Are you a Kenyan interested in forex trading? This guide will cover all the major things you need to know about the world’s largest financial market.
What Is Forex Trading?
Forex is short for Foreign Exchange; it is also sometimes abbreviated as FX. When Forex trading is mentioned, it implies the buying and selling of foreign currencies.
The Forex market is primarily over the counter and as a Forex trader, you trade on currency pairs i.e, two currencies. Examples of such currency pairs include EUR/USD, USD/JPY, GBP/USD, KES/EUR, USD/CAD, etc. The USD (United States Dollar) is the most traded currency in the Forex market.
In the Forex market, a currency is exchanged for another currency, unlike normal trading that involves money (currency) being exchanged for goods/services. In fact, profit is made from the appreciation or depreciation of currencies.
Making Deposits & Withdrawals
To trade in the Forex market, you have to make some deposits. For example, you want to trade KES/USD, you have to deposit some Kenyan Shillings (the base currency) into your account before you can use it to trade for United State Dollars (the quote currency).
There are different deposit methods and their availability will depend on your broker. With that being said, according to a guide to forex trading in Kenya using mobile money, the most popular deposit and withdrawal methods in this country are mobile payments (namely M-Pesa). However, popular are also Credit/debit cards, Bank wire transfers and E-wallets (PayPal, Skrill, Neteller, Webmoney, etc)
Forex Trading Regulation In Kenya
There’s not much regulation for Forex trading in Africa compared to Europe and America. However, with more people picking up interest in the industry, such is bound to change and for Kenya, it’s already in motion.
The Capital Markets Authority regulates forex trading in Kenya by the authorization of the National Treasury through the Finance Act 2016. This came after the body released a report which showed that over 50,000 Kenya Forex traders were investing with unregulated brokers. This also led to an increase in financial fraud. Conversely, the regulated ones were offshore.
Following the authorization was the birth of the Capital Markets Online Foreign Exchange Trading Regulations 2017. This regulation is one of the key reasons why Forex exchange is gaining more popularity in the country.
It is best you note that Kenyans are directed not to trade with any local forex broker that is not regulated by the CMA.
Selecting a Broker
To start forex trading, you have to carefully select a forex broker. Here are some tips to get started.
For a hassle-free forex trading experience, it is best that you opt for a regulated forex broker. Lots of forex scams and fraud activities are linked to unregulated brokers.
Forex trading involves real money. If the broker website is attacked by hackers, you could lose your funds if their security level is poor. Go for Forex brokers that prioritize security and users’ privacy.
Your account needs to be independent so that you are in charge of all trading activities. Some brokers handle trading actions on behalf of traders and while this has its advantage, an independent account gives you the flexibility to act on every market move.
- Tools and Analysis
You cannot survive in the forex market without effective trading tools and market analysis. Check out the trading platforms offered by brokers and examine their tools and market analysis they provide. Real-time updates are also essential.
- Commissions and Spreads
Brokers make money from commissions and trading spreads. You have to consider what spreads is more beneficial to your trading strategy. Brokers normally set fixed or variable spreads. For major currency pairs, the fixed spreads range from 1 – 5 pips while variable spreads can be from 0.2 – 0.8.
Forex Trading Positions
Trading positions in the Forex market is the amount of currency owned by a trader that allows them to monitor its value against other currencies. There are two major forex trading positions – long and short positions.
You open a long position when you expect the value of the base currency to appreciate. For instance, if you trade the currency pair KES/USD; with a long position, you hold on to the KES, expecting it to gain value more than the USD. That way, you can sell it at a later time and make profits.
For a short position, the price of the base currency is expected to decrease after a period of time. For instance, if you trade the currency pair KES/USD; with a short position, you deposit and exchange the KES for USD quickly. You expect the USD to gain more value than the KES, so you can purchase the amount of KES you deposited initially and keep the profits.
By applying effective trading strategies, you can make money trading forex in Kenya. The information in this guide will help set you on your path.
However, forex trading is not a get quick-money scheme. While you should be profit-driven, the chances of winning or losing are 50/50.
You can increase your winning chances by studying the market and developing tactical trading strategies. Most importantly, you should know when to stop trading if events are not going according to plan.