USD to rand – Learn how to profit from fluctuations in the exchange rate of this currency pair
In forex trading, USD/ZAR is the pairing of the U.S dollar with the South African rand. It denotes how much rand or ZAR you would need to buy one dollar or USD. For example, the current exchange rate of USD to rand is 14.74 which effectively means that 14 rand gets you just one dollar.
As you may already see from this exchange rate, the USD is much stronger than the rand and while the rate may change rapidly throughout a day, it only does so in small increments of a fraction of a cent. However, forex traders can take advantage of these small movements to make substantial gains by merely speculating if the exchange rate will move up or down or, put simply, if the value of the USD will strengthen or weaken against the rand.
In the forex market, traders don’t actually buy and sell the actual currencies physically, they speculate the direction the price will move in the future and they open a position accordingly. Not all currency pairs are traded equally though.
Exotic forex pairs
Currency pairs are categorized according to how much they are traded with the most popular being the Majors then the Minors and finally the Exotics.
Exotic pairs consist of the currency of a developing economy such as that of South Africa, Turkey or Mexico and an established currency such as the euro or the U.S dollar. However, exotics are quite unpredictable in their movements and they can rise or drop in value dramatically without warning. This is why traders usually avoid trading these currencies, steep and unpredictable fluctuations are risky, but the truth is that this volatility offers incredible possibilities for the savvy trader.
While exotics such as the USD to Rand may be less traded doesn’t mean that they aren’t favorable. In fact, because of their inherent volatility and not despite it, they can be the most profitable pairs to trade.
Every trader knows that you can’t make a profit in a currency pair whose exchange rate isn’t moving at all. If there isn’t any action in the market, with the buyers and sellers pushing the price upwards or downwards, then trading would be pointless as there will be no movement to predict and profit from.
Exotic pairs on the other hand can change direction several times a day and traders who can manage to trade these moves on time will be rewarded handsomely.
USD to rand price movements
The South African economy and the rand’s value is positively correlated with the price of gold and other precious metals which are part of South Africa’s main exports.
As most other emerging economies and their currencies, the exotic nature of the USD/ZAR makes the pair cost-prohibitive especially to short-term traders and algo traders who make use of trading robots in their strategies.
Short-term traders or scalpers whose mission is to make multiple trades in the shortest amount of time possible – in order to make several small gains – usually don’t favor high cost currencies and as such, exotic pairs are usually left out of their watch lists.
However, the larger price fluctuations in USD/ZAR that may ride long-term trends are perfectly suited to a longer-term trading strategy like swing trading while employing technical indicators to identify entry opportunities.
Also, it’s important to note that due to the limited trading volume in these pairs, it’s usually more advantageous for traders to make their entries at a time where the local market is trading. Liquidity and trading volume dry up when traders in that specific region are sleeping for example and therefore you should always consider your timing before you open a position.
Major forex pairs, the ones that are traded the most, usually offer the best pricing because there is such a high amount trading volume and competition in the market to keep the prices low. Exotics don’t enjoy the same benefits, but if you manage to find a favorable time to trade – when the spread or the price difference between the prices offered by the buyers and the sellers isn’t so wide, you can make a considerable profit.
In short, lack of liquidity leads to wider spreads which isn’t advantageous for forex traders, but when the market does make a move, the price may react aggressively in either direction, and this volatility is what creates profit for forex traders.
The bottom line
Despite all the negative connotations with thinly traded forex pairs and exotics, USD to Rand is one of the most popular pairings from the exotics list and the volatility in its intraday movements is what keeps some traders coming back.
As always, opportunity always carries a certain degree of risk, and this why traders are advised to seek the advice of a trustworthy broker and ensure that they make use of the risk management tools provided by the trading platform to limit their exposure in the markets.
If you are interested in learning how to trade effectively and profit from movements in USD to rand, CM Trading’s experts can guide you through the best steps to take to trade forex, stocks or commodities with an award-winning platform.
Open an account now and get in touch with your personal trading specialist to discover the best trading conditions in the industry.