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Want to profit from emerging market investment mania? Trade the rand

by , 12 February 2013

If you're wondering why the rand was weaker on Tuesday - wonder no more. It's all because emerging markets were feeling the effect of North Korea's nuclear test. Since the rand is seen as proxy for emerging markets, it reacted most to this news. And it's this tendency that makes trading the rand a great way to profit from emerging market mania sweeping the investment arena right now. Here's how…
Emerging markets are all the rage in the investment arena right now.

After all, emerging markets are fast becoming the driver of global growth.

But here’s the thing many traders don’t realise: Because the rand is such a well traded emerging market currency, it tends to act as a currency proxy for all emerging market currencies. This means it tends to outperform in the good times and underperform when risks are elevating, explains Professor Brian Kantor, Chief Economist and Strategist at Investec Wealth and Investment.

Trading the rand is a great way to cash in on market news

“The rand is an emerging equity market currency: where emerging equity markets go, so too goes the rand and this year is no exception,” continues Kantor.

This makes the rand one of the most tradable currencies in the world and a great way to profit from emerging markets.

The rand isn’t really as volatile as we believe

“Viewed among traders as relatively volatile, the average daily range of the South African rand (ZAR) can be as high as 1,000 pips. However, when translated into dollar pips, the movements are almost equivalent to an average day in the British pound, making the currency a great pair to trade against the U.S. dollar (especially when taking into consideration the carry potential),” writes investopedia.com.

And here’s one more reason to trade the rand: “Traders also trade the rand for its close relationship to gold and platinum. South Africa is a world leader when it comes to exports of both metals, so the correlation is similar to that between the Canadian dollar and crude oil. As a result, forex traders should consider the commodities markets in creating positions when economic data is limited,” explains investopedia.com.

So if you’re looking for a great way to profit from emerging markets, look no further than the rand.


Want to profit from emerging market investment mania? Trade the rand
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