Forex Trading in Malawi – The Basics
The forex market, also known as the currency market or simply FX, is a decentralized global market for currency trading that includes selling, buying and exchanging currencies at determined or current prices. It is easily the biggest market in the world in terms of the volume of trading transactions. Large international banks are the main players in the forex market.
How Forex Trading Works
The fastest way to teach beginners the basics of Forex trading in Malawi is by giving examples. Here is a simple example.
Let’s say you purchased US $5,000 early last year at 720 Malawian Kwacha for a dollar. This means you spent a total of 3,600,000 kwachas to buy the dollars. You held on to the dollars for several months and decided to sell them after 3 months at 723 kwachas for a dollar. You got a total of 3,615,000 for the sale, netting you a profit of 15,000 kwachas for 3 months.
The above example shows how you can profit from trading currencies. You get the idea that for you to earn a monthly profit of 5,000 for 3 months, you need to buy US $5,000. For many people, $5,000 is quite a lot of money and 3 months is a long time to wait before you realize your gains. However, there are some easy ways to overcome these concerns.
Understanding Forex Brokers and Leverage
The Forex broker facilitates trading in the Forex markets. A broker is the market specialist who provides the ideal environment for traders to help them take advantage of fluctuations in currency rates in a timely manner. Even if you do not have a lot of cash on hand, you can trade in large amounts simply by opening a trading account with a broker. This is possible through leverage.
Leverage may be extended by your broker to allow you to trade large sums of money. For example, if your broker offers you a leverage ratio of 1:00, you can trade as much as US $100 for each dollar deposited to your account. If your trading account has a balance of US $200, because of leverage, you can trade up to $20,000.
It is easy to understand why brokers offer leverage. Brokers know how slow the movements in the Forex markets are, and for a trader to gain significantly within a short period of time, you have to trade large sums of money.
To better appreciate the reason behind your broker giving you leverage, let us take the GBP/USD currency pair as an example. Currently, the exchange rate is 1 Pound Sterling (GBP) to 1.2900 US Dollars. If you buy 5,000 GBP from your broker at the prevailing rate, you have to pay US $6,450. After a couple of days, you sell your Pound Sterling at the rate of 1.3000. You gain US $50 in 2 days.
Everything happened in a matter of 2 days – from buying to selling GBP. Brokers are fully aware that their risk is limited to the same time frame. In case they lose, they would not lose a lot of money and is limited only to the amount deposited in your trading account.
In the example above, if the trade went the other way and you lost, your broker would only lose $50. This is the rationale as to why your broker would allow you to trade as much as US $20,000 worth of currency at a leverage of 1:00 for a deposit of only $200 in your account.
Assuming the worst-case scenario happens and the trade goes extremely sour, and your loss reaches $200, your broker will immediately close the trade to limit the total loss to the amount of your deposit.
To sum up, everything we discussed in this section, leverage is offered by brokers to allow their clients to achieve bigger profits through higher risk trades within a short period of time. This also makes it possible for you to trade more.
And, the more you trade, the better it will be for your broker. This is because brokers earn from the so-called ‘spread.’ To define simply, a spread is the difference between a currency pair’s buy and sell prices.
At present, a Forex spread is typically low. This is because Forex brokers are in tight competition with one another. As a result, brokers are forced to drive the spreads low to make their services more enticing to their prospective clients.
Foreign Currency Brokers in Malawi
If you have decided that Forex trading is for you, and are currently looking for a reputable Forex broker in Malawi to work with, you may be disappointed. This is because at present, you cannot find a reliable Forex broker in the country. Your best bet is to use the services of offshore brokers or those based in another country.
The good news for residents of Malawi, however, is that there are myriads of offshore brokers who are willing to serve the Forex trading needs of Malawians.
You can find a broker that will allow you to conveniently make deposits and withdrawals through an online account. In 5 minutes or less, you can already open an online trading account. You can use a debit card to make a deposit.
Other online payment options like Neteller, Skrill, Cash U, Webmoney, Paysafecard, and other similar methods are also available. For depositing and withdrawing bigger amounts of money, you may opt for bank transfers.
To make your start in Forex trading easier, I have checked some of the world’s biggest Forex brokers and selected those that understand the needs of Malawians the most.
These are the brokers that offer the most ideal trading environment and most convenient deposit/withdrawal methods, particularly for residents of Malawi.
The following is the Forex broker that is best suited for Malawians:
Top Forex Broker for Malawi: AvaTrade
Note that high leverage is offered by all these brokers, as well as low minimum deposit requirements, mobile trading, and contemporary trading platforms. They also have lots of educational materials that you can use to gain more knowledge about the Forex markets, in general, and how to earn money from online Forex trading.