Did you know that the New Zealand Dollar is one of the most commonly traded currencies in the world?
That’s right! Steady GDP growth over the years has put New Zealand in one of the top spots in the Index of Economic Freedom. With transparent and strong trading regulations and currency, New Zealand ranks number one in Transparency International’s 2019 Corruption Perception Index. In addition, contract security and private property laws are highly protected in the country.
The forex trading in new zealand is regulated by the Reserve Bank of New Zealand. Demand for NZD increases when interest rates rise and vice versa. A crucial fact that any forex trader needs to keep in mind is that the NZD moves in sync with its chief trading partner currency – the Australian Dollar (AUD).
When Australia’s economic climate is bullish, the country imports more from New Zealand which then increases the demand for NZD and causes it to appreciate relative to other currencies.
To summarise, these are the factors that impact the NZD
- GDP: Growth in GDP increases the demand for investment in New Zealand and increases its currency value.
- Balance of trade: When exports are higher compared to imports, the demand for NZD increases.
- Consumer price index: If inflation is rising too quickly, the Reserve Bank of New Zealand intervenes and raises interest rates to decrease liquidity in the economy which in turn boosts the demand for NZD.
- Commodities: As New Zealand’s economy is directly dependent on its exports to larger countries like Australia and China, falling commodity prices have a major impact on New Zealand’s economy.
Now that you know about all the factors that regulate the New Zealand Dollar, let’s look at how to choose a forex broker for trading in New Zealand.
What is a Forex Trading Broker?
A forex broker is someone who makes investments in the Foreign Exchange market on your behalf. The forex market does not have a centralized exchange system like the stock market. So unlike other financial markets, the forex market is not regulated and only large traders or financial institutions have direct access to the network where trades are conducted.
This is why having a good forex broker is a must, as it is the only way you can place trades in the market.
Qualities of a Good Forex Broker
One of the many myths about forex traders that you may have heard is that they trade against their clients. This is not true.
An online broker is neither your friend nor foe. Brokers make money on any trade you place; whether it is a good trade or a bad one is irrelevant. The only thing they really care about is that as long as you keep making trades, they will keep earning their cheques. Therefore, it is in their best interests that you at least make some profits so that you continue to place trades.
Things to consider while choosing a broker
Check the Spreads
One of the things you may notice while looking for trading brokers is that they are likely to have different Spreads or Pips. This refers to the amount of money you can sell your currencies at, excluding the buying price. You may find that some brokers allow you to sell at lower prices than others.
If a broker is offering a fixed spread, they will sell at a particular set price, while those who have a variable spread will sell based on the demand of the currency you are trading. A variable spread is ideal for large investments as it keeps the losses down and profits higher.
You should also examine the liquidity of a broker’s assets in the forex. As the forex itself is intended to be a very liquid market, you should be able to cash in and cash out investments quickly and easily.
Another issue is the quality of your broker’s customer support. Are your queries being answered? Do they offer customer service around the clock?
These are the questions you need to ask your broker because forex trading takes place around the clock from Monday to Friday. This means that you need to be able to get in touch with your broker at all times during market hours without any hindrance.
Trading platforms might differ from broker to broker, so it is necessary for an investor to test the platform before you commit to a particular trader. If you are not able to use their trading platform, then you will have issues in accurately analyzing and placing your trades.
Many traders offer the extremely popular Meta-trader trading platform, but there are a few that provide only proprietary platforms. Since most brokers offer a demo account for at least a week, you get an opportunity to check the ins and outs of the platform before committing to a particular one.
Leverage and Minimum Deposit requirements
The reason why many people are attracted to the forex market is the high level of leverage forex brokers offer their clients. It allows you to trade with a small capital yet control large positions. For instance, with a $100, you can open a $10,000 position with a leverage of 1:100. Some brokers offer better leverage ratios up to 1:500.
However, the catch here is that while this can mean a high level of profits, it can also lead to great losses. Therefore, you need to consider the kind of leverage you want and will be able to afford before you make any trades.
The Forex brokers you should avoid
With the rise in internet technology and efficiency, more and more online traders are popping out f the woodwork, and not all of them are good brokers. So you need to watch out for any trader or broker who ensures that you will make a certain percentage of money after your investments.
This is because the only thing that is certain in the forex market is that it is ever-changing and unpredictable, and there is no way to guarantee a profit in the market.
Some online forex brokers might also allow you to start trading with as little as $25 with high leverage. Although it might sound tempting, the high leverage you need to use to see even a small profit can clean out your account in an instant.
So, be wary of brokers who offer such solutions because if you intend to be a serious trader, then you need to make larger deposits with less leverage even though it might take longer to see a profit.
Forex trading is a 24×7 business, which is why your broker also needs to be active all the time in order to track market changes and implement profits.
A good broker will be a lot of help for people who find it hard to spend time in the forex markets due to their other business obligations. The best forex brokers will keenly watch the market and make smart moves to assure a profit margin.
Even though forex trading involves high risks, it also gives high rewards, and you can reap these rewards if you hire the services of an experienced broker. If you’re new to the trading business, then it is best to avoid amateur traders even if their services are cheap.
A winning edge is created when you the best trading platform, which is endorsed by an equally good and reliable broker as they can utilize these platforms to negate risk and maximize profits.
New Zeland has many advantages for its forex traders, but at the end of the day, the market is unpredictable, and you may suffer losses without good preparation and research. For all the protection the government offers, investors can still be a victim of fraudulent brokers. No matter how good the currency is performing, bad trading will lose you a ton of money.
The only way to be a winner in this game is to focus and study the market consistently and take smart risks.