- A standout characteristic of forex trading lies in the unparalleled market size and liquidity, considering that it is the largest financial market in the world.
- Among the most actively traded currencies are the US Dollar, Euro, Japanese Yen, British Pound and Swiss Franc, all of which are recognized globally for their stability.
- In a report dubbed Forex 101 by Brian Muse, many traders fail in the market as a result of not mastering “leverage”.
The foreign exchange market, which is usually known as forex or FX, is the largest financial market in the world with a daily trading volume of over $5 trillion, significantly higher than the stock market, which has an average daily trading volume of around $200 billion.
In recent years, the trade has gained significant popularity in Kenya, attracting a growing number of Kenyan investors looking to engage in the global currency markets.
The surging interest in Kenya shows a pursuit of financial independence and a hunger for a broader spectrum of investment options, especially with the ongoing increase in internet accessibility across the nation and a growing awareness in currency trading.
Akin to all investment ventures, forex trading presents its unique array of potential advantages and pitfalls.
This feature will delve into the features of forex trading in Kenya, the advantages and disadvantages of the trade as well as shed light on the regulatory framework governing this industry.
Unique features of Forex market
The forex market is a highly dynamic and constantly changing market that offers a wide range of opportunities for traders, especially now in Kenya.
Its unique features provide traders with the ability to enter and exit positions easily, diversify their portfolios, make informed trading decisions and choose the strategy that best suits their trading style.
A standout characteristic of forex trading lies in the unparalleled market size and liquidity, considering that it is the largest financial market in the world.
This large scale and liquidity facilitate easy opening and closing of positions even when dealing with substantial capital. Additionally, the sheer size acts as a safeguard against manipulation and price distortions.
Market volatility is a unique feature associated with FX, making savvy traders in Kenya capitalize on the swings that come with the trade.
Further, the market offers an extensive selection of tradable currencies, granting traders the chance to broaden their investment portfolios and potentially mitigate risks.
In Kenya, this trade is regulated by the Capital Markets Authority (CMA), a regulatory body responsible for licensing and supervising all capital market intermediaries.
Among the most actively traded currencies are the US Dollar, Euro, Japanese Yen, British Pound and Swiss Franc, all of which are recognized for their stability.
Unemployment in Kenya
According to Microtrends, the unemployment rate in Kenya presently stands at 5.50%, with young people below the age of 29 hardest hit.
By April this year, the number of unemployed Kenyans grew by 0.05% from September last year (Kenya National Bureau of Statistics, KNBS).
Therefore, many youths opted for freelancing and international online jobs such as academic writing and virtual assisting. Trading in bitcoin, crypto and FX also increased greatly.
Forex trading was boosted by factors such as technology and internet penetration, young people’s familiarity with untapped markets, financial literacy, flexible trading hours, peer influence, and success stories, among other factors.
Different organizations such as FXPesa and individual veteran forex traders have made the mandate to equip trading skills to the young population so as to gain financial freedom.
In 2017, Kenya became the first African country to have a regulatory regime for online forex trading, which opened a new opportunity for thousands of unemployed youth and now has an estimated 100,000 retail traders.
From novice to profits
Forex trading has proven to be a game of risk-taking where traders buy currencies hoping they will be able to sell them at a higher price.
Felix Mukundi, a recent graduate of Moi University, shares his success story in FX with Scholar Media Africa.
“I stumbled upon forex trading in early 2021 without prior knowledge of the market. Initially, I treated it as a casual opportunity for an extra income during my campus days,” stated Mukundi.
In the exclusive interview, Mukundi says he ventured into trading without a well-defined trading system, strategy, or risk management. However, he explains that he experienced modest gains and losses at the beginning.
In 2022, Mukundi, motivated by observing fellow traders achieve substantial profits, decided to take this trade seriously, equipping himself with the necessary knowledge and guidance from veteran FX traders, and eventually signed up with a broker.
Mukundi, an Arts in Education degree holder, says that if taken seriously just like any other career, trading can be profitable and sustain a lifestyle.
“As long as you have good internet and a trading system which one needs to develop with time you are good to go,” says the savvy trader.
Caleb Masongo, a Nairobi-based trader, exclusively told Scholar Media that the trade is a beautiful one that requires commitment and is worth the effort in the end.
Masongo started educating himself on Forex in April 2023 and has made profits of approximately $2,500 which is equivalent to KSh380,000.
“Considering that I have done it now for three months consistently, I can confidently say that it is profitable and worth it!” beamed Masongo.
Balancing pros and cons
Much like any other business venture, Forex trading comes with its fair share of risks and rewards.
According to seasoned trader Masongo, success in this market requires a dedicated, career-like approach. Whether one is a full-time or part-time swing trader, profitability hinges on treating forex seriously.
Many youths in Kenya view FX as a quick path to riches as many flaunt forex-related wealth on social media, often through affiliate marketing with brokers. The reality, Masongo caveats, demands discipline, strategy and sound psychological resilience.
Conversely, Masongo highlights a challenge with the local brokers who manipulate the market and charge extra unnecessary costs such as commissions for overnight trades.
In a report dubbed Forex 101 by Brian Muse, many traders fail in the market as a result of not mastering “leverage”.
Muse terms leverage as a potent instrument that enables traders to have more influence over bigger market positions while using reduced quantities of funds.
Leverage in FX helps traders increase their trading power and diversification of portfolios by trading multiple currency pairs simultaneously and increases flexibility in terms of trading strategies.
However, risks such as increased losses, margin calls and emotional stress are equally involved.
“A trade may move against the trader, making their account equity fall below their required margin level, triggering the margin call, which requires additional funds to maintain that position. Equally, high leverage can lead to emotional stress as traders may be tempted to take excessive risks, which results in higher falls,” stated part of the report.
In conclusion, the global, decentralized market of Forex trading has become popular among the youth as a result of different factors that have pushed citizens to seek extra ways to put money in their pockets.
Years of strong economic growth have created jobs, but due to inflation, the jobs are seemingly low-paying and not sufficient to cater to the growing youth population.