Diving into the world of forex trading – what you need to know

When it comes to investment opportunities in Kenya, forex trading continues to prove to be one of the most attractive. Thanks to Capital Market Authority (CMA) frameworks, traders benefit from robust protections and a level of transparency envied in other parts of the world.

If you’re looking to start trading and are eyeing up the currency market, forex trading could be worth your time. However, before creating a trading account and throwing yourself into currency trading, you need to stop and consider the pros and cons. Below, we breakdown what the beginner needs to know about forex trading.

What is forex trading?

In simple terms, forex trading involves buying and selling currencies. Sometimes referred to as foreign exchange trading, it’s one of the most accessible ways to profit from the currency market. With forex trading, you make your profit based on how the exchange rate between currency pairs fluctuates.

For context, let’s take the Kenyan shilling and the euro as an example pair. If you think that the Kenyan shilling will enjoy an increase against the euro, you can purchase shillings and later resell them, with your profit being the difference between how much you paid for and how you sold the currency.

The currency trading market is by far the most buoyant on the planet. It’s a 24-hour operation, making it ideal for those who want to work beyond the confines of time zones. Its decentralised nature makes it even more appealing to international investors.

It’s also heavily regulated. In Kenya, regulatory responsibility falls to the CMA. For peace of mind and secure trading, it’s important to choose a licensed broker that is regulated by the Capital Markets Authority. One such example is the multi-asset broker Exness which has gained a reputation as a reliable broker in SSA (Sub-Saharan Africa) and is licensed and regulated to provide services in Kenya. Other well-known brokers in the region include Admirals and Easy Markets.

What risks are involved?

Although this form of currency trading can yield big returns, forex isn’t without risk. One of the most important risk factors to remember is the high volatility of the forex market. Exchange rates can fluctuate wildly over the course of a day or two. In times of geopolitical unrest and economic turmoil, the most volatile forex pairs can leave your account in negative equity.

Every investment calls for due diligence. However, it’s even more important when dealing with something as unpredictable as this market. Before sinking any capital into forex, make sure you’re fully aware of how much money you’re set to gain from a successful trade, as well as how much you stand to lose.

There’s also the matter of regulation, and not every broker is regulated. If you want to ensure that your forex trading account is protected, choosing a regulated broker is essential. Additionally, understanding which are the most volatile forex pairs is crucial for risk management. These pairs, while offering significant profit opportunities, also come with a higher risk of sudden and unpredictable movements, making them a pivotal factor to consider for any trader.

Selecting a trading broker

Before you can get started with forex currency trading, you first need to choose a trading broker. A broker serves as a middleman between traders and the market itself. Once you’ve registered with a trading broker, you’ll be supplied with a trading account that allows you to actually engage with the market. Many brokers offer demo accounts where you can practice trading without risking real money.

If you have no experience with forex trading, selecting a suitable broker can be a challenge. To ensure a broker is trustworthy, do your homework and search online for reviews from previous and existing customers. Your research shouldn’t start and end with the cherry-picked testimonials given pride of a place on a broker’s website.

Next, make sure a broker is regulated. A regulated broker is generally going to deliver more robust cybersecurity measures, be more transparent, and deliver a fair service to customers. Another point to consider is what level of customer support is offered. Live chat functionality is all well and good, but sometimes you need to speak to a human agent to get to the bottom of an issue with your trading account.

Finally, consider what fees will be incurred when investing in the currency market with a particular broker. A broker might have scored top marks in every other category, but crippling withdrawal and commission fees can put a serious dent in your profit margin.

Experiment with different trading strategies

If you want to succeed at forex trading, you’ll need to employ the right strategy. There are several different approaches you can take to forex currency trading, with all of them proving successful when conditions are favourable.

Before we delve into more specific strategies, it’s worth underlining the importance of risk management. An effective way that forex traders can reduce risk is by bringing stop-loss orders into the equation. With these, trades are closed when a currency hits a certain price. This means you’ll always have an idea of how much you stand to lose.

Technical analysis

Another popular method used by forex traders is technical analysis. However, it does call for a fair degree of market insight and experience. Assessing technical indicators and using charting software is crucial, especially when dealing with the most volatile forex pairs. This approach can give you a clear picture of previous price movements, allowing you to make more informed predictions about where future prices are headed. There are many different technical indicators you can use to inform your decisions, with most traders using a combination of them.

Fundamental analysis

Technical indicators aren’t the only thing that affect price movements. Economic forecasts, geopolitical concerns, and other issues can all impact currency values. Rather than look for signs of price movements, fundamental analysis gets to the bottom of what’s actually causing them. Identifying these indicators requires a keen understanding of international economics and a finger on the pulse as far as current affairs are concerned. However, automated tools can help lighten the load when scouring news sites.

Start forex trading today

Do you feel like forex trading could be the right investment for you? There’s a reason why it’s the most popular financial market, although having a favourable outcome with trading forex hinges on partnering with a reliable broker. Choose a broker that offers all the features you need to ensure a better chance at forex trading success. You don’t need to feel intimidated if you are new to trading. Some brokers offer educational content, or even better, mentors that you can follow and gain insights from, such as the Exness Team Pro traders, where beginners can employ tried and tested strategies and benefit from the expertise of more experienced investors.