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Forex Trading In Somalia

Written By

Tony Kent

Written By

Tony Kent

Tony is an active trader and property investor with 20 years experience working with some of the largest companies in financial services worldwide. Skilled at technical and fundamental analysis, alongside risk management, he has seen success dealing an array of tradable instruments, from currencies, equities and commodities to higher-risk vehicles like cryptocurrencies and CFDs.

» Tony Kent Profile Page

Edited By

James Barra

Edited By

James Barra

James is an investment writer with a background in financial services. As a former management consultant, he has worked on major operational transformation programmes at prominent European banks. James authors, edits and fact-checks content for a series of investing websites.

» James Barra Profile Page

Fact Checked By

Michael MacKenzie

Fact Checked By

Michael MacKenzie

Michael is a writer and editor with over a decade in journalism and publishing. His niche lies in editing and fact-checking content in the financial services sector, with a focus on online brokers and trading platforms. Michael previously reported on politics and economics in the Middle East and edits books for established publishers.

» Michael MacKenzie Profile Page

Updated

Oct 15, 2024

Against the long backdrop of persistent civil conflicts and economic problems, forex trading is growing in popularity in Somalia. However, traders must navigate both opportunities and serious risks.

While no tax is paid on forex trading profits, regulatory oversight in Somalia is limited, exposing residents to potential forex scams, with limited recourse to recuperate losses.

This beginner’s guide will explain how to start forex trading in Somalia while providing an example of a trade involving the euro and Somalian shilling (EUR/SOS).

Quick Introduction

• The official Somali currency is the shilling (SOS), with the US dollar the de facto currency. However, due to low trading volumes, active traders may prefer to deal in major currency pairs like EUR/USD and USD/JPY.
• The developing regulatory framework overseen by the Central Bank of Somalia (CBS) poses risks for forex traders, with no domestic brokers and residents often turning to offshore providers.
• The best time to trade forex in Somalia is generally between 10:00AM and 8:00PM (Somalia time) during the London-New York overlap, where market activity and liquidity increase significantly, leading to more opportunities for profitable trades.

How Does Forex Trading Work?

Forex trading, or FX trading, involves the conversion of one currency into another, with day traders aiming to capitalize on short-term currency fluctuations while avoiding overnight market risks.

For example, you might trade the EUR/USD pair, buying euros (EUR) when you believe the euro will rise against the US dollar (USD), and then selling once the euro strengthens to make a profit.

Somalian traders may be interested in currency pairs like USD/SOS (US dollar/Somalian shilling) and EUR/SOS (euro/Somalian shilling), however these aren’t widely available on online trading platforms in our experience.

Also, due to relatively low trading volumes, short-term traders tend to focus on more actively traded pairs like EUR/USD, GBP/USD and USD/JPY.

To start trading forex in Somalia, follow these three steps:

1. Choose an FX broker: Somalia doesn’t regulate many local platforms so you’ll likely need to use an international provider. Make sure they are authorized by a trusted body in line with DayTrading.com’s Regulation & Trust Rating, such as the FSCA in South Africa. Also if you are new to trading currencies online, consider a demo trading account.
2. Set up a trading account: You’ll normally need to pass your chosen broker’s KYC (Know Your Client), verify your identity and proof of residence (you can use your passport and driving licence), and meet anti-money laundering regulations. Then you can deposit funds – SOS accounts aren’t common but USD accounts are. You can deposit using global transfer solutions like debit card and wire transfer, or if your broker supports them local payment solutions such as SoPay or PayCly.
3. Place trades: Use your provider’s desktop, web or increasingly mobile forex app to analyze foreign exchange markets, place trades and manage your account.

Is Forex Trading Legal In Somalia?

Forex trading is legal in Somalia.

Yet while there are no laws or regulations prohibiting forex trading, there is an absence of a regulatory framework found in many other African countries, notably South Africa.

The Central Bank of Somalia (CBS) regulates physical forex trading but not CFD brokers, so finding credible and trustworthy domestic brokers can be challenging, leaving traders potentially exposed to fraud, scams, unauthorized trading, or mishandling of funds.

Is Forex Trading Taxed In Somalia?

Somalia lacks a specific framework addressing the taxation of forex trading profits, creating uncertainty for day traders.

Although traders may not face formal reporting requirements from the Revenue Department, this could change as the central bank and Somalian government work to develop financial infrastructure.

Additionally, traders might be subject to taxes based on their brokers’ regulations, particularly if the providers are in countries with established tax laws, making it crucial to stay informed about potential changes in legislation and regulatory practices.

Given the uncertainty around how forex trading activities are taxed in Somalia, I recommend consulting a tax professional who can ensure you meet your obligations.

Tony Kent

Author

When Is The Best Time To Trade Forex?

The best times to trade forex in Somalia, which operates on East Africa Time (GMT+3), coincide with key global trading sessions:

• European Session (10AM – 6PM EAT): This sees high volatility and liquidity, especially because it overlaps with the US session. Key currency pairs like EUR/USD, GBP/USD, and EUR/GBP are heavily traded during this time.
• North American Session (3PM – 12AM EAT): This is one of the most active trading periods, particularly from 3PM to 6PM when it overlaps with the European session. Currency pairs like USD/CAD, AUD/USD, and USD/JPY tend to see significant movements.
• Asian Session (3AM – 12PM EAT): While normally less volatile than the European and US sessions, it can still provide trading opportunities. Key pairs during this session include USD/JPY, AUD/JPY, and NZD/USD, particularly in the early hours as the Tokyo market opens.

These periods feature increased trading activity, providing better price movements and opportunities for profit.

The overlaps between different sessions (especially European and North American) often result in significant price shifts, which are optimal for forex day traders seeking short-term gains.

A Forex Trade In Action

To show you how forex trading in Somalia really works, below is a trade I executed with the EUR/SOS currency pair.

Analysis

As someone focusing on technical analysis, I use the momentum bounce strategy for forex trading on the daily timeframes or lower.

With price action in a clear downtrend on the weekly and daily time frames and breaking through the 20 and 50-day moving averages, I looked for further confirmation on lower timeframes before deciding to enter the trade using confirmed support and resistance levels for both my trade entry and exit points.

I never risk more than 1% of my balance on any trade and always use a stop-loss order to manage any potential losses and a take-profit order to exit the trade as soon as my target is reached.

Using confirmed and established support and resistance levels, I executed the trade on the 4-hour timeframe to get a tighter entry, setting a sell order at 630.50 and a take profit order at 623.50. The trade played out as planned, and I exited in profit.

I selected the EUR/SOS currency pair for this trade because it may be of particular interest to Somalian traders.

However, low trading volumes and limited availability potentially make this less suitable for short-term trading strategies – you could encounter wide spreads and slippage issues.

Tony Kent

Author

Bottom Line

Forex trading in Somalia represents risk and opportunity, which traders need to weigh up carefully. Alongside geopolitical and economic challenges, there are few domestic forex brokers in Somalia, and online retail trading remains unregulated, leaving your funds exposed to a range of risks.

However, with low minimum account balances and the absence of taxes on trading profits, currency trading in Somalia does have its attractions.

To get started, turn to DayTrading.com’s selection of the top forex day trading platforms in Somalia.

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