The Difference between Rand and US Dollar Trading Accounts
The United States Dollar to South African Rand currency conversion rate is an important consideration with regard to your trading account if you are based in South Africa and trade in Forex or CFDs.
As a South African trader, which of these currency options is the more prudent choice for you to make? Are you completely aware of the hazards that come along with dealing with such a volatile currency pair?
These are questions that the majority of traders have not even given a second thought to. In order to begin trading on the foreign currency market in South Africa, it is essential to join up with reputable brokers like Khwezi Trade who offer accounts that are denominated in South African rand (ZAR), but there might also be benefits to a USD account.
In this article, we look at the primary differences between Rand and USD trading accounts and consider which is best for traders in South Africa.
Understanding the base currency
The first currency that is listed in a forex pair’s quotation is referred to as the base currency. Because you are purchasing one currency while simultaneously selling another on the market for foreign exchange, one currency will always be quoted in relation to another currency.
The first currency that you see will be known as the base currency, and the second currency that you see will either be known as the quote currency or the counter currency.
The quote currency will always be displayed as the price on a chart. This price shows the amount of the quote currency that must be spent in order to acquire one unit of the base currency.
Quotes in the foreign exchange market are always presented in pairs due to the fact that traders always purchase and sell currencies simultaneously.
For instance, when a customer acquires EUR/USD, it essentially means that he is simultaneously making a purchase of euro and a sale of dollars denominated in the United States.
When investors believe that the base currency will increase in value in comparison to the quote currency, they will purchase the pair. On the other side, if they believe that the value of the base currency decreases then they will sell the pair.
When a USD account is beneficial
To this end, if you have to pay fees for currency conversion every time you wish to buy or sell a securities traded, those costs may really add up over time. This is where the use of a trading account denominated in US dollars can be helpful.
Because you won’t need to convert your money every time you make a trade when you have a dollar account denominated in US dollars, you’ll save money on currency conversions and be able to purchase and sell stocks listed in the United States.
If you trade frequently, settling trades in the same currency (such as purchasing and selling U.S. stocks in U.S. dollars) might help you save money on transaction expenses. This is especially helpful if you trade internationally.
However, these benefits will only apply to traders located in the United States, where the USD is the domestic currency. For traders outside of the US, such as South African traders, a USD account loses all of these benefits.
In fact, South African traders utilising a Dollar-based account will actually incur more costs that eat away at their profits. This is where having a ZAR based account with reputable South African brokers like Khwezi Trade becomes invaluable.
Additional transaction fees are charged from a South African trader’s USD trading account whenever the trader makes a withdrawal or deposit of funds from their account.
This is a common protocol utilized by many different USD trading accounts. Forex brokers like Khwezi Trade that offer South African Rand accounts, on the other hand, remove the necessity for you to deal with such a bother and do not demand any additional fees at any stage in the process of funding your account.
One of the primary advantages is that local brokers who keep ZAR accounts are able to send their clients’ money to them directly through the local banking system. This is an important convenience for traders.
If we are speaking about USD trading accounts, then you should be aware that for many of these different sorts of accounts, you will be subject to additional fees if you make a deposit or a withdrawal of funds.
It is common practice for many financial institutions to charge a commission fee equal to six percent of the total amount whether a customer withdraws or deposits money.
As a result of this, it is in the best interest of South African traders to join up with forex brokers who offer accounts denominated in ZAR. Doing so will exempt you from having to pay any additional fees or penalties that may otherwise apply.
Added to this, the procedure for withdrawing and depositing funds in ZAR trading accounts has been made far more efficient and user-friendly. It enables traders to withdraw any amount of their funding at any moment of the day or night, no matter what day it is or what time it is.
The holder of the ZAR account is connected with a local broker like Khwezi Trade who gives them access to the global markets with margin in the form of Rand currency. This funding is provided to the holder of the ZAR account.
As a result of this, you won’t need to wait any longer than is really necessary in order to receive or send your money.
In other words, the process of conducting trades is made a great deal easier for traders who use ZAR trading accounts. This simplifies the process to an outstanding degree.
Finally, a broad number of local forex brokers make available to the holders of their ZAR accounts a comprehensive selection of alluring bonuses.
Traders who use ZAR trading accounts are given access to a plethora of excellent trading features and tools, which in turn enables them to improve their trading talents.
Trading the USD/ZAR
When it comes to currency trading or forex trading, the USD/ZAR pair is considered to be an exotic pair. This is due to the fact that the rand component (ZAR) is an emerging market currency, which carries less liquidity than that of currencies used in developed markets.
Due to the fact that exotic currencies have lower liquidity than major most traded market currencies (such as the United States dollar, Swiss franc, euro, British pound, Japanese yen, Canadian dollar, and Australian dollar), exotic currencies will have a wider spread, which will result in a higher cost to trade them.
However, because of the decreased liquidity, there is a higher level of volatility, which in turn results in a greater potential for gain (or loss).
Having said that, the South African economy is further along in its development than many of the emerging markets with which it competes. As a result, the country’s level of liquidity is deemed to be higher than that of many of its competitors and is more than adequate for trading purposes.
Hedging the USD/ZAR
It’s possible that some traders will want to employ the USD/ZAR pair as a means of hedging their currency exposure in preparation for the purchase of an asset or the receipt of money denominated in USD.
Because of this, they are able to secure the current exchange rate, which helps them prevent swings in currency value.
Traders who deal in the USD/ZAR currency pair, as well as traders who deal in other forex pairs, have the option of going long or short on the currency pair.
Taking a long position in the rand market indicates that we anticipate an increase in the value of the dollar relative to the rand, whereas taking a short position indicates that we anticipate a decline in the value of the dollar relative to the rand.
Speculative trading on the USD/ZAR
When a trader speculates on the USD/ZAR currency pair, they are essentially taking a position that the currency pair in question is going to either rise or fall over a given period of time and betting on which of those outcomes will occur.
The deal, in contrast to hedging, is not tied to the protection of another asset, which may be referred to as a bonus. The strategies of day trading and swing trading are frequently utilized by speculative traders.
For South African traders, opening a ZAR denominated trading account with a reputable broker like Khwezi Trade will allow them to reap the benefits of faster withdrawals, no conversion fees, and easier deposits.