The Somali central bank is not a fan of forex. Recently, Resolution Number 43/G from the institution ordered the closure of all forex trader accounts in private commercial banks.
According to officials, the lack of a strong regulatory structure within the country invited unscrupulous offshore companies to exploit regulatory loopholes and increase risk beyond acceptable metrics for the average investor.
Regardless, the forex industry in Somalia is booming. Savvy investors, mostly centralized in the capital of Mogadishu, avoid Ponzi schemes and research to find well-regulated offshore brokers.
Although the Somali regulatory structure lags behind the schemers, the decentralized nature of the forex market means that everyone has the same opportunity to connect with reputable brokers and invest fairly. We will discuss how to safely engage the forex market from Somalia along with common strategies to profit in the market.
Get Started with Forex in Somalia
The way that you start your forex career in Somalia will set the tone for every future interaction you have with the market. Avoiding the scams in the industry also comes from a solid technical foundation. Follow these steps to get started:
- Get the best internet connection. Successful forex trading starts with a solid internet connection. Latency or downtime can mean a missed opportunity. Your broker, trading interface and bank all talk to each other through the connection. Reliable, efficient communication is your best friend in the field.
- Choose a reputable offshore broker. The regulatory structure in many neighboring countries helps to protect your investments. You can find reviews of brokers through a simple Google search. You should also visit the websites of the agencies that regulate the brokerages you are vetting.
- Connect your bank account to your broker. You will move money in and out of your investment account through your outside bank account. Any reputable broker will also make you verify your identity. Make sure your broker allows you to withdraw money when you want. You can check this through online reviews and the broker’s written policy.
- Fund your investment account. After you make sure that your broker lets you move your money as you please, you can feel safe transferring money from your 3rd party account into your brokerage account. Only transfer money you are willing to lose.
- Choose a trading interface. You may work through your broker’s trading user interface (UI). You may also choose a popular UI such as Metatrader.
- Invest. After you have a stable and reliable investment setup, you can begin to trade.
Somalia Forex Trading Strategies
Now that you have protected your investment from fraudulent brokers, you can begin to learn the strategies to trade forex. Here are some of the most common trading strategies to learn:
Scalpers move in and out of the market very quickly, sometimes holding trades for no more than a second. This kind of trading is agile and high frequency. It requires a sophisticated trading setup that may include automated bots that trade according to a program.
Scalpers must also have incredibly fast reflexes to react to sudden market moves. These moves are based almost completely off chart patterns — long-term fundamentals don’t matter much to this type of forex investor.
Short-term traders who don’t necessarily want to be scalpers can learn momentum trading. In order to trade successfully in this space, you need to learn to read trends and ranges in currency patterns. Trends occur when a currency price moves quickly in 1 direction. Ranges create support and resistance levels for prices to bounce within for a while. News events usually drive the momentum of currencies, and traders need to have a way to access news feeds in real time. In many cases, your broker can help with this.
If you are a position trader, you are nearly the exact opposite of a scalper. Position traders are very concerned with long-term fundamentals. Position traders may stay in 1 investment for months or years before moving on. Investors in this space are looking for larger profit margins because the frequency of their trading is relatively low.
Forex Trading Example in Somalia
SOS/USD is currently trading at 0.00175/0.00195. You want to buy Sh.so.250,000 now and sell when the price goes up later. You will need $30.67 cash in your account to control Sh.so.250,000 because the margin rate for the SOS/USD currency pair is 6.63%.
After 5 hours, you note that the price of SOS/USD has risen to 0.00200/0.00220. This is a 0.5 point increase, and your final profit will be $12.50 — (Sh.so.250,000 x 0.00200) – (Sh.so.250,000 x 0.00195) — if you sell at that point.
Make Money with Forex in Somalia
Now that you know the common types of forex investor, you can start looking at the different ways to make money in forex:
- Short selling. Weak currencies may be more likely to fall in price than rise over time. If you believe this is true, you can short sell the currency and profit when the price goes down instead of waiting for it to go up.
- Contract for differences (CFDs). CFDs track forex currency prices. Certain brokers deal in CFDs instead of currencies. For all practical purposes, they behave the same way. However, you do not actually buy or sell currencies when you buy and sell CFDs although your account value moves with the price.
- Binary options. The binary option allows you to profit from a yes or no decision. These kinds of options don’t directly track forex currency prices. Your wins and losses are usually larger than traditional forex trading.