As a South African Forex and CFD trader, the USD vs ZAR (ZAR vs USD) currency exchange rate is an important factor in regards to your trading account. Which currency option is the safer choice for you as a SA trader? Are you fully aware of the exchange rate risks involved in this volatile fx pair?
These are questions most traders have not thought to consider! As well you should. In this article, we will discuss the historical data between the USD vs ZAR over the past few years. This will help us get a better understanding of the potential risk involved.
You will also receive a free USD to ZAR exchange rate calculator that you can make use of to decide if you should trade with Forex brokers with ZAR accounts (ZAR based account currency).
History Of The USD/ZAR
The USD symbol used is $, which stands for United States Dollar. The ZAR symbol used is R, which stands for South African Rand.
The South Africa Rand (ZAR) was formally brought to market in February 1961. Since then due to multiple factors, its value has decreased in depreciated.
USD/ZAR of the past 12 months
As you can see the ZAR has had a steady improvement against the USD, as seen by the decline in price, cost per United States Dollar.
We started off in March 2020 at close to R20/$1. We ended up at R17.7054 in August 2020, with lows at R14.50 in February 201. This is what we call a 12 month low.
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As a Forex Currency Trader
As you can see from the previous section, by looking at the chart, it would have been a good idea to hold ZAR and buy USD now. As an example: Buying USD now at a cheaper rate, with the hope of the Rand weakening looks like an attractive option.
If you held USD for the past 12 months and converted it to ZAR now, you would have lost a couple of % on your funds. On big amounts, it could be the difference between 10s of thousands.
So what do you do as a South Africa trader, which account currency do you choose? There is no real simple answer. But here are our recommendations.
If you are a beginner, fresh and new to the trading industry, and a South African. Stick to trading in ZAR! Why take the unnecessary risk? Trading in USD gives you no advantage or edge over a ZAR denominated account. In fact, it will allow you to trade smaller values per pip in most cases.
Let’s assume you are an intermediate or professional trader, could trading on a USD denominated account be of any benefit? Yes, and no. As per the 12-month example, you can clearly see you would have lost out should you have cashed out now. Yes, it could have gone either way.
The moral of the story is if you are willing to take the risk, or know enough to analyse the currency pair. Another important factor is how urgently you need your USD converted to ZAR.
There is no right or wrong, as long as you can make the judgement call and be happy with it 12-months down the line, good or bad. This is why a broker with ZAR account options play an important factor in your overall decision.
You can easily switch it around and see how much ZAR $1 USD is worth. This is a very user-friendly calculator from xe.com, and 100% free to use. It can be used for almost any currency exchange conversion under the sun.
This tool also has many more options and useful features to offer, such as charts and alerts. It also shows the last 30 and 90 day’s high, low and average. Volatility is an interesting one but requires you to be more advanced to fully understand. This is extremely useful if you do decide to go the USD route.
There is also a great volatility indicator on MetaTrader 4 (MT4) trading platform. This is a platform most brokers offers clients for free.
Brokers with ZAR Account – ZAR vs USD
We can only give our 2cents worth, the ultimate decision is up to you when it comes to choosing an account currency. We do our best to not be bias and stay neutral. Two factors we did not discuss in this article but have great articles on already is: What is Margin?
An important aspect to understand when trading in either account currencies, What is Leverage? Know how trading on margin works.
You might want to convert USD to ZAR to monitor the USD vs ZAR for other reasons, such as sending physical currency across the border. Companies like Western Union are very popular options. Bank Wire Transfer is becoming cheaper and an easier choice as it can be done online.
Both thee methods have limits per transaction, so keep that in mind. The most important factor to look out for is the spread these entities charge. We have a great article on What is Spread?
Spread in a Nutshell
Difference between the bid and the ask price
The bid price is the highest someone is willing to buy
The Ask price is the lowest someone is willing to sell
We call this the spread
Spread is charged on any transaction
This is how entities make money on such transactions
Forex brokers with ZAR accounts eliminate the exchange risk on the spread
Forex Brokers with ZAR Accounts – The Verdict
As you can see, understanding the spread is very important to not only making sure you are not being done in but to pay less and get more bang for your buck. On volatile pairs with less liquidity such as the USDZAR, the spread is naturally much higher than the EURUSD.
You might get a shock but it is normal to see these major difference in spread. You will not be charged the “SPOT” price.
Remember, how frequent you deposit and plan to withdraw, the more thinking needs to go into your decision, choosing your denominated trading account currency. Don’t put yourself in a situation where you are stuck between a rock and hard place. You could be throwing money down the drain.
Be smart going about this! Education is key to any successful foreign exchange currency transaction. Brokers with ZAR account or Brokers with USD account options? The debate will continue on ZAR vs USD account currency, that is for sure!