How safe is Forex Trading in Kenya?
The forex market is the largest financial market in the world that involves buying and selling, or exchanging, of currencies around the world. There are numerous participants in the forex market including banks, governments, global companies, and institutional investors.
Retail trading is a small segment of the forex market where retail investors can speculate on the exchange rate between currencies in order to make a profit. Forex trading in Kenya is safe, as long as Kenyan traders ensure that they take the necessary precautions.
The Capital Markets Authority, or CMA, is the watchdog over online forex trading in Kenya. To ensure the safety of Kenyan traders who utilise the services of Kenyan-based brokers, brokers must possess a CMA license to offer their services.
Under the Capital Markets Online Foreign Exchange Trading Regulations, enacted in 2017, the CMA offers three different types of licences to brokers: Dealing Foreign Exchange Broker licence, Non-dealing Foreign Exchange Broker licence, and Money Manager licence.
The CMA does not provide regulation to individual forex traders but brokerages must obtain a relevant licence from the CMA to facilitate the trading of financial instruments.
The safety of traders when trading forex involves more than just ensuring that Kenyan traders use a regulated broker. There are also other risks that traders are exposed to that must be mitigated and management efficiently, using appropriate and adequate risk management.
There are a number of risks that traders can be exposed to while trading forex. Key among them is leverage, which is a good that allows traders to open larger positions with minimal capital, but which increases market exposure and can put Kenyan traders at risk.
Second is high volatility. Forex is the largest financial market and thus high volatility. Volatility, when harnessed by traders, can lead to great profits. However, the market is unpredictable and can turn against traders at any time.
There is also the issue of liquidity, which ensures that trading positions can be opened and closed at the price that Kenyan traders are expecting, or similar. Kenyan traders face the risk of low liquidity which exits at times in the market.
Although Kenyan traders can reduce risks and ensure the safety of their funds by opening accounts with regulated brokers, there are numerous scams that target unsuspecting traders. These scams often appear legit and many traders not familiar with the signs fall prey to them.
Some of the most common scams in Kenya that traders must avoid include the ‘signal-seller’ scam, which offers professional recommendations on favourable times that traders can buy/sell currencies in return for money. There is also ‘Robot’ scamming, which is an automated trading program that promises traders substantial amounts of profit using these programmes.
Finally, there are fake brokers or investment schemes who claim that they can double the trader’s money or offer large returns without any substantiating proof.