With more and more people trying to make use of the readily available internet connectivity to earn a living, Kenya is gradually becoming a hub for forex trading. Some people know it as forex, others as foreign exchange but FX is quite popular. Compared to other markets, forex trading is not only the largest but also the most liquid. Except for Sundays, this global market is open 24 hours. If you can imagine $3 trillion exchanging hands on a single day, then you can appreciate the gigantic nature of online forex trading.
Are you based in Kenya and have been thinking of trying out forex trading? The good news is that trading regulations have been enhanced to safeguard the interests of the retailer.
How to trade forex in Kenya
The law that regulates online forex exchange in Kenya was enacted in 2017. The Capital Markets Authority is tasked with enforcing this law. Currently, CMA provides interested parties with any of the following licenses;
- Dealing Foreign Exchange Broker
- Non-Dealing Foreign Exchange Broker
- Money Manager
Having a Dealing Broker or Non-Dealing Broker license means that you are allowed to provide derivative foreign exchange instruments but cannot support clients with investment management. With a Money Manager license, one is authorized to manage forex exchange portfolios on behalf of clients. As an individual forex trader, you are not regulated by CMA. In Kenya currently, only 3 Non-Dealing Online Brokerages and 1 money manager are licensed by CMA. To trade in forex through a brokerage, a commission (or spread) is charged. Broker charges vary from business to business.
Getting started in forex trading.
- The firsts step in foreign exchange dealing is due diligence. It is important to go through the accounts offered by a broker before signing up. The resources at your disposal plus your needs as an investor should be the guide to picking the most suitable account.
- You can now proceed to create an account by filling an online application form. This step also entails providing personal information (Know Your Customer information).
- Your registration is deemed complete after the broker’s website gives you a set of login credentials (username and password). This is what you will use to access the client portal on the website.
- It is best to start your forex trading with a demo account so as to gain confidence and master the trends. With an account in your name, all you need to start earning is to deposit funds into your client account.
How to choose a forex broker
As an investor, you are obviously aware of the risks involved in doing business but it is equally wise to be cautious. A broker that is regulated and operates within the guidelines of the CMA is preferred in this line of business. Why is the CMA involvement important?
The CMA helps in ensuring that all money invested for purposes of foreign exchange trading serves the intended purpose. The regulator protects investors from organizations that may otherwise abuse such funds by engaging in fraudulent activities.
The CMA also keeps an eye on invested resources to prevent diversion of funds for selfish gain. In the event that an investor feels that their money has been misused, the judiciary will act as an independent dispute resolution agent. The only 3 Non-Dealing Online Brokers in Kenya operating under CMA are;
- EGM Securities which operates FXPesa
- SCFM Limited
- Pepperstone Kenya
While it is a matter of personal choice whether to use a local or foreign broker, the CMA discourages against using brokerage firms in other jurisdictions. Those who are willing to take the risk for whatever reason must ensure that they sign up with brokers that are regulated. Some of the reputable offshore regulatory bodies are ASIC of Australia, FCA of UK and CySEC of Cyprus. These regulators that ensure all investors have a safe and fair trading environment.
Customer support and easy access to funds are key considerations when picking any broker for your forex investment needs. A broker needs to have a local support system as well as facilitate easy deposits/withdrawals.
Risks of trading in Forex.
Like with any other form of business, forex trading has its high and low moments. The risk associated with this business however is way more than exists with traditional investments such as shares. Some common risks you should expect are;
High Leverage – sometimes investors borrow money from brokers to leverage their returns. The market may fluctuate negatively leading to greater loss than the money invested.
High Volatility – the volatile nature of the forex market lures many short term investors. It is this very feature that often times backfires on many. The forex market is closed on weekends so any developments that could lead to loss happening over this time might be the cause of significant loss of investment.
Liquidity Issues – on the larger scale, traders are able to access or invest funds easily. There is however low liquidity reported on weekends and bank holidays.
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Forex trading scams
As a new trader venturing into the uncertain waters of forex, it is important to keep safe. An easy way is to ensure that the broker you are just about to sign up with has a CMA license. To fully understand the extent of real-life scam cases in this business, look up publications on the VIP portal of 2013. What are some red flags that a broker could scam you?
- They offer you “professional recommendations” on best times to trade but at a fee.
- They claim that any money invested with them keeps earning even when the traders are asleep.
- They claim an irresistible offer to double or grow your investment
The risks associated with the Forex market are real and have been quite a setback to some hopeful investors. Since the global economy thrives on foreign exchange, the money markets cannot be ignored. The best approach to trading with forex would be information gathering followed by practice using demo accounts. If you trade in a regulated environment, then you are entitled to legal redress should something go wrong.