Forex Trading in Uganda – The Basics
Here are the basics you need to know in relation to Forex trading in Uganda. Although Forex trading seems complicated, it is really quite simple once you understand how it is done.
Basically, whenever you trade Forex, you are actually trading a currency pair, meaning that you are buying a certain amount of one currency while simultaneously selling another. This is why the value of a currency (its “exchange rate”) is expressed as how much of another currency it can buy.
To illustrate, let us say you want to trade the Ugandan Shilling (UGX)/US dollar (USD) currency pair. Its exchange rate is 1:0.000276, meaning that one Ugandan shilling is worth $0.000276; inversely, one dollar is worth 3,625 UGX or 1:3625.
To start the trade, you purchase $1,000, for which you exchange 3,625,000 UGX (3,625 x 1000). You wait for two weeks, and then the exchange rate becomes 1:3,700. You sell your $1,000 and you get back 3,700,000 UGX or a profit of 75,000 UGX. (3,700,000 – 3,625,000).
Of course, you may have noticed that you need a lot of money in order to make a profit from Forex, but this issue can be addressed easily, as we explain below.
You can visit the AvaTrade official website, our recommended Forex broker
Forex Brokers and Leverage
Trading Forex is usually done through a broker. You need to use the services of a broker since there is no central exchange to trade forex, unlike stocks or other securities.
The broker acts as an intermediary between you and a buyer or seller. Instead of taking a commission, as brokers of other securities would, the Forex broker makes money from the spread, or the difference between the “bid” price (how much you get for selling the currency) and ”ask” price (what you pay when you buy a currency) when you make a trade.
Fortunately, as a result of high competition among Forex brokers, the spreads have been driven very low. This means that you will usually only pay the broker a few dollars for a trade that is worth thousands of dollars.
You interact with a broker using a trading platform. This is a software program that allows you to enter and exit trades and also offers a variety of other features, such as access to real-time Forex data and charting software that allows you to create charts using price data so you can identify trading opportunities.
Usually, you have to download the software into your computer, but many brokers now offer the option of allowing you to trade using their online platform, so you can trade from any computer.
But one important service that the Forex broker will provide you is leverage. Leverage essentially means that you can trade using borrowed money. To illustrate how this works, let us say that your broker will provide leverage of 1:50, meaning that for every one unit of currency in your trading account, you can control up to 50 units of that currency.
Let’s look at the trade you performed earlier. With leverage, instead of having to shell out the full 3,625,000 UGX you can complete the transaction with just 72,500 UGX, or 1/50th of the amount required, in your trading account, since the broker will loan you the remaining amount or 3,552,500 UGX.
Thus, when your trade is successful, the broker will take back the amount they have loaned, and you still make a profit (3,700,000 – 3,552,500 – 72,500 = 75,000 UGX profit).
The broker is willing to extend leverage because they want to encourage people to get into Forex trading and to make more trades. But they also know that they can usually get their money back, even on losing trades.
To illustrate, let’s say that in the trade you made, the exchange rate instead fell to 1:3600. At this point, if you chose to end the trade by selling the $1000 in order to avoid more severe losses, the broker would still be able to recover the money he loaned you.
If the proceeds of the trade were not enough to cover the debt, the broker would simply get the remainder from your trading account.
Thus, you can trade Forex even if you only have a limited amount of capital by availing of leverage. Leverage also allows you to greatly increase the profits you earn from the capital that you do have.
Of course, the opposite is also true: using leverage can greatly magnify your losses as well. This is why you must use leverage very carefully.
Forex Brokers in Uganda
Unfortunately for those who would like to trade Forex, there are no reliable brokers in Uganda at present. But you can use the services of an offshore broker (one who is based abroad).
There are many Forex brokers who are more than happy to deal with Ugandan Forex traders. It is very easy to open an account with them; you can do so in just a few minutes.
Many of them allow you to trade using demo accounts so that you can make paper trades without risking any money. This allows you to gain experience in Forex trading safely, as well as letting you practice how to use the online trading platform.
When you are ready to start trading using real money, you can easily deposit money into your account using a payment solution such as Neteller, Skrill, U Money, and so on.
Many brokers may also allow bank transfers if you would like to transfer larger amounts of money, although you should confirm with them first.
For your guidance, I have checked the online brokers that accept traders from Uganda and who provide the best trading conditions, as well as the most accessible methods for depositing and withdrawing money.
Top Forex Broker for Uganda: AvaTrade
These brokers offer high leverage, low minimum deposit requirements and have advanced trading platforms.
In addition, they allow you to make trades through your mobile device so that you can continue trading anywhere there is an Internet connection.
Even better, they have a lot of educational resources that you can use to learn more about online Forex trading and how to make money from it.