to trade or meet a certain amount of volume traded in order to qualify for the withdrawal of their credit or bonus.

Understanding how leverage works

The foreign exchange market makes extensive use of the idea of leverage. Investors can take larger stakes in a currency by borrowing money from a broker and using that money to trade.

As a consequence of this, leverage amplifies the rewards obtained from advantageous shifts in the exchange rate of a currency.

Leverage is a tool offered by brokers like Khwezi Trade that investors use to potentially boost their profits from currency trading. The foreign exchange market provides investors with one of the highest levels of leverage that is currently available.

The broker will essentially extend credit in the form of a loan to the investor in the form of leverage. Establishing a forex trading account for the trader is necessary in order to engage in margin trading or trading using borrowed money.

When dealing with inexperienced traders, certain brokers may initially restrict the amount of leverage that can be utilized. In the vast majority of instances, traders have the ability to customize the amount or size of the deal based on the leverage that they desire.

However, the broker will require that an initial margin, which is a percentage of the trade’s notional amount that must be held in cash in the account, be paid before the trade can be executed.

How a Forex Bonus affects leverage

Forex bonuses increase the amount of money in your account, and therefore it will increase the amount of leverage that is available to you. Below is a detailed explanation of this process.

Your deposit amount affects your trade size

Let’s assume your minimum trade size is 0.01 lots. On the currency market, the typical contract size that is used is called a lot. Because one lot is equivalent to 100,000 units of a base currency, one hundredth of a lot is equal to one thousand units of the base currency.

If your leverage is 1:1000 and you make a purchase of 0.01 lots of EUR/USD, you will be required to put up a margin of R16 for the trade.

If you have a micro account and deposit R80 your deposit will cover this margin, and you will be allowed to open three more transactions of the same value. Every point that the price moves in either direction will net you or cost you R16.

If you have a larger deposit size in your account, you will also be able to open a larger position with the leverage ratio made available to you.

The great thing about increasing leverage by means of a Forex bonus is that you are not increasing the risk of losses occurred to your own capital, as the bonus amount is money awarded to you by your broker.

How to minimize the overall risk of using leverage

Once you understand how to keep your leverage under control, you no longer have any need to be afraid of it. The one and only circumstance in which you should never employ leverage is when you approach your trades in a hands-off manner.

In any other case, leverage can be used successfully and financially provided that it is managed properly. Leverage, like any other potentially dangerous tool, requires careful manipulation; nevertheless, once you’ve mastered this skill, there’s no need for concern on your part.

Smaller amounts of real leverage applied to each trade allow for more breathing room, which can be achieved by setting a stop that is both wider and more acceptable, so reducing the risk of suffering a greater loss of cash.

If the deal goes against you and you are using a high level of leverage, your trading account might be depleted very rapidly because you will rack up greater losses due to the larger lot sizes. Bear in mind that leverage can be adjusted in accordance with the specific requirements of each individual trader.

Final Thoughts

A Forex bonus is often awarded by brokers to new traders when opening an account, and can also be awarded on subsequent deposits made by existing traders, depending on the bonus schemes provided by individual brokers.

The use of a Forex bonus allows you to boost your leverage ratio, and therefore increase the size of your position, without placing any risk of loss on your own investment capital.

Other Resources

How do interest rates affect traders

Calculating Forex lot sizes

How to trade while working full-time

How is Forex income taxed in South Africa

Forex Chart Patterns

Forex Chart Patterns

Profits (or losses) can be made through trading financial assets on the foreign exchange market by speculating on the fluctuations in the prices of different currency pairs.

Typically, price changes are depicted using candlesticks. After a succession of time periods have passed, candlestick patterns appear on a chart, and these patterns reflect the price action story of the underlying asset.

Traders can get a better sense of the market’s mood and sentiment with the use of chart patterns, which are strong tools for performing technical analysis since they show raw price movement and help traders get a sense of how the market is feeling.

They simply make it possible for traders to ride the wave of the market, and when properly understood and read, they may assist in identifying opportunities for profitable trading with a minimum of exposure to risk.

How chart patterns can be used to improve your Forex trading

Chart patterns are a graphical representation of the demand and supply in the market as it exists at the current moment in time. Traders with Khwezi Trade are able to improve their trading by making use of chart patterns on the Metatrader 4 platform in the following ways:

Allows you to respond in time to market developments

Using chart patterns in trading entails following the raw price action of the asset being traded, as was previously indicated. When unexpected changes occur in the market conditions, chart patterns make it easy to determine or validate those changes.

If traders are able to anticipate shifts in market circumstances in a timely manner, they may be able to increase their profits or reduce their losses. Traders may also benefit from this because it makes it possible for them to initiate trade positions that are consistent with the new trend much earlier.

Chart patterns ensure that changes in market conditions are a source of enormous potential, despite the fact that changes in market conditions are a natural source of market danger.

Chart patterns allow you to open positions based on the best price action

Price action traders watch the market, analyse and interpret the raw price action, and look for chances to trade when they arise.

Although it is still considered a type of technical analysis, price action involves the use of clean charts, which do not include any indicators.

This constitutes the most advanced kind of price action research, and it enables traders to watch trends and identify precise support and resistance zones. Chart patterns are genuinely leading and enable traders to time market opportunities in a way that is both effective and efficient.

This is in contrast to the nature of many technical analysis indicators, which is to say that they are fundamentally trailing. This indicates that market participants are able to place buy and sell orders in the market at the appropriate times and at prices that are optimal.

Chart patterns allow you to set the best price targets

Forex traders can place conditional orders, which are a specialized sort of order that attaches specific requirements that need to be satisfied before the order can be executed in the market.

Limit orders, stop orders, and stop-limit orders are the three types of conditional orders that are the most prevalent and fundamental.

Conditional orders are those that contain predetermined price goals, and they assist traders in risk management, opening and closing positions, and securing profits. When they emerge, chart patterns are typically governed by certain rules and have predetermined price targets.

Because of this, chart patterns are the best sort of analysis to use when trading conditional orders, which include targeting specific price levels.

More on setting best price targets

Forex traders can place conditional orders, which are a specialized sort of order that attaches specific requirements that need to be satisfied before the order can be executed in the market.

Limit orders, stop orders, and stop-limit orders are the three types of conditional orders that are the most prevalent and fundamental.

Because of this, chart patterns are the best sort of analysis to use when trading conditional orders, which include targeting specific price levels.

Chart patterns allow you to evaluate an effective risk-reward ratio

Chart patterns have a certain formation that can be followed to derive an expectation of how prices may behave in the future. This means that when a chart pattern appears, the subsequent price action defines whether or not it is a real chance to trade or maintain a position.

If it isn’t valid, then it isn’t an opportunity at all. As noted before, every chart pattern adheres to a set of predetermined rules, which makes it possible to calculate the risk-to-reward ratio in advance.

For instance, when a head and shoulders pattern emerges in the context of an uptrend, the beginning objective for the predicted downward movement is a pip amount that is comparable to the distance between the “neckline” and the top of the “head.” Just above the “shoulders” is an ideal location for a stop-loss order.

Traders are able to determine whether or not each trading opportunity that presents itself is worthwhile to trade when they have this knowledge before it occurs.

The best chart patterns for beginner traders

Even though there are several chart patterns of differing degrees of intricacy, there are two typical chart patterns that occur frequently and offer a trading strategy that is quite easy to understand and implement.

Head and Shoulders

After an uptrend or a downturn, the Head and Shoulders pattern can either be a topping formation or a bottoming formation depending on the circumstances.

A price high is followed by retracement, a greater price high is followed by retracement, and then a lower low is seen after the topping pattern.

The bottoming pattern consists of a low price (the “shoulder”), a retracement, followed by an even lower price (the “head”), and a retracement, followed by an even lower price (the second “shoulder”) after that.

When the trendline (also known as the “neckline”) that connects the two highs (in the case of a topping pattern) or two lows (in the case of a bottoming pattern) of the formation is broken, the pattern is said to have been completed.

Triangles

Triangles are extremely prevalent, particularly in time frames with a short-term perspective. Triangles occur when prices converge with the highs and lows narrowing into a tighter and tighter price area.

They can be symmetric, ascending, or descending; nevertheless, the distinction between the three is negligible from a trading perspective.

How to use chart patterns in your Forex trading

When it comes to trading chart patterns, timing is an essential component to keep in mind. Because of this, using conditional orders to take advantage of trading opportunities provided by chart patterns is the most effective way to do so.

Make use of conditional orders

Some examples of conditional orders include stop orders and limit orders. Traders can place buy stop orders that will be filled when there is a breakout in the direction of the trend, for instance when the price is consolidating in a bullish flag pattern during an uptrend (a continuation pattern).

These orders will be filled when the price breaks out in the direction of the trend. Traders will be able to capitalize on the upward trend as soon as it gets back on track thanks to this strategy.

Include the use of technical orders

Chart patterns do not lag behind price movement; while this may seem like a positive quality, it also poses a risk because it increases the likelihood that early price action signals may be quite choppy.

The majority of technical analysis indicators are behind price movement; nevertheless, when paired with chart pattern analysis, these indicators can validate strong signals that traders in the market can trade aggressively on.

For example, traders are able to take aggressive trade positions when the price breaks out of a symmetrical triangle and an indicator confirms that there is sufficient momentum to back up the directional move.

Traders can also take such positions when there is sufficient momentum to back up the move in either direction.

Use candlestick patterns to confirm signals

Candlestick patterns are another helpful tool for analysing the raw price movement of the market, and chart patterns are an excellent price action strategy. The indications that chart patterns provide can be further qualified by using candlestick patterns.

If there is a convergence between a chart pattern and a candlestick pattern, such as pin bars, Marubozu, spinning tops, or Doji, then the chart pattern will be considered more qualified.

Candlestick patterns can take as little as one or two time periods to form, in contrast to the longer amount of time required for the formation of chart patterns. Candlestick patterns can assist chart pattern traders in identifying high-quality, early entry and exit trade opportunities in the market.

Include line charts

Chart patterns have the potential to offer valuable trading signals, but in order to benefit from them, you must first be able to identify them. This may not be a particularly difficult task, but it is essential to establish a method for detecting the formation of chart patterns at an early enough stage.

Failing to do so could result in outcomes that are less favourable than those sought. When ZA traders want to confirm that a chart pattern is formed, they might consider switching to line charts instead than candlestick charts.

Line charts can be helpful in this regard because they smooth out and simplify the price action, as well as make it easy to validate a chart pattern in sufficient time for appropriate trading.

For more on forex news, charts and education follow through to FX Explained.

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Currency Pairs

Currency Pairs

The value of one currency is compared to the value of another currency using a currency pair. The base currency (also known as the first currency) is compared to the quote currency (also known as the second currency).

This number reflects the amount of the quote currency that must be paid in order to purchase one unit of the base currency.

In this article, we explore the different types of currency pairs and discuss why currencies are traded in pairs in Forex.

Understanding currency pairs

The value of one currency is measured in relation to that of another through the use of currency pairs, which are found on the foreign exchange market. The first currency in the pair is referred to as the ‘base’ currency, while the second currency in the pair is referred to as the ‘quote’ currency.

Together, these two currencies make up the currency pair. The amount of the quote currency that must be paid in order to acquire one unit of the base currency is reflected in the price that is presented.

The foreign exchange market is also known as the currency market or the forex (FX) market. It is the largest and most liquid financial market in the world, with daily trading volume of over $5 trillion worth of currencies.

Trading in foreign exchange always takes place in pairs. This is due to the fact that foreign exchange trading involves buying one currency while concurrently selling another. One can consider the currency pair itself to be a single unit, an instrument that is either purchased or sold at a given point in time.

The Euro and the US Dollar (EUR/USD) and the British Pound and the Japanese Yen (GBP/JPY) are two examples of currency pairs.

Understanding currency correlation

The term “correlation” is used to refer to the similarities that are shared by different currency pairings. On the foreign exchange market, no currency pair is ever exchanged in a manner that is wholly detached from the trading of the other currency pairs.

When it comes to portfolio management, having a working knowledge of forex correlation pairs is helpful. A trader is said to be trading a derivative of the euro dollar (EUR/USD) and dollar yen (USD/JPY) pairs when they trade the euro against the Japanese yen (EUR/JPY pair), for instance.

Because of this, the EUR/JPY pair must have some kind of correlation with either one of these other currency pairs, or both of them.

It is helpful to obtain a better grasp of the correlations between different currencies and gain some insight into the relationship between different currency pairs.

It may be helpful to consider if they are positively correlated or negatively associated, or whether they are likely to move in the same direction, opposing directions, or completely randomly. When engaging in transactions involving currency pairs, all of these factors are essential to keep in mind.

Major currency pairs

When placing an order in the foreign exchange market, traders have a wide selection of currency pairs from which to choose.

All currency pairs that include the US dollar (USD), the currency of the nation with the largest economy in the world at the present time, are considered to be major currency pairs. On the foreign exchange market, the major currency pairs are the ones that see the largest volume of trade.

Seventy-five percent of all currency trading is done in the major pairs. They account for the overwhelming majority of all currency trades. These currency pairs have the highest volume of buyers and sellers, and as a result, their bid and ask spreads are often the narrowest.

The difference between the buy price and the sell price is referred to as the spread. The majority of traders would probably agree that trading any of the seven major currency pairs listed above can result in the highest profits.

The following is a list of the seven major currency pairs that are considered to be the most popular across the world. CFDs can be used to trade on each of these currency pairs with brokers like Khwezi Trade:

EUR/USD
USD/JPY
GBP/USD
USD/CHF
AUD/USD
USD/CAD
NZD/USD

Minor Currency Pairs

Cross-currency pairs, also known as minor currency pairs, are currency combinations that do not include the US Dollar as one of the currencies.

In the past, if traders wanted to change one currency into another, they first had to convert the original money into US dollars, and then they could convert those dollars into the currency of their choice.

Because currency crosses are now available, traders with brokers like Khwezi Trade no longer have to perform these laborious calculations; instead, they can take use of the fact that all brokers now give immediate prices.

The three most important currencies that are not the US dollar are the source of the majority of the most active crosses (the Euro, the UK Pound and Yen). Minor currency pairs are those that are not widely traded.

Popular minors which traders can access through brokers like Khwezi Trade include the following:

EUR/GBP
EUR/CHF
EUR/CAD
EUR/AUD
EUR/NZD
EUR/JPY
GBP/JPY
CHF/JPY
CAD/JPY
AUD/JPY
NZD/JPY
GBP/CHF
GBP/AUD
GBP/CAD

Exotic currency pairs

A major currency is paired with the currency of an emerging or a strong but smaller economy from a global perspective.

Examples of such economies include Hong Kong and Singapore, as well as European countries that are not members of the Euro Zone. Exotic currency pairs are comprised of both of these currencies.

Because these currency pairs are not traded as frequently as the majors or the minors, the cost of trading these pairs can often be greater than the cost of trading the majors or the minors because there is less liquidity in these markets.

Some more popular exotic which can be trade include the following:

EUR/TRY
USD/SEK
USD/NOK
USD/DKK
USD/ZAR
USD/HKD
USD/SGD

Market movements that affect currency pairs

The value of one currency relative to another is one factor that might cause fluctuations in the exchange rate.

Traders are constantly on the lookout for favourable exchange rates. These rates are provided by banks all around the world and are updated in time periods of less than one second; the foreign exchange market moves at an exceedingly rapid pace.

The prices of currency pairs can also be influenced by the pricing of commodities. Commodity currencies are ones that are used in countries that are rich in various commodities or other natural resources and produce their own currency.

The level of export activity in each of these countries has a direct influence on the currency exchange rates in those countries.

This is due to the fact that the value of the country’s natural resources can have a significant impact on the strength of the economy. Russia, Saudi Arabia, and Nigeria are three examples of countries that fit this description.

How to trade currency pairs

To successfully buy and sell currency pairings, follow these steps:

Step 1

Make a decision on how you want to trade foreign exchange: foreign exchange trading through a broker like Khwezi Trade

Step 2

Discover how the foreign exchange market operates: Foreign exchange is transacted through a global network of banking institutions. This type of market is referred to as an over-the-counter (OTC) market.

Step 3

Construct a trading plan: a trading plan can help you remove emotion from your decision-making process and can give some structure for when you start and end positions in your account.

Step 4

Determine the platform that you will use to trade forex: Personalized alerts, interactive charts, and risk management tools may be added to each of the forex trading platforms, including MT4, so that they are tailored to the individual trading style and preferences of each trader.

Step 5

Create your first position by deciding whether you will buy or sell, specifying the size of your position, and taking other measures to control the risk associated with your investment.

How to reduce risk when trading currency pairs

Forex risk management refers to the process of implementing a set of rules and procedures to one’s forex trading in order to reduce the likelihood of unfavourable outcomes and maximize profits.

If you have an efficient risk management approach, you will have a better degree of control over the profits and losses associated with your foreign exchange trades. When trading forex, efficiently managing your risk may be accomplished by following these steps:

Acquire as much knowledge as you can about the foreign exchange market.
Learn the ins and outs of leverage and derivative products.
Construct your own individualized trading plan.
Establish a risk-to-reward proportion.
Make use of constraints and boundaries to reduce the dangers you face.
Manage your emotions
Keep abreast on what’s happening in the world and in the news.
If you feel you need more time, I recommend beginning with a demo account.

Conclusion

Exchanging one currency for another is a form of speculative trading that seeks to profit on changes in the value of the underlying currency pair. Because all forex transactions include the purchase and sale of one currency for the benefit of another, it is priced in pairs. If you think the base currency is going to strengthen versus the quote currency, you’d purchase the pair.

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