Forex Trading in Tanzania – The Basics
The foreign exchange market is the largest and most dynamic financial market in the world. The potential to earn a lot of money is what makes forex trading popular. However, sufficient knowledge about the market is necessary to improve your chances to succeed.
How trading forex works is best explained through a simple example.
If you purchased US $12,000 in February 2015 at 2,235 Tanzanian Shillings for a dollar, you would have spent a total of 26,820,000 shillings.
You held on to your dollars for 6 months and sold them in August 2015 at 2,245 Tanzanian Shillings for each dollar. You received 26,940,000, yielding a profit of 120,000 shillings, or the excess of the selling price over your buying price.
This is how profits are made from Forex trading in Tanzania. In our example, you would have gathered that to gain a profit of 120,000 shillings within half a year, you must invest US $12,000.
Not too many people have neither that much money to invest or time to wait. There are, however, some ways on how to achieve your investment goals easily.
You can visit the official website of our recommended Forex broker here.
About Leverage and Forex Brokers
A Forex broker facilitates trading in Forex and helps traders take advantage of currency fluctuations in a timely manner.
By opening a trading account with a broker, you will be able to trade on international Forex markets. Through leverage, you can trade with large amounts of money, giving you the opportunity to make profits at a much faster rate.
Your broker may offer leverage, sometimes at a 1:200 ratio, to allow you to trade as much as US $20,000 for a mere US $100 on your trading account. You may wonder why your broker will allow this. Simple.
The broker knows how slow the currency markets move, and the only way you can gain significant profits within a short period of time is to trade with a considerable amount of money.
To help you understand how leverage works and why brokers offer it to clients, here is an example using the most widely traded currency pair the world over – EUR/USD. Currently, the prevailing rate for the EUR/USD pair is 1.1030.
This simply means that in order to buy one Euro, you will have to shell out US $1.1030. If you intend to buy 10,000 Euros, you have to spend US $11,030. If you purchase 10,000 Euros through your broker at the previously mentioned rate and decide to sell at 1.1130 after 48 hours, you will earn a profit of US $100.
The difference is 100 pips, and the movement is 0.9%. This is a normal currency movement for 2 days. Note that for EUR/USD, a pip (the 4th decimal in the rate) is equal to a dollar when trading at a volume of 10,000.
With your 2-day trading time frame, the broker is aware that his risk of losing is likewise limited to a period of 2 days.
Thus, even with the leverage, he does not risk losing a lot of money. In the same example, assuming that the trade went the other way, his total losses would only amount to US $100.
This is why your broker may allow you to purchase 10,000 Euros even with a deposit of only $100. Your trading account will be closed automatically. This means the loss will be limited to the total deposit in your account.
To put it simply, the broker offers leverage to clients to allow them to take higher risks but with bigger earning potentials within a short time frame.
This way, you can trade more, which is beneficial to the trader as he earns through the ‘spread’. The spread is simply the difference between the buying and selling prices of the currency pair.
The good news for traders is that with the currently very stiff competition among Forex brokerage companies, the spreads are driven downwards to make trading more lucrative to prospective and existing clients.
Usually, the spread for the EUR/USD pair is 3 pips. What this means is the broker will charge you only US $3 for a trading position that is worth 10,000 Euros.
If you look at the example we used above, you can assume that you gained a profit of $100 and the broker earned $3 because the market moved by 103 points. The broker’s 3 dollar earnings came from the difference between the buy and sell prices.
Forex Trading in Tanzania
The bad news for Tanzanian traders is that there are no Tanzania-based Forex brokers at present.
Thus, if you live in the country, your only option to take advantage of the lucrative Forex markets is to use the services of a foreign or offshore broker. However, there is a good number of offshore brokers that are willing to accommodate prospective traders from Tanzania.
These international brokers will allow you to open a trading account with them where you can deposit and withdraw funds. Online accounts can be opened in as fast as 5 minutes.
For your deposit, you can use various online payment methods like Webmoney, Neteller, Skrill, Paysafecard, and Cash U, among others. If preferred, you can also use opt for bank transfers if you intend to transact with large sums of money.
I have done the dirty work for you by evaluating the biggest foreign exchange brokers around the globe, and choosing the ones who are deemed most accommodating to Tanzanians.
These brokers also provide the most preferable trading conditions and offer the most convenient withdrawal and deposit methods.
Here is the best Forex broker in Tanzania on my shortlist that you can select from:
Each broker on the list offers mobile trading, low minimum deposit requirements, high leverage, and the latest trading platforms.
If you are new to Forex, you can request for various educational materials from these brokers to help you learn everything you need to know about the Forex markets, and how you can make a significant amount of profit through online Forex trading.