KAMPALA – Forex trading has been gaining in popularity around the world and especially in African countries, including in Uganda. The COVID-19 pandemic has led to a huge increased number of new retail forex traders who are trading range of CFD instruments.
Forex trading refers to the trading of currencies to profit from price movements. For example, traders can buy the EURUSD currency pair. If the price of the USD currency rises in comparison to the EUR, then the trader can profit by shorting EUR (also called selling) i.e. buying USD currency pair at a higher price against the EUR & then selling it later.
The forex market is a highly volatile market and traders can also use leverage offered by brokers. This means that the profits that can be made from forex trading is significant compared to your deposit size. However, traders should remember that the risk of facing losses is also substantial, and you can lose more than your capital.
Here are the five basic steps you need to take in order to start forex trading from Uganda.
1) Learn about the Forex Market
New traders need to spend a considerable amount of time in learning about forex trading and the forex market. The forex market is unique, and even if you know about trading equity or cryptocurrencies, you will still need to do a lot of research.
There are several ways in which you can approach learning the concepts of the forex market. New traders must start by reading the basics of forex trading and then gain deep knowledge of currencies, the forex market in general by reading online financial publications which publish content related to the forex market.
You should try to find online mentors who can follow & learn from. Further, you should practice paper trading (which is trading on the forex market without using real money). Lots of forex broker offer free demo trading account if you register with them.
You should look up unfamiliar terms (such as leverage, pips, or bid price and ask price) and learn what they mean. You should build a strong understanding of the factors that affect the prices of currencies.
Further, you should be aware of the risks involved with forex trading and how to use trading strategies to mitigate risk as much as possible (such as using a stop loss).
The most important thing that you will need to learn is how to perform technical analysis of currency pairs. Knowing technical analysis, and have a strategy that is back-tested is crucial in order to become a successful intraday forex trader.
While trading, you should practice keeping your emotions in check. It can be hard to leave out emotions when your money is involved, however, you need to be as scientific and technical as possible while forex trading.
2) Choose a Broker and Open a Forex Trading Account
The next step is to choose a reputed forex broker. There are several forex brokers out there, many of which are unregulated, and choosing the right one can be hard.
Before choosing a broker, you should remember that there are no forex brokers which are licensed to operate by the Uganda capital market regulators. This means that there are no forex brokers that are regulated locally. Hence, you may not be able to bring a successful lawsuit against a foreign forex broker in case a dispute arises.
Since there are no forex brokers that are licensed locally, you will need to choose a foreign multinational broker. While choosing a foreign broker, you should be careful of checking their licenses. If a broker has been licensed by multiple tier-1 reputable financial authorities such as the FCA (of the United Kingdom), the ASIC (of Australia), or the FSCA (of South Africa), then it is a safe broker to trade with.
You can check the licenses of a forex broker on their website, and then verify the license number on the Regulator’s website. In case you cannot find their licenses, then you should avoid trading with them. Only trade with forex brokers who are regulated by top tier financial regulators and have lots of licenses from regulators around the world.
Another important point to note before you choose a forex broker is whether they offer local support i.e. do they have a local phone number? What time is their support they available at? But since no forex brokers have offices in Uganda, you would need to call their International phone for support or contact on their email.
Before choosing a forex broker, read online reviews to check what other people are saying about the broker. If a broker has good reviews, then it is likely that the broker is reputable and safe to trade through.
3) Complete the KYC Requirements
KYC (also known as Know Your Customer) is an important step before you can start trading forex. Every Top-tier regulated forex broker has a KYC policy. KYC means that the forex broker will ascertain your identity and your address before you can trade with them.
KYC is important for forex brokers because it has several advantages. KYC allows forex brokers to establish your credibility, prevent scams, prevent money laundering, avoid legal issues, and avoid financial crimes. KYC norms are mandated by financial regulators as well, hence, you should be suspicious of any forex broker that does not ask for your KYC details.
Completing KYC requirements is usually not a complicated process. In order to complete the KYC, you will usually need to show two types of documents. One that proves your identity and another that proves your address.
Identity proof can be furnished by providing your passport, or driver’s license, or voter’s ID card, or tax card, or any other government-issued identity card.
Address proof can be furnished by providing your utility bills (such as water or electricity), bank account statement, ration card, or any other such documentation.
The KYC process will usually take place online. If a forex broker has an office in Ghana, then you may be able to do it in person as well.
4) Download The Trading App
Once you’ve registered with a forex broker, the next step is to download their trading app or trading software.
Different forex brokers support different devices. However, most forex brokers support Windows, MacOS, Android, and iOS devices. There are a few forex brokers that have software that supports Linux devices as well.
You can download the trading software directly to your computer through their website. If you want the trading app on your smartphone, then you can download it through the Play Store (for Android users) or the App Store (for iOS users.)
You can check the ratings of their app on the platform as well. Make sure that the ratings are decent, before downloading.
You should also check the supported features of the app. In case the app does not support your device, you may need to purchase a new device. Or, you can find a broker whose app supports your device.
5) Practice and Manage Risks
Forex trading is risky. Financial regulators such as ASIC and the FCA estimate that approximately 70% to 80% of individual forex traders lose their money in the forex market. This figure is even higher at certain forex brokers.
This statistic is so high because most forex traders do not understand the risks associated with forex trading and do not know effective ways in which they can manage these risks. In order to be a successful forex trader, you should start by practicing risk mitigation techniques.
Never invest more than you can afford to lose. Also, only trade through a forex broker that provides negative balance protection. Negative balance protection means that you cannot lose more money than you have deposited with the broker.
The best way to practice and manage risks is to start by demo trading. As mentioned earlier, paper or demo trading allows you practice trading under real-market conditions without the risk of losing real money.
Once you’re confident with your trading abilities, you can slowly start investing real money into your forex trading.
Remember that forex trading is primarily a speculative act. There is no guarantee that you will make money from it even if you are an expert trader.
Another reason, traders can lose a lot of money while forex trading is because of high leverage. As a new trader, you should not use too much leverage for your trades, to mitigate your losses.
What regulations are there for retail forex traders in Uganda?
The financial market regulators of Uganda have not started to regulate the retail online forex trading brokerages & derivatives trading industry in the country. There are no licensed forex or CFD brokers in Uganda. Hence, all forex traders from Uganda trade through foreign regulated forex brokers.
There are an estimated 12,000 daily active forex traders in Uganda. This number lags behind other countries such as Nigeria, South Africa and Kenya, however, it is still quite high.
The popularity of forex trading has been growing in Uganda & rest of Africa. But Africa still lags in terms of regulating the Online Forex Trading industry. This may change over the years as regulators in many African countries have started to regulate Online Foreign Exchange trading.
However, as of now, traders are advised to only trade through reputable forex brokers that are licensed to operate by tier-1 financial authorities (such as the FCA of the UK and the ASIC of Australia).
Online Forex trading is not an easy activity. It is a hard skill to master and even then there is no guarantee of profit.
Most traders are known to lose, and traders in Uganda have lost huge sums of money. Forex trading is not for inexperienced investors, and you should only trade if you have an understanding of the risks, macroeconomics that can affect a currency pair & fees involved.
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