What you need to know:
- The knowledge and understanding of the technical intrigues of the market is not one a neophyte can master on a weekend or a short course.
The popularity of the international forex market has made it the largest financial market in the world. According to a 2019 BIS report, the daily volume of forex traded amounts to $6.6 trillion. Around 3.5% of the total turnover was retail in 2013 as per report by BIS.
The internet has facilitated retail forex trading such that anyone from anywhere can engage in the trade. However, this seamless access to the market guaranteed by the internet has created a rat-race for traders among forex brokers. Today, scam forex brokers use every form of gimmick to hoodwink ignorant individuals into trading and investing in the forex market in the guise of an easy path to wealth.
The African continent has seen a massive growth in the number of retail online forex brokers in recent times. Currently, there are an estimated 1.3 million active forex traders on the continent and the number is growing rapidly by the day. This is coming at a time when there are no regulations for retail forex trading among many countries on the continent.
Currently only Kenya, South Africa and Mauritius have regulations guiding online retail forex trading. Tanzania like many of its continental counterparts does not have. The absence of regulation is one of the many risks and challenges faced by retail forex traders in Tanzania.
Forex traders and those intending to participate in the international forex market should first understand how the forex market work. Forex is the exchange of one currency for another for different purposes. Most retail forex traders participate in the forex market with the aim of profiting off the price difference in currency pair at the end of trade.
In reality, forex trading is not as forex brokers and their marketers makes it to be. It is much more difficult and complex. This article will discuss three truths about forex trading.
1. People Lose Money in Retail Forex Trading
Many individuals, especially newbie forex traders, believe they can make a fortune off forex trading. This belief stems from the aggressive marketing gimmick of online retail forex brokers.
While it is possible to earn money and even make a living from forex trading, the odds are stacked against you.
When you trade a currency pair let’s say USD/EUR, you are betting on the USD to rise against the EUR. However, someone in another part of the world is betting on the EUR to rise against the USD. Your success depends on the failure of that person.
According to financial analysts, around 65 to 89 percent of forex traders encounter losses in their trade. The stats for CFDs is even higher with an average of 74% losing out on trades.
2. Forex Trading Requires In-depth Training and Education
The international forex market is the most liquid financial market in the world. Price movements in this market happen at a pace only highly skilled and professional traders can handle. One cannot master the complexities of the market within a short period of time.
In recent times, some brokers with sugar-coated tongues offer short trainings aimed at providing traders with instant proficiency in trading in the forex market. This is not true. To master the art of forex trading, you must give yourself to knowledge and practice over a considerable period of time
The knowledge and understanding of the technical intrigues of the market is not one a neophyte can master on a weekend or a short course. It can take years to fully grasp the nitty-gritty of the market and become a professional. Even at that, the volatile nature of the market makes it immune to any form of professional handling.
Also, forex trading has a motley of technical registers peculiar to it. Terms like leverage, pip, spread, forex pair, margin, bid/ask price etc., must be properly mastered if one is to avoid the mistake of losing his investment.
However, many forex brokers now provide demo accounts, and other forms of investor education that aim to train and educate new forex traders
3. There are scams in Forex Trading
Like every other venture, there are scams in forex trading. These scams range for nefarious, un regulated brokers, to those who make forex seem like a get-rich-quick scheme, hackers etc.
As per findings by broker research firm Safe Forex Brokers, there are so many scam brokers that target the general public in East Africa to their HYIPs in the name of forex trading. if you are a Tanzania based trader involved in forex trading, you must ensure your broker is regulated by top tier regulators such as UK’s Financial Conduct Authority, Cyprus’s CySEC, Australia’s ASIC etc. Broker having a license with one of these regulators can be considered safer than a broker that is not regulated or is offshore regulated.
This is an important step because online retail forex trading in Tanzania is not regulated. It is not illegal per say. That is you trade and invest at your own risk without local government protection. Trading with a broker that is not regulated or regulated by some less rigid regulators is highly risky as they can run away with your investment.
Also, you should avoid those who make forex trading seem like a Ponzi scheme where you invest and get guaranteed return. Some go as far as deceiving novice traders that they can provide some robots that can facilitate trade and deliver consistent profit. This is absolutely wrong and you should be careful.
Trading with an unknown unregulated broker can open you up to hackers who might steal your important private data such as credit card numbers, background information etc. and use such to steal from you or scam you.
Forex trading is not all gloom and doom. You can earn a good income from the market if you practice & follow strict risk management.
However, you should be careful, well trained and educated yourself about the fundamental and technical analysis of the forex market. You should also have a defined and tested trading strategy. Learn as much as you can about risk management.
Also, do not enter the forex market with funds you cannot afford to lose. Forex trading as said earlier is not a Ponzi scheme where you invest and get paid back without risks. As said earlier, the chances of you making a profit are very low since most of the retail traders lose.
Also, remember that if you are making a profit means that another person is losing. If your broker is a market maker, then if you are making a profit then your broker is losing. So, a bad broker is incentivized to make you lose.
You can earn income through forex trading but remember that the chances are very low. You must know about how you apply the truths about forex trading.