Currency Trading – How to Begin
Successful currency trading is a great way to counteract the instability that results from unstable local currency and low salaries, and Kenya has no prohibitive laws against online trading. Moving your money into more stable or low-risk currencies can maximise your income and get your money working for you.
Forex trading is a 24-hour market, in other words, it occurs in a 24-hour cycle during business days from Sunday to Friday. This makes it easy to respond speedily to fluctuations in currency that result from political and economic events happening around the world. Since the market doesn’t truly close, you can trade at any time of the day or night.
Forex trading is, of course, somewhat volatile but is usually far less volatile than the stock market, making it a safer place to invest. However, you need to be astute and careful with your trading, as in any business, and this begins with choosing a Forex broker.
Brokers essentially provide you with a platform to buy and sell foreign currencies. You would make use of their services in the same way as you would if you were buying and selling stocks.
So, how do you choose one Forex broker over another? There are several criteria you should be on the lookout for, and several questions to ask before choosing a Forex broker. Much like choosing what stocks to invest in, you should try to find a broker that suits your particular needs. There are huge differences between Forex brokers, and no one-size-fits-all, so picking a broker that suits your style and needs is a no-brainer. Your broker should also inspire confidence; if you’re uneasy about their service, company details or experience, stay away.
A few things to think about when deciding on a Forex broker:
Research the broker’s reputation and regulation
Check up on the broker’s trustworthiness and how long they have been in the industry – the longer, the better (think a decade or more). Look at as many customer reviews as possible to make sure they are reliable and trustworthy. Many brokers allow you to run a practice account to help you learn how the market works. The best brokers will be very transparent.
Your broker should also be regulated by a governing financial body within the country in which it’s based. A reliable broker will have this information clearly visible so that you can do your research and check their legitimacy.
Try to find out as much as possible about the brokers you are considering, and compare their platforms, reliability, customer support and regulation. While all the brokers you look at may have the same level of security, good margins and reliability, you may find that you prefer some site layouts and structures over others. Some of this is down to your own personal preference. Comparing brokers will allow you to choose one that suits your needs the best.
Brokers will usually have a minimum balance for starting a brokerage account. These range from as little as $US50 (approximately KES5272 at time of writing) and up to $1000 or more, depending on the broker.
In simple terms, a margin account allows you to trade with the broker’s money. Your broker will lend you cash, and the loan will have collateral in the form of securities and cash. This gives margin accounts advantages and disadvantages – gains are magnified, but so are losses; if a currency you have bought loses enough value, you would have to repay your broker or sell off some of your currency in order to cover the loss.
Look closely at the fee structures
If the layout of fees is highly complex and difficult to understand, it may be wise to steer clear. Equally, treat rates like you would when buying stock – if the returns seem too good to be true, they probably are.
Are they user friendly?
If you’re a first-time investor, seek out platforms that are easy to use. Your broker should be able to explain the system or trading platform in simple terms or at least their website should; if they can’t do that, avoid them. Look for clear “buy” and “sell” buttons and a logical layout – the clearer and simpler the site layout, the easier it will be to avoid mistakes and make good trades.
Look at the paired currencies
In Forex trading, currencies are always paired up – for example, you’ll trade with KES and USD. It’s good if your broker trades in the most commonly traded and stable currencies (also known as the Majors); these include US Dollars, British Pound, Swiss Franc, the Euro, Canadian Dollar and Japanese Yen.
A broker should be available to you whenever you need assistance. Whether they are contactable by phone, email or live chat, they should never be difficult to get a hold of, especially since trading occurs 24 hours a day. They should also always be able to answer your questions in a timely and satisfactory manner.
What types of accounts are available?
A good Forex broker should have several account types available. Common accounts include micro, mini, premium and standard accounts. These are generally delineated by the amount of money you wish to trade, but they will usually differ from broker to broker.
Accounts may also offer different spreads and have particular extras or promotions. Research the account types and their features before choosing one that suits you; this also means checking the individual rules for accounts across a few different brokers, to cover all your bases.
Run a demo account
The broker you choose should have the option of opening a demo account. Use this to practice and as an opportunity to ask questions and test out your broker’s platform and customer support. You can get to know the layout, quirks and reliability of the platform before entering into real deals. Just keep in mind that demo accounts can have slightly slower execution of orders than live accounts, so don’t let this put you off.
If you wish, you can “test-run” a few Forex brokers and improve your understanding of the process and each broker’s individual platforms before deciding which one suits you best.