Educational Purpose Disclaimer

Hey friends, One moment before reading this article.

I Strongly mention that this article is written with the concern of guiding people on fair education and awareness in forex markets. Not promoting or Encouraging people to do Forex trading or any other illegal financial activities in Sri Lanka. 

Thank you & Regards,

Editor

Forex Basics – What is Forex?

If you’re wondering what forex is, you’re not alone! Forex stands for foreign exchange, and it refers to how nations trade their currencies with one another, whether through open markets or banks and other financial institutions. 

By buying currency from one country and selling it to another at a higher price, traders make money off the fluctuations of currency rates and manage risk in their international investments. 

The forex market has grown tremendously since its inception in 1971; in fact, trillions of dollars are traded every day on the world’s many exchanges!

The psychology behind Forex

In stock trading, we buy, hold and sell a particular company’s stock because we expect the price of the stock to value over time.

Likewise in forex, we buy and hold currencies of countries and expect to valve over time and sell when we want.

For example, You have 100,000 LKR in your account and you believe that Country A, will implement some good development in their country. Let’s say the currency of Country A, is XYZ and the demand for XYZ will rise over time.

1 XYZ = 100 LKR

So, Now you Change your 100,000 LKR to XYZ through an exchange. You will get 1000 XYZ  and hold it for a specific period.

After 3 months as you expected Country A, did some great work overtime and was located with very valuable resources. So the currency demand for XYZ increased in the world market.

Now let’s say  1 XYZ = 150 LKR in the world market and you plan to sell the 1000 XYZ you have. So, Now you Change your 1000 XYZ  to LKR through an exchange. It will be worth 150,000 LKR. You made 50,000 LKR profit.

All you did was buy a currency compared to another currency and hold the currency for a specific period and sell it again back.

This is called Forex Trading. Your Forex currency pairs used for trading were XYZ/LKR.

So, now you have an idea of what is forex trading and what are forex currency pairs. The major forex currency pairs are represented as GBP/USD, EUR/USD, USD/CAD, EUR/GBP and much more.

GBP – British pound sterling

USD – United States Dollar

CAD – Canadian Dollar

EUR – Euro

Forex Trading and Investing in Sri Lanka 

Investing in a stock, bond or other financial instruments can be complicated. In addition to doing your research and trying to make smart decisions about when to buy and sell, you also have to deal with brokers and fund managers who take their share of your profits before passing on whatever’s left.

Most investors want professional investment management for their portfolios. But some wonder if there isn’t a simpler way. There is: trading foreign exchange (forex) on margin through an online forex broker. 

Think of forex trading as short-term stock market investing—with less problem and more flexibility. Instead of buying stocks, bonds and mutual funds outright, you trade currencies based on what you think will happen to them in the future. 

You don’t need to worry about paying commissions or fees to an investment manager; instead, everything is handled by your forex broker. If you’re interested in learning more about how forex trading works and whether it might be right for you in Sri Lanka, read the next factors.

Forex trading laws in Sri Lanka

The Sri Lankan Ministry of Finance on Wednesday, August 29 – 2010, made a statement to say that trading in foreign exchange is illegal in Sri Lanka. 

This will certainly bring trouble to many people trading in foreign exchange online. As said by The Central Bank of Sri Lanka you are required to register with the Bank and also pay a 7% tax before starting any business. 

I recommend traders to not do forex trading if they want to stay away from trouble in Srilanka. Be aware that there are so many differences between Illegal and Unauthorized. 

Unauthorized in Sri Lanka

Unauthorized means there are no laws regarding those investments. 

Like Cryptocurrency Investing before 2021. Where you can invest and Trade crypto at your own risk. There are no legal actions taken for doing those things and It’s not illegal.

Banks or government organizations don’t support those things and You have to Do it at your own risk.

After 2021 Government Enforced laws on Cryptocurrencies and formed a committee to research Blockchain technology.

Now some Companies like Kapruka Holdings PLC and many e-commerce sellers accept Crypto payments as the Srilankan government believes there is a good potential in cryptocurrencies.

Illegal in Sri Lanka

Illegal means there is laws restriction doing those actions or investments.

In simple words, the Pyramid Scheme is Illegal in Srilanka. If you are involved in those kinds of activities you will get arrested and sentenced to a penalty fine or prison.

Same here If you are involved in forex trading through online brokers whether they are regulated or non-regulated. It leads to a penalty or jail.

If you know good enough about forex and if you know what you’re doing and that stands with government policies, you can do that in the proper legal way by registering yourself as an authorized dealer under CBSL and you can do that.

It takes way more rules and regulations than you expect to get authorization. So better avoid and if you are so passionate about trading you can give it a try on Srilankan Stock Market.

What is the punishment for forex trading in Sri Lanka?

Foreign Exchange Act, No.12 of 2017(FBA), Licensed Commercial Banks and Authorized Dealers can be involved in Foreign Exchanges. Other unlicensed tradings are subjected to arrest and further legal actions.

As I mentioned earlier, I recommend traders not to do forex trading if they want to stay away from trouble in Srilanka. 

Also, we mention strongly that this article is written under the concern of guiding people on fair education and awareness in forex markets. Not promoting or Encouraging people to do Forex trading or any other illegal financial activities in Sri Lanka.

Common Misconceptions About Foreign Exchange

The forex market, also known as the foreign exchange (FX) market, represents one of the largest financial markets in existence. 

Foreign exchange trading involves more than 4 billion trades per day with an average daily turnover of $2.5 trillion. But a lot of people have a lot of misconceptions about what exactly it is and how it works. 

Read and Research more to separate fact from fiction and get a better idea of what you’re getting into if you decide to take your first steps into forex trading.