Forex Trading in Kenya is winning over an increasing number of people.
Whether it’s a couple of hundred or thousand dollars, it’s become more accessible to Kenyans to invest in forex, hoping to yield profits and increase their monthly income. In this comprehensive guide, we’re looking at forex trading in Kenya, the main reasons why it’s booming right now, clever strategies and tips you can implement, trustworthy brokers with excellent incentives, and much more.
Let’s dive in.
What is forex trading?
Did you know that there are $5trn-worth of transactions every single day in forex markets?
No wonder it’s gaining a fanbase among Kenyans.
What is forex trading though?
Forex trading (short for foreign exchange), is the exchange of one currency into another; this happens for different reasons including tourism and commerce. In plain English, forex trading happens when you travel to a different country and you need to exchange your money into the domestic currency to be able to make purchases.
The value of each currency is volatile and fluctuates almost every single day.
What makes them change so often?
There are various elements affecting the value of each currency; the most common ones are inflation, domestic affairs, natural disasters and wars. In practice, what you do with forex is exchange one currency that you estimate will not perform in the future with another currency that its value is increasing, or you project that it will rise in the near future.
What you should know about the forex market
Forex trading doesn’t take place in a physical place.
Unlike the stock market of each country, forex trading is all done electronically. This allows it to be open 24 hours for five days a week and gives you flexibility to trade from wherever you are (as long as you have internet access) and whenever you can – if you start trading as a side hustle, the flexibility is great since you can trade in the evenings after work.
Trading happens across almost alltime zones starting from Hong Kong and finishing in the USA. It’s a trading market that never sleeps, hence, the massive amounts of trades taking place every single day. In general, it’s a simple way of trading with minimum complication which makes it an excellent option for beginner traders to dip their toes into trading and investing.
How does forex trading work in practice?
Still not sure how forex trading works in practice?
Let’s see a couple of examples to help you get a better understanding about forex trading:
You can exchange popular currencies such as USD, GBP or EUR with other currencies.
There’s a price that determines the value between two currencies. For example, the time of writing this article, the price between USD and EUR (USD/EUR) is 1.09597, meaning that if you had €100 and wanted to exchange it for USD you would get (€100*1.09597) $109.597.
Here’s the good news about forex:
Unlike other trading types, forex is decentralised, meaning that the price and value of each currency pair is always determined by supply and demand.
5 forex terms you should be aware of
One of the things that might put you off trading forex is its jargon.
For this reason, this article includes essential forex terminology to help you familiarise yourself with forex trading and feel more confident with investing in forex.
Let’s take a look at the most important forex terms:
1. Currency pairs
A Currency pair includes two currencies and it compares the first currency value with the second. For example, it looks like this: AUD/USD. The first currency is called ‘base’ currency and the second ‘quote’. In practice, it shows if you want to buy or change your AUD to USD and its value.
Currency pairs are divided into three main categories:
- •Major Pairs: These are the most popular currency pairs including USD/EUR, GBP/USD and USD/JPY
- •Cross Pairs: These are currency pairs that don’t include the American dollar (USD) such as EUR/AUD, EUR/GBP and JPY/GBP
- •Exotic Pairs: These pairs are comprised of less popular currencies including CAD/MXN, MXN/KES, AUD/KES
2. Exchange rate
An exchange rate between two different currencies is the price set for exchanging one currency with another. Say that the exchange rate for USD/EUR is 0.93628.
Practically, this means that if you exchange $1 for EUR you’ll get back €0.93628.
There are two types of exchange rate:
- •Floating exchange rate: It is volatile and changes based on the relationship of the two currencies. It is decentralised and affected by various aspects including, economy, politics and natural disasters. Its price is also determined by supply and demand.
- •Fixed exchange rate: Its price is fixed and determined by a central bank no matter what the supply and demand of each currency is.
3. Leverage
This is one of the true benefits in forex trading, as well as in other markets, depending on your broker.
Let’s assume that you only have $300 available to trade. There are many forex trading platforms out there that don’t limit your trading power to what you’ve deposited into your account and offer you leverage, meaning that you can “borrow” money from your broker to trade beyond your account’s balance.
Here’s an example:
You register with a reputable broker that offers 1:20 leverage. This enables you to trade up to 20 times more for each dollar you trade. So if your account balance is $300 and you use the whole amount to trade with leverage then your power is going to be ($300*20) $6000. In other words, it makes your trading power 20 times more.
However, keep in mind that the higher the leverage, the higher the risk is. With the trading leverage you increase your trading power, but at the same time the risk of having more significant losses is higher. This is also why it is important to choose a broker with good protection features to keep you from going into a negative balance.
4. Pip
It looks like a (funny) unusual word, doesn’t it?
What does it really mean?
A pip is the smallest unit of trading two different currencies. And, depending on the currency, is the 5th number after the decimal point (this varies depending on the currency). For instance, say that the price of GBP/EUR moves from 1.12317 to 1.12318 – the price of this pair increased by 1 pip. Another example involving theKenyan Shilling is when USD/KES moves from 152.89454 to 152.89455. This means The price of this pair increased by 1 pip.
5. Lot size
This is a key metric to manage risk in forex trading.
There are three different kinds of lot size:
- •Standard lot: It refers to 100,000 units traded of the base currency
- •Mini lot: It refers to 10,000 units of the base currency
- •Micro lot: It refers to 1,000 units of the base currency
How to select the right broker
This isn’t a simple decision to make. It’s wise to do some research before going ahead and opening an account with a broker.
Here’s some key criteria you should look for when choosing a broker to start trading Forex:
- •Trustworthy: First off, the broker or a trading app should be a well-known company. Much like in every other county, there are online trading scams in Kenya with companies offering attractive bonuses and perks and making huge promises. Avoid registering with them if you can’t really find information about them online.
- •Features: This is another important element to take into account before making your decision on the broker you will sign up with. What is the leverage they offer? How fast is the cash out/withdrawal policy? Do they offer a demo account? Do they accept instruments in Kenyan Shillings? What protective features do they offer and what is their client security policy? These are vital questions to ask yourself while doing your research on your new broker.
- •Great customer service: It’s always great to use the service of a company with impeccable customer service. This makes your activities on a forex platform and money transactions frictionless. You don’t need to stress out on how to create your account, change the language or time zone. Great customer service can help you solve all these issues in no time.
Three Brokers to Consider
Let’s talk about three brokers you should consider for trading in Kenya.
Exness
Exness is a trustworthy multi-asset broker with a strong presence in the Kenyan market. What sets Exness apart from the competition is that they truly care about the Kenyan traders with legitimate compliance under FCA that practically means Exness is a safe online platform where you can add your money, trade safely and know exactly what to expect; every important detail about their trading policies is clearly stated on their website which is fairly easy to navigate.
They also offer some unique features that help keep clients protected and able to trade large volumes. Exness also offers social trading, otherwise known as copy trading, where you can benefit from copying the trading strategies of other expert traders.
Hotforex (HFM)
Hotforex is a regulated broker that offers different trading options including commodities, bonds, CFDs, energies, Forex, Indices and shares. They also provide education on investing and trading via videos, webinars and FAQs. You can either create a ZERO, PREMIUM or PREMIUM PRO account and start trading on the same day.
Forex.com
Forex.com is another popular option among forex traders offering various kinds of trading options such as stocks, indices, crypto and commodities. On their website, you can find graphs and charts that analyse price changes (but they are more focused on advanced traders). Forex.com also provides education via video tutorials and webinars to help you get the hang of trading faster.