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Forex Trading in Sri Lanka

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Asia is an exotic market for foreign exchange (forex) investors. The island 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. 

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.  

Account Minimum
100 of your selected base currency
Pairs Offered
80+
Get started securely through FOREX.com’s website
Account Minimum
100 of your selected base currency
Pairs Offered
80+
1 Minute Review

FOREX.com is a one-stop-shop for forex traders. With a massive range of tradable currencies, low account minimums and an impressive trading platform, FOREX.com is an excellent choice for brokers searching for a home base for their currency trading. New traders and seasoned veterans alike will love FOREX.com’s extensive education and research center that provides free, informative forex trading courses at multiple skill levels. While FOREX.com is impressive, remember that it isn’t a standard broker. You can’t invest in the stock or bond market through your FOREX.com and you cannot open an account with tax advantages. The confusing pricing and margin structures may also be overwhelming for new forex traders.

Best For
  • MetaTrader 4 users
  • Beginner forex traders
  • Active forex traders
Pros
  • Impressive, easy-to-navigate platform
  • Wide range of education and research tools
  • Access to over 80 currencies to buy and sell
  • Leverage available up to 50:1
Cons
  • Cannot buy and sell other securities (like stocks and bonds)
  • Confusing margin requirements that vary by currency
  • Limited customer support options
  • Cannot open an IRA or other retirement account
Commissions
$10 value per pip
Account Minimum
$0
Get started securely through IG Group’s website
Commissions
$10 value per pip
Account Minimum
$0
1 Minute Review

IG is a comprehensive forex broker that offers full access to the currency market and support for over 80 currency pairs. The broker only offers forex trading to its U.S.-based customers, the brokerage does it spectacularly well. Novice traders will love IG’s intuitive mobile and desktop platforms, while advanced traders will revel in the platform’s selection of indicators and charting tools. Though IG could work on its customer service and fees, the broker is an asset to new forex traders and those who prefer a more streamlined interface.  

Best For
  • New forex traders who are still learning the ropes
  • Traders who prefer a simple, clean interface
  • Forex traders who trade primarily on a tablet
Pros
  • Easy-to-navigate platform is easy for beginners to master
  • Mobile and tablet platforms offer full functionality of the desktop version
  • Margin rates are easy to understand and affordable
  • Access to over 80 currency pairs
Cons
  • U.S. traders can currently only trade forex
  • Customer service options are lacking
  • No 2-factor authentication on mobile
Account Minimum
$50 USD
Pairs Offered
47
Get started securely through eToro’s website
Account Minimum
$50 USD
Pairs Offered
47
1 Minute Review

Though Australian and British traders might know eToro for its easy stock and mobile trading, the broker is now expanding into the United States with cryptocurrency trading. U.S. traders can begin buying and selling both major cryptocurrencies (like Bitcoin and Ethereum) as well as smaller names (like Tron Coin and Stellar Lumens).

eToro offers traders the opportunity to invest their assets into premade portfolios or cryptocurrencies, similar to services offered by robo-advisors through traditional brokers. Though eToro isn’t a one-stop-shop for everything an investor needs, its easy-to-use platform and low spreads is a great way to enter the cryptocurrency market.

Best For
  • International Forex/CFD Traders
  • New cryptocurrency traders looking for an easy-to-use platform
  • Traders who want to buy and sell cryptocurrencies on-the-go
Pros
  • Simple platform that is easy to master
  • CopyTrader feature that allows new traders to copy the same strategies used by professionals
  • Virtual dummy account that gives you $100,000 to practice trades
Cons
  • U.S. traders currently limited to cryptocurrencies
  • Only 15 major coins available to trade
Account Minimum
$100 USD (or equivalent)
Pairs Offered
69
Get started securely through HYCM’s website
Account Minimum
$100 USD (or equivalent)
Pairs Offered
69
1 Minute Review

HYCM is 1 of the world’s leading forex brokers, offering investors access to over 69 unique currency pairs. However, forex isn’t the only thing the broker offers — HYCM also offers high rates of leverage, stock and ETF trading, commodity investing and much more. Getting started with HYCM is quick and easy, and most investors can open an account in as little as 10 minutes.

HYCM offers a varying fee structure, which allows investors to choose the spread option that’s best for them. A wide range of educational and investing tools are available, which can be equally beneficial to both experienced and novice traders. Though HYCM isn’t currently available in the United States, it can be a great choice for residents of the other 140 countries where it offers service. 

Best For
  • Investors who want a customizable fee schedule
  • Traders comfortable using the MetaTrader platform
  • Islamic traders who need swap-free accounts that don’t build interest
Pros
  • Wide range of currency pairs available
  • Excellent selection of educational tools
  • $0 deposit and withdrawal fees
Cons
  • Not currently available to traders based in the U.S.
Account Minimum
100 EURO
Pairs Offered
50+
Get started securely through AvaTrade’s website
Account Minimum
100 EURO
Pairs Offered
50+
1 Minute Review

A fully regulated broker with a presence in Europe, South Africa, the Middle East, British Virgin Islands, Australia and Japan, Avatrade deals with mainly forex and CFDs on stocks, commodities, indexes, forex, cryptocurrencies, etc. This brokerage is headquartered in Dublin, Ireland and began offering its services in 2006. It offers multiple trading platforms and earns mainly through spreads.

Best For
  • Beginners
  • Advanced traders
  • Traders looking for a well-diversified portfolio
Pros
  • Controlled by regulatory agencies of multiple countries
  • Choice offered in terms of trading platforms
  • Support available in 14 languages and trading platforms in 20 languages
  • Practice/demo account available for trying out
  • Breadth of trading assets
Cons
  • Does not accept customers from the U.S. as it isn’t regulated in the U.S.
  • Transferring funds to the account may take up to five days; withdrawals could take up to 10 days

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 by Trading Sri Lankan Rupees

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. 

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