Recent estimates placed the African Forex trader count at 1.3 million. This is a very significant number – the total estimate for the amount of clients from the whole globe was about 10 million in 2020, meaning the African markets make up for 13% of that. It is also a recent trend among large, industry leading brokers to tap into these markets and get licensed locally, opening physical branches and bank accounts within the countries.
A distribution of the trading activity on the continent shows that Kenya is the third largest market, with 50 000 clients from within the country. Unlike the two countries before it, Nigeria and South Africa, it has also sought to create a stricter regulatory framework, creating the Capital Markets Authority (CMA) to begin overseeing its markets. The country has become immensely popular with most brokers as well. So why have they flocked to get licenses there? More importantly, are they here to stay, will the Kenyan Forex market grow or stagnate? The following article will go over the tough questions and truths regarding the Kenyan Forex market.
In this article
Emergent markets and international brokers
The Kenyan market has experienced a lot of growth in recent years. The country’s GDP has been on a steady rise, and it is one of the most powerful economies in East Africa. These are all conditions in which the number of people trading Forex can increase with a wider access to the Internet and higher rates of financial literacy. And certainly, the profile of the Kenyan Forex trader matches what could be expected – they are young, and looking for potential ways to make money online.
To better service them, industry leading brokers have started applying to gain a license to deal on the Kenyan FX market. Some of the brokers that have done so are FP Markets, Exness and HFM – all names which experienced traders will recognize easily. This allows them to get their finger on the pulse of trading in the West African country, and to better tune their services to the needs of the clients there. But what does it mean to apply for such a license?
The CMA and its recent regulatory approach
The CMA of Kenya is quickly becoming one of the strictest regulators on the continent. There are guarantees that the firms dealing under its supervision will not go insolvent and that they will not turn out to be fraudulent.
Unfortunately, these are required, because a high interest in the market is also a possibility for scammers to set up and start running their schemes. It is also possible for fledgling brokers to go under due to a lack of liquidity and experienced in running such companies. So how does the CMA prevent that?
There are high capital requirements for companies that wish to get authorized – they need to hold and maintain at least 50 million KES, but also keep over 80% of that in liquid funds to prevent insolvency. Foreign companies need to keep the latter of these sums in Kenyan banks. There is also a strict set of rules for the internal structure and experience level of such companies. These rules are quite apt at addressing the issues above. Also, brokers under them are not restricted to offering lower leverage, or banning bonuses, two polices that are controversial in other jurisdictions, like the EU, UK, Australia, the USA and Canada and so on.
High leverage, bonuses – rightfully banned?
One of the most attractive features of dealing with a CMA licensed broker is the fact most offer various deposit incentives and a rather high leverage. For instance, HFM’s Kenyan subsidiary has one of 1:1000 available. Exness has an unlimited leverage it offers.
However, overleveraging one’s positions is one of the most common reasons for retail clients to experience margin calls. In fact, dealing with high leverage has been banned in most of the other markets, and almost every broker nowadays is limited to offer amounts of 1:20 to 1:50 at most. The most recent country to enact that restriction was Australia, with an emergency product intervention. The duration of the intervention was set to be of one year, but after that time ran out, the regulatory body in the county, called ASIC, published a report on the effectiveness of the various measures, and it was found that margin calls within clients had gone down by over 90%.
Note that these bans are not absolute – the brokers in such countries are still allowed to offer higher amounts to clients who have met certain criteria, which prove they have higher net worth, or a better understanding of the markets, that would allow them to reliably navigate them.
As for bonuses, there is an unconditional ban on them in most of these jurisdictions. They have been known to be used by Forex scammers to make withdrawals impossible, by binding them with turnover requirements that were not realistic. Of course, trading with a licensed broker already means you are very unlikely to be dealing with a fraudulent company, but the ban is in place nevertheless.
Regardless, both high leverage and bonuses are attractive features of the Kenyan forex brokers. But are they here to stay, or will the regulatory body of the country outlaw them?
Possible outcomes for the Kenyan Forex market
As mentioned above, Australia became one of the latest places where the two attractive trading conditions above were banned. This denotes a global trend of unifying regulation around these issues, which outlines two possible futures for the Kenyan trader.
The first possibility is that the CMA will find itself content with the regulatory framework it has built and that it will not strive to enact further policy. That would allow the brokers we mentioned, as well as more companies setting up there, to offer these two kinds of policies undisturbed. The number of both domestic traders, but also ones from neighboring countries, wishing to deal with CMA-licensed firms would rise.
But if the Authority decides to put a policy in place to ban leverage and bonuses, would that lead to the same companies pulling out, or will it reduce their interest in offering their services? Similar concerns were raised when the European Union decided to restrict leverage for the first time. However, when that actually happened, brokers did not abandon their EU clients. Nowadays, the jurisdiction is among the biggest trading hubs in the world, and the clients there enjoy higher protection.
Given the current moods towards Forex trading in Kenya, the trend towards the country’s economic outlook being as bright as it is at the time of writing, there are quite a few domestic traders who would benefit from such policies. However, the higher level of regulation is already attractive to people from other countries as well – in the East Africa region, Zimbabwe and Tanzania account for a lot of traders. CMA-licensed companies are already seen as a safe alternative to them.
Further, the lack of regulation within major South and West African markets, in South Africa and Nigeria, could lead to traders from these two jurisdictions displaying an interest in dealing with Kenyan companies. And, as mentioned above, these are the two places with the larges number of traders on the continent. Overall, whatever direction the regulatory body of Kenya decides to take, the market is certainly one to follow and the brokers on it are here to stay!
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