Money & Careers
An expert looks at the seven valuable skills every Forex trader must have at their fingertips
Forex trading is popular among traders and investors round the globe. The currency markets are open 24 hours each day with an outsized volume of trades resulting in higher liquidity. In recent years, the demand for forex trading has been growing Kenya.
According to the foremost recent estimates, there are quite 70,000 traders who participate in forex trading. one among the explanations for the expansion in popularity of forex trading in Kenya is that the CMA has started regulating the world since 2018.
Even though the world is regulated, it carries a high amount of risk. Therefore, first-time traders should be wary of the pitfalls related to forex trading.
According to local website Trade Forex Kenya, “Traders got to educate themselves on the fundamentals of the Forex market and learn safe trading practices like risk management before actually investing in forex.”
“Every trader must deploy proper risk management techniques in order that losses might be mitigated.”
Let’s take a glance at a couple of tips that require to be kept in mind before diving into the currency markets.
Educate yourself before trading
It is critical to understand your way around forex trading before you begin investing real money. you ought to start by checking out the fundamentals like the way to make forex trades, the way to manage your risk, what are the active trading times, what do the common forex trading terms mean, the way to conduct marketing research , what makes the currency market fluctuate, and so on.
Once you recognize the fundamentals , you ought to start by opening a demo account with a longtime forex broker. This demo account will allow you to practise trading without using actual money and assist you find your way around a trading platform or app.
Experience is that the best teacher when it involves forex trading, and don’t worry if you create tons of bad trades once you first start out. the foremost important thing is to stay learning.
Only start trading with real money once you recognize have understood and practised the fundamentals .
Only trade with CMA-regulated brokers
A forex broker carries out your trades within the forex market and holds your money in its account to permit you trade. Not all forex brokers are regulated, and it’s important to only trade with regulated brokers.
In Kenya, there are only three forex brokers that are regulated by the CMA (Capital Markets Authority of Kenya) licensed as Non – Dealing Online FX Brokers. they’re Pepperstone Kenya, EGM Securities (FXPesa), and Scope Markets (SCFM Limited).
Regulation means CMA has oversight over these brokers and doesn’t allow any unfair practices, fraud, or excessive risk.
There are several benefits to trading only with regulated brokers within the forex market. A regulated Forex broker offers a transparent trading environment. they can’t manipulate the market and that they got to submit periodical financial reports to the regulator viz. CMA.
A regulated forex broker must keep your funds break away its own funds. Hence, it cannot use your money to conduct its own operations or transactions. this suggests that your money stays safe and guarded for you to use.
The Kenyan regulator CMA protects you from any fraudulent practices of brokers and just in case you experience any fraud, you’ll approach the justice system to hunt damages but as long as you traded with a regulated forex broker.
Compare trading costs
Different forex brokers charge different fees. the general cost that you simply would incur when trading with any broker are going to be different.
Before you select a broker to trade with, you would like to see the general cost related to trading with it.
There are four major components to the general cost of trading. The spread, commissions, overnight charges, and other hidden fees like deposit and withdrawal fees or inactivity fees.
For example, if you would like to shop for EUR/USD at a live price of 1.1000, your broker will show you the price and ask price. you’ll got to pay a better price to shop for EUR/USD (say around 1.1002) and therefore the difference in price will attend the broker as revenue – called the spread.
Similarly, the broker may charge a further commission on each trade that you simply make. Additionally, if you create a trade and hold it overnight, you’ll got to pay overnight charges that are related to each currency pair.
You need to see what proportion your overall costs are going to be for trading with any forex broker.
Use leverage with caution
Forex trading allows you to use leverage. Every broker offers different leverage. Your broker could also be offering 1:100 leverage. this suggests that you simply can enter into trades worth $100 by investing only $1 of your money.
Even though leverage can increase your profit margins, it also amplifies your losses.
For example, suppose you’ve got $100 in your trading account and you employ the whole money to shop for EUR/USD using 1:100 leverage at the worth of 1.1000. With $100 by using 1:100 leverage, this is able to mean that you simply can place buy order worth $10,000 on EUR/USD.
Suppose the worth of EUR/USD drops to 1.0050 (50 pips down), this is able to mean a loss of $50 for you and 50 per cent of your entire capital are going to be exhausted during a single trade.
Use risk management tools
There are several risk management tools like stop-loss, negative balance protection, risk-reward ratio, etc., which may assist you manage your risk related to every trade.
You should use all or any of those techniques whenever you trade in order that you are doing not experience excessive or unforeseen losses.
For example, a guaranteed stop loss ensures that you simply exit from a trade before your losses exceed a particular amount.
If you would like to form sustained profits while trading within the forex markets, then you would like to know of these risk management techniques and the way to use them effectively.
Always confirm that you simply simply have at-least 1-2 risk-to-reward ratio for any trade that you place.
Research and gain experience
There are two ways to start out trading more effectively and profitably.
You need to read the maximum amount literature on forex trading as you’ll . you furthermore may got to practice your hand at trading on demo before investing any money. you ought to do your own research on every currency pair that you simply shall trade instead of following any ‘expert’ trade advice or calls.
You must also keep up of international news and skills it affects the worth of various currencies.
For example, the present trade war between the US & China, and risk aversion thanks to the coronavirus situation has an outsized effect on the worth of the many emerging market currencies.
Review your past performance
To grow as a trader, you would like to find out from your past mistakes.
After every trade, you ought to take a while to review that trade and find out what you’ll have done better. you ought to study your own emotions while trading and check out to trade analytically – counting on fundamentals & technical analysis the maximum amount as possible without letting your emotion get within the way.
While trading, believe your past experiences and therefore the past history of the currency market to form informed decisions. Making sustained profits in forex trading takes time and energy , and there are not any shortcuts to becoming an honest trader.