Trading in the currency market involves making calculated decisions. A critical strategy in this regard is ‘short selling’, particularly of currencies like the South African Rand (ZAR). For those unacquainted with the concept, it might sound complex, but in reality, it’s a standard practice carried out by many investors and traders worldwide.
Understanding how to short the Rand (ZAR) on Forex is for more than just professional traders; even beginners can gain substantial knowledge from this trading tactic. When a trader expects the Rand to decline, they ‘short’ the currency, hoping to buy it back later at a lower price, thus making a profit from the difference. Given the current economic climate and political uncertainty in South Africa, some investors are considering how to short the Rand (ZAR) on Forex.
Traders Union experts provide a detailed guide to this strategy. It navigates the whole process, from the fundamental principles of short selling, step-by-step instructions on executing a short position on the Rand, to when it’s an opportune time to short the Rand.
Table of Contents
What is a short position in trading?
Shorting in trading refers to selling a financial instrument, like a currency, that the trader doesn’t own with the expectation that its price will decrease. TU experts explain that traders then buy back the instrument at this lower price to make a profit.
Consider an example where a trader borrows 1000 ZAR from a broker, sells it at the current rate of $0.067 per ZAR, and waits for the price to drop. If the rate falls to $0.065 per ZAR, they buy back the 1000 ZAR for less money and return the original amount to the broker, making a profit on the difference.
Steps to short the Rand (ZAR)
Before initiating a short position on the Rand, certain steps should be undertaken. Traders Union provides a complete guide:
- Select a trustworthy broker: Experts recommend choosing a broker with the most favorable trading conditions.
- Open a trading account: This step involves filling in personal details and selecting the type of trading account that best suits one’s trading style.
- Understand the market: Study the circumstances for the USD/ZAR currency pair and choose a suitable Forex strategy.
- Open a short position on USD/ZAR: Use the trading platform provided by the broker to open a short position.
- Set stop-loss and profit targets: These ensure the trader limits potential losses and locks in profits.
When to short the Rand (ZAR)
As highlighted by the TU, certain conditions create a ripe environment for shorting the Rand. These situations include:
- Instances of potential geopolitical issues and hurdles;
- Local energy predicaments paired with international fiscal contractions;
- Civil unrest and disturbances, an example being the protests following the imprisonment of ex-president Jacob Zuma;
- Escalated levels of joblessness alongside a rise in disease outbreaks;
- Political unpredictability and operational difficulties within the national transport network.
Top Forex Brokers for Short-Selling ZAR
To effectively short the Rand on the Forex market, it’s vital to collaborate with a reliable broker that provides optimal trading conditions. Two prominent platforms that Traders Union experts identified for this purpose are RoboForex and IC Markets.
RoboForex, a renowned international broker, offers several trading platforms, including MetaTrader4, MetaTrader5, and cTrader. Traders can benefit from their tight spreads, high-speed order execution, and various trading instruments. With their extensive educational resources, even novice traders can learn to short the Rand effectively.
On the other hand, IC Markets, a well-regarded Australian broker, is recognized for its low spreads and superior liquidity. With a deep pool of top-tier liquidity providers, IC Markets can offer some of the best trading conditions for shorting the Rand. The firm’s advanced technological infrastructure ensures rapid trade execution, while its customer support is available round the clock for any trading-related assistance.
These brokers are regulated by top-tier authorities, ensuring a secure trading environment. However, traders should do their due diligence and assess the suitability of these brokers based on their individual trading goals and risk tolerance.
How Does Short Position Work on Forex?
On Forex, a short position involves selling a currency pair in anticipation of a depreciation in its value. Once the price drops, traders buy it back at a lower rate, pocketing the difference.
For more in-depth information on how to short the Rand (ZAR) on Forex and to gain insights from experts on related topics, it is advisable to visit the TU website. This portal is the one-stop source for all trading resources, tutorials, and guides a trader might need.