What is Forex?

The Foreign Exchange (FOREX) market is by far the largest market in the world. The $4 trillion average daily turnover dwarfs the daily turnover of the American stock and bond markets combined.

There are many reasons for the popularity of foreign exchange trading, but among the most important are:

  1. The available margin trading
  2. The 24-hour a day 5 days a week liquidity
  3. And low if any commissions.

Of course many commercial organizations are participating purely due to the currency exposures created by their financial institutions accounts on their import and export activities.

Investing in foreign exchange remains predominantly a domain of the big professional players in the market such as hedge funds, banks and brokers.

Nevertheless, any investor with the necessary knowledge is and complete understanding of this market can benefit from this exciting arena.

What is Currency Trading

Currency trading is done, when a trade off is made against the strength and weakness of two or more opposing currencies. For example the currency trading of the Euro against the US dollar or that of the Japanese Yen.

In order for a Forex trader to be successful in currency trading, he needs to look at the market trends and try to analyse where and in what direction he might think that the market is going to go.

There are many factors which can (and do) contribute to the daily currency trades being made, and these can have almost immediate effects to the currency trader. In the world of online forex  trading such factors could be:

  • The outbreak of war
  • Natural (sometimes called Acts of God, in insurance terminology) disasters such as hurricanes, earthquakes, typhoons
  • Secessions and the breaking of trade blocs as recently witnessed with Britain’s exit from the Euro bloc (Brexit)

All these factors impact directly on the supply and demand of currencies and commodities. For example, war could interfere with the supply and delivery of crude oil. Terror acts also play a role in currency trading. Although, traders today, and after 9/11 tend to take such things more in their stride now, and the currency trading markets usually correct themselves pretty quickly today.

In internet forex trading, an exchange rate represents the value of one currency against that of another. An exchange rate fluctuates over time.

The US dollar is the most traded currency in the world and we can look at the value relative to a third currency, which may be obtained by dividing the US dollar rate for that of another.

For example, if there a 120 Japanese yen to the dollar and 1.2 euros to the dollar, then the number of yen per Euro is 120/1.2 = 100.

The magnitude of numbers is not, by themselves, indicative of the strengths or weaknesses of any particular currency. Meaning that the US dollar could be rebased tomorrow, so that one new dollar was worth one hundred old dollars.

All the numbers, in the table, would be multiplied by one hundred – this does not suggest, however, that all the world’s currencies just got weaker. One way or another, currency trading is almost as old as mankind itself.

What is Margin Trading?

Foreign exchange trading is normally undertaken on the basis of margin trading or gearing.

A relatively small deposit is required in order to control much larger positions in the market. This is possible because when you buy one currency you sell another.

Margin requirements are set by your broker and vary from as little as 1% to 10% margin.

This means that in order to trade 1,000,000 USD on 1 % margin, you need to place just 10,000 USD by way of security.

That same security of 10,000 USD, traded on a 10% margin could control up to 100,000 USD worth of one currency against another currency.

Learning Online Forex Trading in Kenya

Online forex trading is something that you can do and make a lot of money. However, before you start banking the big money, you need to learn how to trade the forex market.

In this article, I want to steal you into one of the secrets about learning online forex trading in Kenya. I’ve had the privilege to train many beginner, intermediate and advanced forex traders in Kenya. In all of them I have realized one thing. Many think that their greatest hindrance to making profits in the forex market is because they have not learned a certain technique.

Nothing could be further from the truth.

Learning online forex trading has more to do with how you handle and deal with yourself. While it is true that there are a few technicalities you need to muster before you can begin to trade profitably, the biggest challenge is learning how to control yourself.

Fighting your perceptions

The first thing that beginner forex traders need to overcome is the perception that currency trading is a get-rich-quick kind-of-a-thing.

I don’t blame you if you are looking to venture into FX as a shortcut to immense riches. This perception is created by many websites that tout forex trading as a way to make money fast and get rich quickly. In real sense, these websites do not have your best interests at heart. They want to take advantage of your newbie vulnerability to steal money from you!

Forex trading is not a shortcut to infinite wealth. Don’t venture into it if you want to make a quick killing and retire within your first year of trading. You will be thoroughly frustrated.

It is important that you approach internet forex trading with the right attitude.

Getting Your Feet Wet

Once you have dispelled all the myths that tout FX trading as a get rich quick, it is time to get your feet wet. When you are learning to swim, you don’t dive into the water head first. You first get your feet wet, test the depth of the water, and slowly waddle towards the deep end. Anything short of that is a recipe for an untimely death by drowning.

The same thing applies to online currency exchange trade. Here is a list of things that you need to do as you prepare to venture into forex trading:

  • Start reading

The first step to venturing into forex is getting an education. There are a few ways you can use to learn online forex trading, but whichever you choose, make sure that you are learning. You will need to learn the terms and lingo used in the currency exchange market as well as the strategies used to trade.

If you cannot manage to learn forex on your own, you may consider hiring enrolling for online forex trading classes in your town. Having a mentor to hold your hand simplifies the learning process and is faster than trying to learn everything on your own.

  • Research online forex brokers

All retail forex traders trade the forex market through forex brokers. However, not all brokers are born equal. Some are nothing but scams that will disappear with your profits after you’ve been pouring out your heart and soul on trades.

Some brokers require high starting capitals while others allow you to start trading with a small deposit. You will need to spend some time reading forex broker reviews and visiting their websites to understand how they operate.

Some of the things that you should keep in mind when researching forex brokers include:

  1. Check whether the broker is registered with the requisite authorities in their country of jurisdiction. This is a crucial step that will help you differentiate  real serious brokers versus those who are out to get you.
  2. What is the minimum deposit allowed by the broker? Is it an amount that you can easily raise without investing money that you cannot afford to lose? If you have less than $2000 to invest, you should probably seek those brokers who will allow you to trade in micro lots.
  3. Ease of deposits and withdrawals: You do not want to be stuck with a broker that can’t let you withdraw your profits easily. Which deposit and withdrawal channels does the broker offer? Are you comfortable with at least one of them. Keep in mind that many brokers will only let you withdraw your profits into the same account you used to fund the account.

If you have ease of mind with your broker, you will manage to allocate more time to analysis and fine-tuning your strategy. Doing your due diligence before settling on a broker goes a long way and can greatly enhance your chances of becoming the next successful Kenyan forex trader.

  • Open a demo trading account

After you have read many forex broker reviews and settled on a few that look promising, you will need to open a demo account to test how trading on their platforms looks like.

Many legitimate forex brokers (such as Easy Forex) will let you open a free demo account to pilot test their trading interface. They will even load the account with virtual money.

The free demo accounts allow you to learn more about the forex market and to practice trading with zero risk.

  • Test out some strategies

So far so good. Up to this point you should have some solid information about FX trading and a demo account. It is not time to put what you’ve been learning into practice. After you learned how to operate the demo account, it is time to test out some strategies.

I am assuming that you took step 1 very seriously and learned all that there is to learn in online forex trading. Which strategy did you think is the best to trade forex? Test it now.

I suggest that you spend a lot of time practicing trading strategies on the demo account. Devote time to your demo trades daily, and do not upgrade to a live account until you are making profits on the demo account. I repeat. Do not risk your ‘real’ money if you have not started making consistent profits on a demo account.

  • Open a live account

The final learning step is to open a live trading account. You will need a scanned copy of your original national ID card and a bank statement or utility bill.

Start by depositing a small amount into your real account and trade small lots. Better still, follow this link to get free $25.00 that you can use to start trading on your live account.

If you have gone up to this step without despairing, give yourself a pat on the back. To sum up what you’ve learned today, go slow when you are new to online forex trading. Take your time before you open a live account. Find a mentor to hold your hand. Practice on a demo account until you are sure of yourself, and once you open a live account, trade small.

Till next time. I am still yours trully. Patrick Mahinge.