There has been much discussion both online and offline on Forex trading. While it is a good idea to earn some money in these lean times but entering in the foreign exchange market can be difficult. Like all exchanges, Forex trading has its own ways that you should understand before you put your money.

To highlight some of them, JACQUELINE MAHUGU spoke to Richard Mutinda (above), the team leader of Forex education and securities programs and co-author of textbooks Forex and securities.

1.Online Forex Trading

Forex is the simultaneous buying of one currency and selling another. One buys and sells foreign currencies relative to the other.

It is basically what happens when you decide to go buy dollars from the bank, keep them in the house and wait for a while for them to appreciate and sell them for profit.

So instead of doing it, you do it online, in real-time, because now you will be exposed to is the money markets that are not within the country.

You will participate in the circulation of $ 5.4 trillion circulating in foreign markets in a day. The negotiation is done with major currencies like the US dollar, Japanese yen, euro, and sterling.

2. Metatrader 4 (MT4)

In Kenya, we trade on the foreign exchange market using the MT4. The software is generally purchased by brokerage firms to trade execution and then they customize the platform as they wish.

The software is just a commercial space, the same way companies rent space and contributions back to the owner. As a user, you download the free online.

Also if you want to use Forex robots or EA then you are also welcome on the Forex market. Automated trading is getting a vast amount of response day by day. So, that's also a pretty good choice.

So how do the brokers benefit from it?

When you have a live account, this means that you have an account that has money. You can also have a demo account. The demo account is what you use to practice when starting to get an idea of ​​how trading works.

Money is not real, but it is recorded as it is. When you switch to a live account, once you wire the money to the real MT4 by commercial banks, the amount you reflect on MT4, which is commercial space, and the broker is able to see, wherever they are, the money you have.

You can wire mostly in dollars, but you can use the pound and so on, depending on what you want, like banks do it for you.

So when you start trading live, every time you log into the system, there is a commission that brokers receive from you the money that you are trading. In simple terms, because it is a trading space would be like paying rent for the use of space.

When you are trading in the bank, you can see how the dollar is trading against the Kenyan shilling, but the MT4, you can see exactly how it moves.

Banks and offices averaged values ​​to where it is most of the time, but on the MT4 you can see the actual values ​​in real-time. Sometimes it can rise above what is expected and that is the advantage of MT4 gives.

3. Mutual funds.

This money pooled together under a manager that many investors do not have enough money to buy a sum at a particular price.

For example, if you have partners as a cooperative society of well-being, you pool money together to be able to invest in a business of your own, because none of you is able to obtain the necessary capital alone.

Similarly, the foreign exchange market, you can all the money in the pool of a swimming pool and you exchange it. The advantage of this is that more money you have on the platform, the better for you.

You can compare it to a kiosk over a supermarket. Sales will not be the same. In Forex trading, there is something called volumes. It is how much money you want to win at the end of business that day.

So if you use, for example, 0.1, 0.05 or 1, depending on the amount of money you have, say $ 1 million, if you use the Volume 1, you can speculate on how much money you going to get.

However, if you lose, you also lose by the same margin. The money is set to share the easiest exchanges.

4.Spread

The gap is the difference between a bid (how much you buy the security) and asks (how you sell). To illustrate, when you go to banks, they say that when you buy the dollar, you buy it to SH103, and sell it to 100.

This difference is Sh3 spread. The dissemination is what determines how much profit you make, the same products are sold to the marketplace in order to make a profit.

5.Leverage

It borrows money from a broker to use a larger volume to make faster money with a small account. If you have small amounts of money, you can borrow money from the broker to be able to increase your small account.

This is the same way small businesses borrow money from commercial banks to boost their businesses. For example, you can open an account with Sh10,000 and want to do the same amount of money going directly to the market with Sh10,000 but this is more or less impossible.

This is where the broker comes in. It is the intermediary between you and the market. The market wants to know if you have enough money, but the market does not check your account directly.

It checks your account by the broker. So once the broker gives you the leverage, increasing your $ 100 to $ 10,000, the market sees the $ 10,000. With this, you can be able to make more profit.

6. Margin Call.

When you start to make losses, the MT4 generates a warning that your account is almost breath and you are not profits. It is an automatic warning generated by the MT4 because of huge losses.

The warning comes so that you be able to close or financing of the system by adding money to it. This usually happens especially when you are new and you can not tell if you are losing money or is out of the system to the broker.

Because even if you lose money, benefits broker. When the margin call occurs, it lights up in the color pink, and Forex, pink indicates danger, but green is good.

The margin call is similar to when, in business, the market price of a product or product decreases, which thus affects the capital invested in the business.

7. Stop loss

This is a way to prevent you from losing a lot of money. If you deposit $ 1000 dollars and start trading, it is actually possible to lose the entire $ 1,000.

To prevent this, you can use the stop-loss provision to limit the amount of money you can lose. When negotiating, you can risk something like $ 5. To avoid losing more than $ 5, you use the stop loss.

It is automatical, and you set your limit of $ 5. Once the market moves against you and it gets to this level, the trade is automatically closed. The opposite of this is profit-taking, which automatically collects money from the market.

It closes your trade profits. If you took a job and want to get out of that money, say, $ 20, and probably you will not be able to monitor the market when it is at $ 20, it will automatically close the trade. Anyway, you do not need to spend all day monitoring the market, but you make profits.

8. Forex Regulators

These are the regulators that govern Forex brokers as the Financial Markets Authority (CMA) in Kenya and the Financial Conduct Authority (FCA) in the UK for example.

The CMA regulates the activities of the funds and securities brokerage Nairobi Stock Exchange (NSE). Make sure you use brokers that are regulated by the regulators so that in case of anything you can track your money.

The advantage of local brokers regulated by the CMA is that the deposit and withdrawal of money are possible through a mobile money transfer service.

For international brokers, you must use a third party PayPal. If you do it by the bank, the transaction takes five to seven days. The downside is the commissions they take and the time it takes as well.

In the end, these are the major concepts of Forex. So, make sure you acquire enough knowledge about each of them before entering the Foreign exchange market.

Good Luck!