The myths and truth about forex trading
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For a number of years, both entities have been working closely together to bring relevant financial products to the market. Currency futures are derivative contracts which allow investors to trade the underlying exchange rate for a period of time in the future. Nine weeks into its life cycle, Yield-X has seen tremendous market take up. Trades have occurred daily and volumes are increasing steadily over time. Yield-X reported the total number of contracts traded to date is with a total nominal value of R, The market is bullish that the volumes will continue to increase substantially in the near future.
As a result of currency futures, Yield-X had its best trading month ever in July Whilst contracts on Yield-X usually average 1 per month, July had trading forex on the jse 31 contracts traded. Currency futures have been developed by the JSE and two market makers, Standard Bank and Investec, in direct response to market requests for such a product to trading forex on the jse traded on a regulated exchange.
Currency futures offer numerous benefits. They allow individuals to hedge trading forex on the jse currency risk and to take a view on the movement of the underlying exchange rate. They also allow individuals to diversify their local and foreign assets.
While this is clearly advantageous to retail investors, institutional investors are also able trade these futures within certain limits. All corporate entities, trusts, close corporations though are prohibited from trading unless they have a valid exchange control approval from the South African Reserve Bank.
They provide a successful mechanism to ensure that the development of the South African financial markets occurs in a safe and controlled way. Currency futures are Rand denominated and cash settled. The contracts result in a zero sum game — for every buyer there is a seller and the profits of the winner equal the losses of the loser.
The SARB has approved four market makers who have been granted dispensation to hedge their currency future trades in the relevant markets. These transactions may have an impact, although the initial impact will be reversed when currency futures and hedge transactions are closed out. Authorised dealers currently trading forex on the jse trade in both spot and forward markets - currency future trading will merely add volumes to the amount of hedging transactions already being carried out. Given the direct and apparent link between currency and interest rates, it was decided to list currency futures on Yield-X.
The Yield-X system also has the ability to do pre-trade approval as opposed to post-trade checking, common to each of the other three JSE markets. Given the sensitivity of currency trading, this system capability was imperative in order to restrict the currency derivative trading to those qualified participants only. The two market makers Standard Bank and Investec are making prices in the near Septembermiddle December and far March contracts.
Broking participants are trading forex on the jse to become registered and approved Yield-X members A membership application will need to trading forex on the jse completed and returned to the JSE The JSE secretarial services division will advise what documentation needs to be completed, as some documentation is not required trading forex on the jse the participant is already a member of one of the existing JSE markets As of Juneno membership fees or annual membership fees are required Members are required to have a registered and sponsoring Yield-X clearing member Members are not permitted to trade in their proprietary accountproprietary account.