How to Start Forex Trading in Sri Lanka

Asia is an exotic market for foreign exchange (forex) investors. The island nation of Sri Lanka is at the southernmost tip of Asia and has quickly risen to become a tourist destination for globe trotters. Take a look at why investing in Sri Lankan rupee can boost your earnings in years to come.

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Get Started with Forex in Sri Lanka

Sri Lanka has been a central hub for traders and travelers from the East and the West. The earliest known currency in Sri Lanka is metal coins called eldings. These coins were authorized by the king and had a royal stamp. 

After the Central Bank of Sri Lanka was established in 1950, currency notes were introduced and distributed to the public. These notes were denominations of 20, 50, 100, 500, 1,000 and 5,000. Most of these notes depict Sri Lankan dancers. As per the Monetary Law Act No. 58 of 1949, the Central Bank of Sri Lanka has the sole right and authority to issue Sri Lankan rupees (LKR) in the country. 

Notes of Sri Lankan Currency

The Sri Lankan rupee has depreciated by 2.4% against the U.S. dollar this year. This is caused by an excess of imports and reduced exports from the country. As of June 2020, Sri Lanka’s foreign exchange reserves reported having $6.7 billion in possession. 

To support and smooth financial transactions around the world, the Federal Reserve in the U.S. opened a repurchase agreement facility for foreign central banks including Sri Lanka. 

Under this facility, central banks temporarily exchange their U.S. treasury securities held with the Federal Reserve for U.S. dollars. It has helped stabilize global markets by reducing the need for foreign central banks to outright sell their treasury security into illiquid markets.

Here’s a step-by-step guide to help you get started with forex trading in Sri Lanka.

Step 1: Get a Digital Device with Fast Internet Connectivity 

You can use your desktop, laptop, tablet or smartphone to trade forex. The value of the currency pairs listed on the stock exchanges frequently fluctuate. Having a personal device to constantly track these changes is essential to successful forex trading. 

Step 2: Find an Online Forex Broker 

There are several forex brokers available online. Review their websites and choose a broker that lets you trade currency pairs with LKR. 

Be sure to check the footer of their website for information on the regulatory bodies. If you can’t find any information from the Securities Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) or other regulatory bodies, don’t trust that broker. 

Step 3: Sign up for an Account

You can open a new account with the forex broker on its website. Some forex brokers require a minimum deposit to open an account. These brokers also offer different kinds of accounts based on your financial goals. Choose the one that’s right for you. 

Step 4: Transfer Funds to Your Account

Once you’ve signed up for an account, you need to transfer funds to start trading forex. Depending on the broker you’ve chosen, you can choose your native currency and fund your account using several options. Generally, these funding options include bank transfers, wire transfers and debit cards. 

Step 5: Download a Forex Trading Platform

You need to download the forex trading platform on your computer or smartphone. Take the time to customize the look and feel of the platform and maximize trading opportunities. 

Step 6: Begin Your Forex Trading Journey 

Before you start trading forex, you might want to run a few demos using virtual money. These demos can help you get used to the interface of the forex broker without unnecessary losses. After you feel confident using the platform, you can start trading forex using real money.

Sri Lanka Forex Trading Strategies

Forex traders from all over the world rely on a few simple strategies to increase their profits and cut unnecessary losses. Although these forex trading strategies do not guarantee returns, they are certainly worth considering for better results.  

News Trading

Global economic news and events have a strong impact on forex markets. Many traders stay on top of influential financial information to anticipate short-term price movements of forex currency pairs. 

You can research inflation rates, trade policies and multinational deals made between countries. News trading needs precision and accuracy on each trade to make a profit. You also run the risk of missing the window of opportunity if you’re not fast enough with your trade executions. 

Day Trading

Day trading involves closely monitoring intraday price movements of forex currency pairs within a single trading session. These trades can take place anytime during the day and exit all positions on the same day. Traders have adopted this method to reduce losses from overnight market volatility. 

You can consider logging into your account a couple of times over the day to adjust trade positions. Day trading can be very beneficial to short-term traders. 

Scalping

Scalping is a strategy that involves making several trades throughout the day with minimal margins. The compounded profits earned from minor price movements can add up to a sizable income. 

Rapid price movements during intraday trading sessions can cause slippage on your trading. These tiny losses can quickly negate your earnings and eat away at your profits. This method of trading requires a lot of time and focus to track price movements. 

Momentum Trading

Momentum trading or swing trading are mid-term trades that are executed over 2-5 days. Traders prefer to buy and sell currency pairs during disruptive market swings that occur during the week. These traders rely on the volatility of the market to make a buck. 

This method of trading can be less stressful than day trading or scalping. You can adjust your entry and exit positions throughout the week to cut unnecessary losses.   

Forex Trading Example in Sri Lanka

You can potentially earn big profits in a short time with forex trading. The USD/LKR is among the most traded forex currency pairs in Sri Lanka. Here’s how you can start making money by trading USD/LKR on the market. 

The USD/LKR currency pair is currently trading at 185.70. That means it will cost you 185.70 Sri Lankan rupees to buy a U.S. dollar. You can buy $100,000 at 1,85,70,000 rupees. After 2 months of buying and holding your investment, the price of USD/LKR rises to 186.70. You can then sell the $100,000 you bought to earn a profit of 100,000 rupees in 60 days. 

USD/LKR exchange rate over the last 5 years

Making Money with Forex in Sri Lanka

The Sri Lankan rupee can be highly volatile in international markets. Many Sri Lankan traders depend on the volatility to make calculated investments. 

For example, in the last 52 weeks, the USD/LKR currency pair has dipped to 175.3100 and risen to a peak price of 194.8700. These broad fluctuations in the price of the forex currency pairs give you plenty of chances to buy low and sell high. 

Moreover, the Sri Lankan Forex Association (SLFA) has been actively engaged in promoting and developing the forex trading market since 1983. The association has trained over 300 traders to capitalize on the forex market. The SLFA regularly hosts events to educate forex traders on how to avoid forex scams by following international best practices. 

Best Online Forex Brokers in Sri Lanka

Online brokers let you pick and trade forex currency pairs with ease. These platforms are integrated with advanced tools and educational resources to help you make the most of your trades. 

Take a look at these top forex brokers to begin your investment journey.  

Forex Terminology

You should be familiar with a few basic forex terms before you start trading. Millions of forex traders use these terms regularly during intraday trading sessions. 

Pip: The smallest unit of price movement is measured in pips. Generally, forex currency pairs are listed up to the 4th decimal point. For instance, if the price of USD/LKR rose from 185.3333 to 185.3334, it is considered a movement of 1 pip.

Lot size: The lot size is the total number of currency pairs that you want to buy or sell; 100,000 units are the standard lot size. You can buy and sell currency pairs of smaller lot sizes as well.

Orders: An order is a command you execute on the online forex broker to carry out your trade. When you want to buy forex currency pairs, you execute a buy order. When you want to sell forex currency pairs, you execute a sell order.

Calls: The online forex broker sends you instant notifications called calls. The most common call issued by the broker is when you have a forex trade open for a long time and need additional funds to maintain its position. Check your account constantly for calls to drastically decrease your losses. 

Earn Better Returns in the Foreign Exchange Market

The prosperous import and export industry along with flourishing tourism in Sri Lanka has made forex trading highly profitable. Consider diversifying your portfolio with forex to get better returns from your investments. 

Frequently Asked Questions