This archive report was first published on 7 May 2020.
Forex Trading in Kenya: Essential Tips for Retail Traders ¶
Forex trading in Kenya has grown in popularity, with over 70,000 traders participating in the market. However, the sector carries a high amount of risk, and first-time traders should be wary of the pitfalls associated with forex trading.
According to the Capital Markets Authority of Kenya (CMA), the sector has been regulated since 2018. This regulation has led to the growth of the sector, with more traders entering the market. However, it is essential to note that regulation does not eliminate the risks associated with forex trading.
One of the most critical aspects of forex trading is education. Traders need to educate themselves on the basics of the Forex market and learn safe trading practices like risk management before actually investing in forex. As Trade Forex Kenya advises, 'Traders need to educate themselves on the basics of the Forex market and learn safe trading practices like risk management before actually investing in forex.'
Before diving into the currency markets, it is essential to educate yourself on the basics of forex trading. This includes understanding how to make forex trades, how to manage your risk, what are the active trading times, what do the common forex trading terms mean, how to conduct market research, what makes the currency market fluctuate, and so on.
Once you have a good understanding of the basics, it is essential to start with a demo account with an established forex broker. This will allow you to practice trading without using actual money and help you find your way around a trading platform or app.
Experience is the best teacher when it comes to forex trading, and don't worry if you make a lot of bad trades when you first start out. The most important thing is to keep learning.
Only start trading with real money once you have understood and practiced the basics. It is also essential to only trade with CMA-regulated brokers. In Kenya, there are only three forex brokers that are regulated by the CMA: Pepperstone Kenya, EGM Securities (FXPesa), and Scope Markets (SCFM Limited).
Regulation means that the CMA has oversight over these brokers and does not allow any unfair practices, fraud, or excessive risk. There are several benefits to trading only with regulated brokers in the forex market. A regulated forex broker offers a transparent trading environment, cannot manipulate the market, and needs to submit periodical financial reports to the regulator.
It is also essential to compare trading costs before choosing a broker to trade with. Different forex brokers charge different fees, and the overall cost that you would incur when trading with any broker will be different. The four major components to the overall cost of trading are the spread, commissions, overnight charges, and other hidden fees such as deposit and withdrawal fees or inactivity fees.
Forex trading also allows you to use leverage. Every broker offers different leverage, and your broker may be offering 1:100 leverage. This means that you can enter into trades worth $100 by investing only $1 of your money. However, leverage can increase your profit margins but also amplifies your losses.
There are several risk management tools such as stop-loss, negative balance protection, risk-reward ratio, etc., which can help you manage your risk associated with every trade. You should use all or any of these techniques every time you trade so that you do not experience excessive or unforeseen losses.
Finally, research and gain experience are essential for trading effectively and profitably. You need to read as much literature on forex trading as you can and practice your hand at trading on demo before investing any money. You should also do your own research on every currency pair that you intend to trade rather than following any 'expert' trade advice or calls.
Published on May 7, 2020
