Why forex trading levels have spiked during the pandemic

It’s become a cottage industry for those stuck at home – and ‘copy trading’ is helping breathe new life into it.
CM Trading reports that forex trading in Africa has increased by around 477% since February. Image: Shutterstock

Forex trading was a huge business several years ago but many online traders then migrated over to cryptos, where volatility and potentially huge daily moves offered the kind of excitement and profits once seen in the forex market.

Online derivates brokers CM Trading reports that forex trading in Africa has increased by around 477% since February this year.

This is due to several reasons:

  • People have been confined to their homes and have therefore had more time to research and play the currency market;
  • Forex trading, due to its speed, has low transaction costs which are helpful for African traders with low capital; and
  • African currencies have begun to stabilise, and some are performing well against the US dollar.

The problem with forex trading is that most traders lose. They eventually blow their accounts and try again until they either give up or move to another less risky type of trading, such as equities.

The answer to this is what CM Trading calls ‘copy trading’, where you can copy the trades of successful traders and piggyback on their success.

And all trades can be fully automated – so when the experienced trader makes a trade, so do you.

“Rather than devoting considerable time and energy into developing a strategy and monitoring the markets, people can benefit from the success of experienced traders,” says Daniel Kibel, CEO of CM Trading. “You simply choose a trader and then a programme will mimic that trader’s buying and selling with your capital.”

Encouraging investment self-reliance

There is a downside to copy trading, says Kibel, in that it defeats the goal of investment self-reliance. “You try to encourage investment self-reliance and disciplined trading, and this is something that becomes harder to achieve if you are always mimicking the trades of someone more experienced than you. We want our traders to grow in knowledge and success.”

There is also the possibility that the experienced trader will lose. CM Trading allows customers to view the trading history of several experienced traders with proven track records – all of which is transparently displayed on the website. And copy trading is free to all CM Trading clients.

To help clients achieve this goal, CM Trading offers a vast library of online training tools.

“In the past trading seemed to be exclusive to business execs and financial brokers – the internet has bridged this gap, with options now available for South Africans to upskill themselves and learn the art of forex trading,” says Kibel.

Copy trading is available not just for forex, but other instruments as well – such as indices, commodities, equities and bonds. Leverage is also available for those who want a bit more excitement (leverage accelerates profits and losses).

Longevity

Research shows that better-informed traders who stick to a trading plan – such as exiting a trade at a predetermined profit or loss level – tend to have greater longevity in the markets. This is especially true when positions are leveraged (effectively, multiplying the gains or losses with borrowed money).

Forex trading thrives on volatility, and with a US election around the corner, markets are expected to be jumpy for a good while longer – particularly if the election outcome is disputed and the final result is only known weeks or months after polling closes.

CM Trading is on online derivative brokerage offering numerous trading products, such as forex, commodities, indices and cryptos. It also offers clients the ability to purchase individual stocks such as Amazon, Apple, Alphabet and Microsoft.

Kibel advises traders to avail themselves of the trading tools at the CM Trading website.

“It’s also important that you stick with a regulated broker. CM Trading is regulated by the Financial Services Conduct Authority,” he says.

The stats show that most online broker trading accounts lose in any given month, though this is highly dependent on the training level and skill of the trader.

Kibel advises clients to take a long-term view of their trading career and stick to a trading plan.

In the case of copy trading, trades are fully automated, which eliminates the usual reasons for loss: failure to exit a trade at a pre-set profit or loss level.

Brought to you by CM Trading.

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Novices go bankrupt fast because they take large losses. Professionals go bankrupt slowly because they take small profits. Cut the losses and let the profits run. Don’t trade if you do not know the Kelly ratio of your system. If you have a sound money-management system, then a positive expectancy is all you need to be a successful trader. Less than 5% of traders fall into this category.

I use to work for a Broker and what you’re saying is true, about 80% of new retail traders in our book blew up their accounts because they took huge losses and small gains. We found two problems that caused this,
1. New retail traders didn’t have a process for decision making and were just following rumours,news etc and basically gambling based on how they felt.
2. We discovered that some didn’t know how to use the platform, they couldn’t navigate it and didn’t understand anything on it.

Put these two things together and it becomes a recipe for disaster for retail traders. And I hope I don’t offend anyone but the low literacy rate in my opinion was also a factor, people just don’t understand CFDs, concepts such as leverage and economic events well enough to be trading in South Africa. And then worse of all the “get rich quick” mentality is rampant, the other sad thing is that Forex trading was mainly introduced by scammers to black South Africans and that has hurt how the space is perceived and what people thinking FX trading is.

The statistics are valid across international demographics and not confined to South Africa alone. If we determine the percentage of farmers who are profitable, professional golfers to the total amount of players, surgeons as a percentage of all doctors and professional rugby players relative to all players, then we will find that less than 5% of participants are successful. We have a running experiment in South Africa with the “emerging” farmers and land redistribution. Less than 5% of beneficiaries are able to survive for more than 5 years.

The same stats are valid for traders.

End of comments.

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