The FXScouts podcast helps beginner Forex traders get the best start to their trading careers. With years of experience in the world of Forex trading and writing broker reviews, we have unique insight into how to start trading, tips and tricks, and advanced trading strategies. Traders can learn from our experience and make better financial decisions. We cover a range of topics, including how to choose a Forex broker, safety and regulation, how to reduce your risk, trading psychology, trading platforms, and trading strategies, among others. Listen to our podcast here.
How to Start Forex Trading in Tanzania
The great thing about Forex trading is that everyone can do it. But just because everyone can do it, does not mean that everyone should do it.
All serious Forex traders know that education, discipline, and strategy are essential elements of a profitable trading career. If you start trading Forex without these skills, you may profit from a few trades, but you will eventually lose.
Education, discipline, and strategy are essential
If you prepare properly and you are ready to learn, Forex trading can be a great way to create a steady income. But, before we look at the more complex aspects of trading, let us look at the essential things you are going to need:
A fast and stable internet connection
The Forex markets move fast, very fast, and if your connection is slow or drops out you are going to lose money. Winning trades can become losing trades in the blink of an eye. Many Tanzanians trade on their mobile phones, but this should be used as a backup (or to check on open trades when on the move) and not as a primary trading platform.
A Forex broker
Finding a good Forex broker is of the utmost importance, FX Scouts maintains an updated list of the best Forex brokers in Tanzania so it is best to choose one of those. We also keep a complete Forex broker directory which includes brokers we do not trust or recommend. If you have heard of a broker and want to know if you can trust them, the directory is a good place to start.
FX Scouts only works with the best Forex brokers in Tanzania
A Forex Trading platform
This is the software that you are going to use for trading and will be provided by your Forex broker. Some brokers have their own platforms, but most support third party apps like MetaTrader 4, MetaTrader 5 and cTrader. The best Forex trading platform is the one that you find the most comfortable to use. So, do not be afraid to shop around and check out different platforms at different brokers. Some brokers will offer more than one type of platform.
The best Forex trading platform is the one that you like to use
A demo account
Never start trading with your own money straight away. All Forex brokers will have demo accounts, which let you learn how the market works (and how your trading platform works) without losing any of your own money. They are also great when you want to try out different strategies or trade different currencies without taking any risk.
Always start with a demo account
A Forex Trading strategy
This will be the final piece of the puzzle. Creating a profitable trading strategy will require a good level of Forex education and experience with the markets. Forex trading is risky, but a good Forex strategy will help eliminate some that risk.
What is Forex Trading?
Forex trading is the exchange of currencies to make a profit from fluctuations in the exchange rate. To open a trade, a trader must choose a currency pair, and the direction they expect the exchange rate to move. As the exchange rate between the two currencies changes, the trader can close the trade for a profit or a loss. More detailed information on how Forex trading works is here.
Forex trading is one type of Contract for Difference (CFD) trading. This is a contract between you and your broker to pay any difference in the price of the currency pair between opening and closing your trade. This means that neither you nor your broker need to hold any currency.
Other CFDs that you can trade include commodities, metals, equities, energies and many more.
All Forex trading is CFD trading, but not all CFD trading is Forex trading
What is the difference between Forex trading and stock trading?
When people think of trading, they often think of stock trading and believe Forex trading is almost the same thing. But this is incorrect.
Stock trading is the buying and selling of shares from individual companies. Forex trading is the simultaneous buying and selling of currencies to profit from the change in the exchange rate. A couple of other major differences:
- The Forex market is a global, decentralised, over-the-counter exchange and all transactions and participants are confidential. Stock markets are based at a single location and public records are kept of buyers and sellers.
- Forex trading has a low cost of entry. To make serious profits, stock traders use large amounts of money, which is not an option for traders with limited incomes.
Forex trading is not investing. Forex traders never take ownership of the asset being transacted. With Forex trading, the trader is speculating on the future value of a currency pair and to call it an investment would be incorrect.
How do beginners learn to trade Forex?
Beginners should learn to trade using a demo account before depositing money into a real trading account. We have a guide full of practical advice to get you started, and more on how to place your first trade.
It will take some time to learn how to trade Forex successfully, as traders need to understand the many components and strategies to be profitable.
How to choose the best Forex strategy?
There are a huge number of Forex trading strategies, in fact, traders keep coming up with new ones all the time. The best traders will use many strategies and they will know exactly when to use each one. Forex trading strategies will rely on either fundamental analysis (analysing economic trends and news events) or technical analysis (analysing historical price action on charts).
The most popular trading strategies are:
Price Action Trading: This is the study of historical changes in currency prices to predict which way the price is going to move next. If you love studying charts and looking for patterns, then price action trading is for you. It relies almost entirely on technical analysis and there are many methods of trading using price action.
Range Trading: Range trading relies on figuring out at what point other traders are going to buy or sell a currency. Like price action trading, range trading relies on technical analysis but also needs a good understanding of the currency pair you are trading.
Scalping: Scalping is when a trader opens and closes many trades over the course of a day. The goal is to make lots of small profits. Technical analysis is an important factor with scalping, but the main problem is the time investment required. Scalpers can spend the whole day glued to their trading monitor.
Positional Trading: Positional trading is when a trader holds a position, or several positions, over a long period of time – sometimes for week or months or even years. Positional trading is heavily reliant on fundamental analysis, though technical analysis can be important too.
Other factors to consider when planning a Forex strategy are the time of day (as this affects how many other people are trading and the volatility of the market), order types (such as stop loss and take profit orders) and automated trading software/bots (which can see movements in the market that you may miss).
For more detail on analysis and how to use it, we cover strategies and building a trading plan in our learn to trade section.
How much do I need to start trading Forex?
Trading accounts can be opened for as little as 5 USD (12 000 TZS), though most brokers require a minimum deposit between 100 USD and 200 USD. But how much should you start trading with? The answer depends on how much you can afford and how much risk you are willing to take.
Risk management is a very important part of Forex trading and most serious traders agree that you should never risk more than 3% of your balance on a trade. If you have a starting balance of 100 USD, this means that you should never risk more than 3 USD on a trade.
Beginners should never use more than 3% of their trading balance on a single trade
Using the same formula, with an account balance of 2000 USD you can risk 60 USD per trade. Many beginner traders cannot afford to start with a balance of 2000 USD, but if you start with an account of 100 USD be aware that it is going to take patience and solid risk management to create a steady income stream.
Beginner traders should start with a minimum account balance between 200 – 500 USD. This allows traders to make small profits, while still maintaining a sensible approach to risk.
What is the best time for trading Forex?
The Forex market is open 24 hours a day, Monday-Friday, but the best time to trade Forex is when the world’s major stock markets are most active.
The more traders are active in the market, the more volatile the market is – and the more volatile the market is, the easier it is to make profits
The two cities with the largest financial markets in the world are New York and London, so the best time for Tanzanians to trade Forex is the crossover period when both the London and New York financial markets are open.
The two other major markets are the Sydney market and the Tokyo market and trading when these markets are open is also a good approach, though you will have to stay up very late, or get up very early.
For more detail on the best times for trading and how daylight savings time affects the major markets, read our piece the best times for trading Forex in Tanzania.
Do Forex traders pay tax?
Yes, they do. Forex gains are not tax-free income, and all profits are taxable even if your brokerage and capital are overseas. Tanzanians are expected to declare taxes just as with any other income either as an individual or a company. For more on this read our taxation article.
What are the risks of trading Forex?
Trading Forex and CFDs carry a significant risk that includes losing all the money in your trading account over a short period. 75-90% of traders lose money trading these products. You should consider whether you understand how CFDs work and whether you can afford to the high risk of losing your money. The principal risks of trading are:
Risk 1 – Volatility: The Forex market is extremely volatile at times. It is, after all, because of this volatility that we can profit from trades. But the market can move very swiftly, and this can mean a trade can go against you in a short period. If you are trading, you must actively watch your trades all the time.
If you have an open trade, never take your eyes off it
Risk 2 – Unpredictability: The Forex market is not something you can predict. There are just too many factors and actors on the market for it to be fully predictable. Traders need to set a win-loss target ratio where you account for some losses and use a strategy to minimise them.
You are always going to lose some trades, so prepare for it
Risk 3 – Leverage: CFD trading requires using leverage. Leverage is a tool used in trading to amplify your profits, but it also amplifies your losses which are automatically deducted from your trading account. Your account balance can be wiped out with a single bad trade.
Leverage amplifies your gains, but will also amplify your losses
Risk 4 – Interest: In some cases, interest will be charged on your trades. For example, interest can be charged when you carry trades overnight and your broker will take funds from your account to pay this fee.
Brokers may charge you for keeping trades open overnight
Is Forex Trading Right For Me?
By now you should know that it is high risk, that you need to find a broker that you feel suits you best and the amount you want to put into your account with a broker. Trading Forex takes a commitment to learning, and you should be ready to:
- Compare the best brokers in Tanzania to find one that suits you.
- Read our education section and learn everything you can.
- Understand the way the Forex market and CFD trading works.
- Learn about the software and tools that will power your trading.
- Be prepared to lose all the money you place in an account. Do not deposit any money you cannot afford to lose.
