Forex Trading Meaning – FX Guide

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Kenyans are often involved in forex trading but usually do not know Forex trading meaning. In this guide, you will learn what Forex is and why it is expanding around the globe.

Since the turn of the century, the popularity of online forex trading has grown exponentially. However, the forex market is traditionally dominated by large institutions, such as governments, banks, and corporations.

Nevertheless, individual investors and traders are now able to participate in forex markets through retail forex trading. In addition, traders and investors have taken advantage of low-cost broker services through changes in trading technologies and regulations. BIS reports that the global forex market is currently valued at $6.6 trillion, of which retail customers trade about 3%.

The Kenyan forex market has also experienced strong growth, with more than 70,000 active retail traders. The Capital Markets Authority (CMA) regulates some of the biggest forex brokers in Kenya.

If the broker is not regulated, Kenyan forex traders should be very careful while selecting a broker to trade Forex online.

As well as recognising the risks involved with forex trading, new traders should be aware that forex market movements are highly volatile. Sometimes, there is a risk of less profitable trades, and you can lose more money than you invest. So let’s look at the meaning of Forex trading and what a trader should do to become a successful forex trader.

What is Forex trading?

In the forex market, exchange rates for all global currencies are determined. It is the world’s largest financial market, with daily transactions of $6.6 trillion. The forex market is highly liquid, operates 24 hours a day, has low transaction costs, is easy to use, and has fast-paced regulations.

Due to low-cost trading platforms, retail traders and speculators have increased their participation in the foreign exchange market. Historically, foreign exchange markets were limited to banks, governments, and large institutions. As a result, the forex market comprises retail and speculative investors to a degree of around 5.5 percent.

Over time, Kenya has become a major Forex trading hub, with 70,000 people participating.

In Kenya, the Capital Markets Authority (CMA) is the regulatory authority that oversees financial conduct. In Kenya, any forex broker operating must have a CMA license. Trading with brokers not based in Kenya and serving Kenyan markets is not recommended by CMA.

Through any Kenyan CFD broker or forex broker, Kenyans can trade in the forex market. A retail forex trader or CDF broker does not own the assets or currencies physically but rather speculates how the price movements of currency pairs will behave through a CFD instrument created by the broker. In Kenya, online forex trading is the most common method.

FCA, NFA, CySEC, and ASIC are the most reputed and trusted brokers around the world. Having multiple top regulatory agencies regulate a broker is a good sign of trust.

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Consider the Kenyan Shilling (KES) as compared to the US Dollar. A US dollar is equivalent to 100 KES. Thus, if we buy USD 1,000, we will pay 100,000 Kenyan shillings.

Suppose the value of KES increases. As a result, we will pay less KES for every USD we purchase. Furthermore, you will receive more KES for every USD sold than you charged. In other words, profit is the difference between what you charge and what you earn.

Why should you trade currencies?

Individual investors had a very hard time trading currency before the Internet. Forex trading was generally done by large multinational corporations, hedge funds, or wealthy individuals because it required substantial capital.

Retail forex markets have developed through the Internet, providing traders easy access to foreign exchange markets via banks or brokers on a secondary market. With most online brokers who provide a very high leverage, traders can control a large trade using a small balance.

Forex traders in Kenya should be aware of the following things about forex trading.

Trading the forex market is risky, and 90% of traders lose money

Trading forex involves a lot of risks. Forex trading is not guaranteed to produce profits, and about 90% of all forex traders lose money rather than gain it. This is due to the unpredictability of forex markets. Over some time, consistently making money with trades is very difficult.

Forex trading does not have any proven strategies that are guaranteed to work. Therefore, it would be best to be wary of anyone who promises to help you consistently make profits in this market. Despite having the best talent and utilising the best tools & techniques to make informed trades, institutional investors such as multinational banks also lose money on forex trades.

A demo account is the best way to get started as a new trader. In this account, you do not trade with real money. However, you’ll still be able to learn a lot about how the forex market works when you do this. When trading, ignore emotions and think rationally.

The rule of financial markets is to never trade with more money than you can afford to lose. It will ensure financial security even if you lose money on your trades. Make sure that you contact only forex brokers with negative balance protection. In other words, you can never lose more than what you deposited in your trading account.

The Forex market is highly volatile

Foreign exchange markets, also referred to as forex markets, are regarded as among the most volatile markets in the world. This is because it can be difficult to track the changes in exchange rates between currencies since they change so quickly.

The volume of trades determines the movement of the exchange rate. However, the trading volume is not necessarily indicative of a more volatile exchange rate if the trades are balanced out.

A bad trade on the forex market can cause you to lose a large sum of money in a very short period because of the market’s high volatility. On the other hand, trading on this market can lead to significant profits, but traders need to be extremely cautious while making trades.

Because the forex market is highly volatile, traders need to monitor their trades closely. In addition, forex markets are open 24 hours a day, five days a week, so traders need to keep an eye on them at all times.

FX has high leverage

Retail forex brokers almost always offer forex trading with leverage. This type of trading comes with its own set of pros and cons. When you trade leveraged instruments, you don’t need to contribute the full cost of your trade.

For example, a leverage of 1:100, for example, means you can use only $1 of your own money to make a trade worth $100.

A forex broker achieves this by offering spread betting and contract for difference trading as forms of forex trading. However, forex traders need to be extra careful because of the leverage involved.

While leverage can result in higher profits when you are in the right trade, it is just as likely to result in higher losses when you are not. Due to high leverage, you can enter high-value trades.

According to Trade Forex Kenya, traders should always know their negative balance protection while trading with leverage. Using stop losses is another method of minimising risk. Stop losses make sure you get out of a trade before you suffer a significant loss.”

Trading involves several tools that help to reduce the risk involved. So the first thing you need to do as a new forex trader is to learn these techniques and ensure that you implement them.

You are not trading actual money

Trading in the forex market involves no ownership of the currency you are trading. So, for example, the fact that you shorted the EUR against the USD if you are trading the EUR/USD currency does not indicate that you have received USD currency equal to the EUR value that you have shorted.

Because you are trading currency as derivative instruments, your trading results are dependent on the price change of EUR/USD. Therefore, your trade does not actually exchange currency. Based on the market fluctuations in currency, you can make long or short bets using this derivative instrument.

Trading stocks is not the same as this. Stock traders who place long positions on stocks and hold them for more than one trading day become shareholders in that company. To facilitate trades, a share trader usually opens an account with a broker to hold the stocks; these stocks are held in your name with the broker, and the exchange, for example, CDS accounts, are required at the NSE.

Trading on the forex market uses a derivative instrument, so traders need to be attentive to this fact. You cannot acquire foreign currency by trading on the forex market.

Choose a reputable forex broker

It is best to trade with a forex broker who has a good reputation in the industry and is trusted. Forex trading is prone to fraud since fraudulent practices are widespread.

Some forex brokers operate without regulation, and they can engage in practices that harm those who trade with them. For example, the money deposited by traders by a forex broker may be used for the broker’s purposes. Also, the traders may lose the deposit and be unable to return it to the traders.

If a broker has a license from different regulators, you can judge if you can trust the broker. For example, if a broker holds a license from a reputable regulatory authority, such as FCA, ASIC, or CySEC, this broker can be considered trustworthy.

Traders in Kenya are advised to trade with brokers licensed by the CMA to pursue legal redress if a broker violates their rights. In addition, a local presence and regulation make local traders more accountable.

Trading through Pepperstone, for instance, could be a good option since it is regulated by the CMA, the FCA, and the ASIC and has a local office in Hong Kong.

What causes the forex market to move?

Candlestick Stock Chart 2D View

Forex is a global market with currency from worldwide, so prediction can be a challenge due to the various factors that can influence it. However, like another money system, Forex is largely controlled by market-driven dynamics, and it is critical to grasp the variables that influence price changes here.


Central banks regulate production by announcing actions that have a major impact on the price of their currency. Money printing, for example, entails pumping more money into a market, which might cause the value of its currency to fall.

News reports

The banking sector and other lenders like to operate in countries with a better mindset. As a result, if favourable news about a certain location enters the marketplace, development is critical and raises interest in that country’s coin.

Market moods

Marketplace attitude, which is frequently triggered by headlines, may also significantly impact exchange rates. If dealers feel a currency is heading in a particular way, they may trade accordingly and persuade others to do the same, boosting or restricting supply.

Economic data

Trade figures are critical to currency price swings for two reasons: they provide insight into how an economy functions and what its banking system could do subsequently.

Ratings of credit

Buyers will want to maximise their profit from a market while minimising their risk. The creditworthiness of a country is an impartial evaluation of its obligations.

A country with a good rating agency is seen as a more secure source of capital than one with a bad credit history. This is frequently brought to light when debt levels are increased and lowered. A country’s currency may appreciate if its credit rating improves, and inversely.

Bottom line

To understand the ins and outs of the forex market, every aspiring trader should conduct proper research before they start trading. While trading in the forex market, they should also be aware of the best trading techniques and other practices that should be followed.

However, for forex traders, it is important not to blindly follow anyone else’s advice but to use their discretion. In the long run, forex trading may be worth the effort, even if there is much to learn.

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