Investing in stocks can often seem like a lottery when markets are so uncertain but there’s one investment area that thrives on volatility. Foreign currency trading or Forex is becoming the go-to place for Kenyans who want to find value for their money.
With the current Covid situation it is fair to say that the outlook is uncertain and it is this uncertainty that provides an excellent opportunity to make profits from Forex.
What is Forex trading?
Foreign exchange trading is simply the practice of buying a currency in the belief that it will rise in value compared to others. Forex traders may work as ‘day traders’ where they buy and sell positions in currency within the same trading day, or they may take a longer-term view and hold currency in the belief that it will strengthen over time.
Volatility is the key here. Currency traders need prices to keep moving to earn money and this is what makes it suitable as an investment option in the current uncertain times. To a large extent, currency trading is a numbers game, watching patterns and cycles within the markets to determine the best course of action.
But it can also be much more of a global strategic appreciation where the trader understands the impact of a new US president on the dollar or the effect of a good coffee harvest on the Kenyan shilling. It is these different trading approaches that make Forex trading such an engaging occupation.
What do you need to start Forex trading?
The most important thing you need when you start currency trading is a trading strategy. All Forex traders have their own unique strategies. For the most successful traders, these have been developed over a long period of time and honed to the point where they become finely tuned money-making machines.
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But for new entrants to the market, it is important to work on a strategy before investing real cash. When you start to work on your strategy it is vital that you invest time in understanding the market.
There is a huge amount of information on the web about Forex trading and for the novice investor, this is the place to start. Look upon this phase as a form of university education, learning your trade before launching yourself upon the marketplace.
Currency trading isn’t done based on hunches and best guesses.
When you are developing your strategy it is a smart idea to open an account at a suitable brokerage and make use of their dummy account function. Most good brokers offer accounts that allow you to trade using a so-called ‘dummy account’ that mimics the real version in all respects apart from one – it is pretend money!
In this way, you can test, refine and develop your own trading strategy safe in the knowledge that you aren’t risking your real-life wealth.
Research is the key
Currency trading isn’t done based on hunches and best guesses. In fact, most Forex traders’ time is spent on researching their various options.
As part of your research process find respected news sources that will give you quick access to information that may change the way the Forex markets react. This will give you early warning of movements that you can capitalise upon.
Find respected and insightful commentators on world events who are able to add depth to otherwise simple facts and figures because this is where good traders earn their money.
The most obvious thing that you need to start currency trading is access to a pot of cash but actually, this is the last thing you need.
You should only start risking real money when you are sure that you fully understand the markets, the currencies and you have a tested strategy that works for you. Once you are happy that your education is complete, only then should you look to put your own money into Forex trading.
For more bullish investors, many brokerage houses offer leverage accounts, where a small amount of money can be used to place a much larger position by effectively ‘borrowing’ cash to use.
Leveraging is really only for the knowledgable investor who has experienced consistent gains over a long period of time because while this can supercharge your earnings it can also massively increase losses.
Can you really make money in the Forex market?
The traditional view of Forex traders is of a guy in a sharp suit who is constantly buying and selling in a somewhat flamboyant manner. But the reality is very different. For people who are organised and are prepared to work on their Forex education, there is a significant opportunity to make profits.
It takes time and a great deal of effort to build the kind of knowledge that pays dividends when working in currency and the truth is that not everyone is prepared to invest in themselves in this way.
Trading requires a work ethic that suits some people down to the ground and without a doubt, people who fit into this mould make the best returns. For new investors who take time to develop their understanding, research their subject and test their strategies until they are almost perfect, there are profits just waiting to be taken.
If this sounds like you then why not start your education now and begin your research – and the sooner you start, the sooner you’ll be making money!