Trading in USD/ZAR strategies and tips
Knowing more about the strategies and tips for trading in USD/ZAR
When it comes to brokers with ZAR account, the USD/ZAR is what is known in the forex trading or currency trading as exotic pair, because the rand component, which is ZAR is a market which is currently emerging in the market currency which carries very little liquidity than that of market currencies that are developed.
The exotic currencies due to the fact that they carry very low liquidity as compared to majority of the market currency which are mostly traded on such as the Swiss Franc, the US dollar, the Japanese yen, the British Pound, the euro, the Australian dollar and the Canadian dollar, will be able to carry a spread which is wide, and in turn, bringing with it, a cost of trade which is higher. But, with the liquidity which is lower, it comes with a volatility which is higher, and in turn, a reward that is higher or a loss of an opportunity which is on offer.
With that said, the economy of South Africa which is more developed as compared to the number of emerging market peers and this makes the liquidity to be considered to be higher as compared to the counterparts and higher than it is sufficient for the purposes of trading
Strategies of trading for USD/ZAR
There are normally two approaches which are major when it comes to forex market trading which include speculating and hedging.
USD/ZAR hedging
There are some traders who might decide to utilize the USD/ZAR pair in hedging their exposure of currency for an asset purchase or the funds which are received in the USD. It is what will allow then in locking in the current exchange rate, helping to avoid currency fluctuations. The following are the steps for hedging:
- Determine what the currency pair is
- Find out the direction
- Get to know the size
An example of the hedging example is where a South African investment banker who works with an investment bank of the US is told on a Christmas day that there will get a bonus of about $1 million in the following year in the month of June.
Because where he stays is in South Africa, he would wish to transfer the bonus in the form of rand – ZAR instead of the USD. The rate of the USD/ZAR at the moment tends to be quite favorable for him and thus, he doesn’t want to end up running the risk of the dollar having to weaken or the rand significantly strengthening between Christmas and June when he will be receiving the bonus.
With that in mind, he wishes to go for the CFD trade in hedging his exposure to the exchange rate of the USD/ZAR between now and the following year June, when the bonus is going to be paid. In case the dollar ends up weakening against the rand, he want that his CFD trade will be then one that compensates him, an amount which is equivalent to the reduction in the dollar value of the bonus.
The traders of the USD/ZAR and those for other forex pairs are normally given an opportunity to short and long term of the currency pair. To take a long position would denote that you expect the dollar to go up in its value in terms of the rand while a short position is taken meaning you expect the dollar to decrease in value in rand terms.
It means that, the above investor requires to short the USD/ZAR in benefiting from the depreciation of the dollar in terms of the rand, but he will have to work out the trade size that he would require:
Speculative trades with the USD/ZAR
When speculating on currency of the USD/ZAR pair, it denotes simply that the trader takes a view that the pair of currency in question will rise or fall within a certain period. Unlike with the hedging, the trade is not any which is linked to the protection of another asset such as a bonus.
The speculative traders tend to adopt a day trading or a strategy of swing trading for the USD/ZAR.
Day trading the USD/ZAR utilizing technical analysis
Day traders the way the name implies are normally concerned with the intraday trading, like exiting and entering their position and several times within the day, not to carry their respective positions overnight.
There are various numbers of analyses which are technical methods in trading instruments such as the USD/ZAR for breakout strategies remaining popular instead of the trade traders. One system like that is find out a low-price period of volatility or the consolidation and the levels marking with trend lines in highlighting areas of resistance and support. There is a series of priced candles which are small bodied which normally emphasizes this particular type of low volatility period. |
A breakout is normally considered when the price is able to move below or above the resistance or support, preferably with a candle that is long-bodied. The candle which is long-bodied will be able to suggest a volatility that is increased to resume, with the breakout tends to presume the direction that you would have to look at the USD/ZAR pair trading.
The following are some of the ways the monetary policy and news tend to affect trading in the USD/ZAR traders:
Economy news
The traders would wish to keep an eye on the calendar of the economy, as news of high impact tends to have a potential to impact highly currency of the USD/ZAR. To know when the catalysts are able to occur ends up giving you to have a certain expectation about when the larger moves which might be released in the market of forex, to give an opportunity to traders of reacting.
When you trade the USD/ZAR, traders will end up to focus on both the high impact of the South African economic and the US data points as the pair of currency is a reflection of the two economies.
