What is the Forex Market? – FX Guide

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Kenyan residents are becoming more and more interested in trading on the Forex market. The Capital Market Authority (CMA) does not have to accredit forex brokers to accept Kenyan customers unless the brokers are based in Kenya.

Founded in 1989, the CMA oversees, licenses, and monitors the activities of market intermediaries. Kenya became the second nation in Africa to have a regulatory framework for online Forex trading in 2017. A regulatory framework was put in place by Kenya’s regulatory authority on August 27th, 2017.

The first broker in the online forex market and retail forex trading in the region is EGM Securities, which received its license in Feb 2018. As a result, foreign exchange and CFDs were added to the country’s legalised & mainstream capital market operations, joining stocks, derivatives & commodities, enabling more investors to gain exposure to forex, who were previously hesitant.

Traders who wish to trade with regulated brokers can now do so in Kenya, and retail traders can also do so in a regulated environment. If you are interested in learning more about the Forex market of Kenya, Read on!

What is the forex market?

The forex market offers investors the possibility to hedge or speculate on currencies by buying, selling, or exchanging currencies. One of the largest financial markets in the world is the foreign exchange (forex) market, which comprises public and private banks, commercial companies, central banks, investment management firms, hedge funds, retail forex brokers, and investors.

Understanding the forex market

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Global networks of computers and brokers worldwide operate on the forex market in Kenya, which isn’t dominated by any single market exchange. In addition to being market makers, forex brokers specify price bids and ask for currency pairs that may differ from the most competitive bids in the market.

Markets for foreign exchange consist of two levels-interbank and OTC markets. Banks trade currencies on the interbank market to hedge risks, adjust their balance sheets, and assist clients. The OTC market, however, is where individual traders trade through online brokers and platforms.

Securities like equities and bonds and commodities generally close for some time in the late afternoon Eastern Standard Time. However, there are exceptions to the general rule. For example, there are times during the trading day when emerging market currencies close temporarily.

History of the forex market

Before World War 1, the value of currencies was based on precious metals, like gold and silver. Eventually, the system collapsed after the Second World War, and Bretton Woods was put in place. In response to this agreement, three international organisations were created to facilitate economic activity around the world. The organisation was:

  1. General Agreement on Tariffs and Trade (GATT)
  2. International Monetary Fund (IMF)
  3.  International Bank for Reconstruction and Development (IBRD)

Likewise, gold was replaced by the U.S. dollar as a currency peg in the new system. As part of its commitments, the U.S. government promises gold reserves to back up dollar supplies. However, the Bretton Woods system was rendered useless in 1971 when U.S. President Richard Nixon suspended the gold-convertibility of the dollar as a “temporary” measure.

Exchange rates are now determined by supply and demand on international markets, and currencies can form their peg.

Type of forex markets

A forex market can be classified into three types: spot, forward, and futures.

Spot forex market

Spot markets in Kenya are where buyers and sellers exchange currency at a specific rate immediately. Therefore, a large portion of currency trading occurs on the spot market.

Commercial, investment, and central banks are among the participants in the spot market and dealers, brokers, and speculators. Large commercial and investment banks conduct a major portion of spot trades, which trade for themselves and their customers.

Forward forex market

The forward market in Kenya refers to the agreement between two parties to exchange one currency for another at some future date. In such a deal, no money is exchanged. Various parties can participate, including companies, individuals, the government, etc. Hedging can be accomplished with forwarding markets in Kenya.

There is, however, one major downside to forward markets: they lack centralised trading and are relatively illiquid (since they only involve two parties). Furthermore, a counterparty risk might occur, such as the other party defaulting.

Futures forex market

As far as their basic function is concerned, future markets are similar to forwarding markets in Kenya. However, one of the biggest differences is the use of centralised exchanges in future markets.

The benefit of centralising exchanges is that there are no counterparty risks for either party. The result is that futures markets are extremely liquid, especially compared to forward markets.

Big players in the forex market

U.S. dollars are by far the most widely traded currencies in Kenya. Euros come in at a close second, followed by Japanese yen at third. In the forex market, JPMorgan Chase ranks first.

In the global forex market, Chase accounts for 10.8% of the market. For the last three years, Chase has ruled the market. The second-largest company, UBS, holds an 8.1% market share. The remaining three places in the top five belonged to XTX Markets, Deutsche Bank, and Citigroup.

Growth in online forex trading in Kenya during COVID-19 pandemic

The most recent statistics and estimates provided by Trade Forex Kenya show Kenya to be the third biggest retail forex market in Africa. Kenya’s online forex market is expected to grow by 80% in retail trading in 2020.

The COVID-19 epidemic encouraged people to trade forex, commodities, indices, and gold for a variety of reasons:

  • The lockdowns in 2020 due to the pandemic forced many people to work from home while others went without work. As a result, many millennials seek alternative income sources to supplement or sustain their low incomes and turn to online trading. Worldwide, this trend is gaining traction.
  • Second, with the improvements to the telecommunications infrastructure in Africa, people can trade online using their smartphones & other devices.
  • Third, CFD brokers’ marketing efforts have attracted more new traders to the forex market due to lower capital requirements and increased leverage.

CMA licensing and online forex trading regulatory framework

The CMA regulator estimated that around 50,000 retail traders were illegally investing in foreign brokerages before the regulation was introduced. As a result, CMA has proposed regulations for the industry to tighten upmarket control and increase investors’ safety and oversight of brokers.

Financial regulatory Kenya published a draft of license requirements for capital markets in July 2016 in the Finance Bill, 2016, seeking comments by August 17th. For Kenyans, the bill aims to establish an online forex trading platform that is efficient and safe.

As a result of the public discussion around these regulations, they became effective on August 25th, 2017, as THE CAPITAL MARKETS (ONLINE FOREIGN EXCHANGE TRADING REGULATIONS, 2017.

Online Forex & CFD traders now enjoy a sensible regulatory framework that protects their interests and ensures a conducive environment.

In Kenya, the forex broker licensing regulations made it illegal or criminal to operate without a license. Without such a license, all forex brokers are prohibited from operating. Currently, Kenya has over 90,000 traders on its retail forex market, up 80 per cent since 2006.

By this regulation, the broker must possess the following qualities to provide online forex trading services to Kenyan retail investors:

  • Brokers must be shareholders in a company with limited liabilities.
  • A CEO should be in charge of the company with at least five years of experience buying, selling, or dealing with forex, forex futures, or futures contracts. In addition to being fit and proper, the CEO should also comply with the 24A section of the Act.
  • For the company to perform its trading functions effectively, its office space and staff should be adequate.
  • The company’s director and key management personnel must be fit and proper, as outlined in 24A.
  • KSHs are the minimum investment requirements. It costs about $500,000 (approx. $5 million) for a license to deal with brokers in Kenya. In addition, there is a $30 million charge for non-dealing broker licenses. For money managers, the charge is $10 million.
  • Under certain circumstances, the entity should maintain its capital adequacy ratio plus 8% of forex liabilities over KSH. 30 million.
  • KSH should be made available to the company. There are several liquid assets equal to 30 million or 8% of its liabilities (whichever is higher). Money managers mandate that 8% of liabilities (or Kenyan shillings) be retained—about $5 million.
  • Brokers must get written confirmation from the CMA-recognised trading platform to fulfil all requirements. Managing money involves signing a contract with a broker, whether he is a dealing broker or not.

Advantages and Disadvantages of Forex Trading

Pros and Cons - Balance Concept

While forex markets offer many advantages, they also carry some disadvantages.


  • Trading is available almost 24/5, giving you plenty of flexibility. The flexibility and lack of restrictions of forex trading are some of its greatest advantages. A great deal of trading takes place here, and markets are open almost all the time.
  • There are numerous ways to trade. In terms of trading options available, there’s a great deal of flexibility. For example, a currency pair can consist of hundreds of different currencies, and there are several different kinds of agreements, such as futures or spot agreements.
  • Compared to other markets, the costs of transactions are usually very low, and leverage is allowed to the greatest extent of all financial markets, which can magnify gains (as well as losses).


  • Risks associated with counterparties are increased by a lack of regulations and reputable brokers in Kenya. In addition, the foreign exchange market includes leverage risks, just as it offers advantages. Thus, leverage is a common aspect of forex trading.
  • A high degree of leverage is permitted. A leverage of 20-30 times can lead to outsized gains but can also lead to large losses if not managed properly.
  • As much as its nearly 24-hour operations can be a positive for some traders, it will also require them to use algorithms or programs to protect their assets while away. Added to the risk of operational failure and increasing costs.

Concerns and the future

Kenya’s forex trading ecosystem is undergoing an evolutionary change in market regulations. However, Kenya’s CMA does not have a robust regulatory framework like South Africa’s FSCA. So it has a lot to cover before it can make online trading safe and accessible to everyone.

Forex traders are also concerned about scams and pyramid schemes. But, unfortunately, the issue doesn’t come to the attention of regulators until investors report scams and lose money.

Second, new investors are relatively at risk of online forex losses due to a lack of knowledge and the risks of online trading.

Additionally, forex brokers in Kenya offer high leverage of up to 1:400 with low capital requirements. However, this exposes inexperienced traders to greater risks, resulting in them losing their small savings.

Brokers regulated by the CMA are not required to report the percentage of trailers losing money publicly, nor do they have leverage restrictions that match ESMA standards. Retail traders should review the policies for granting them leverage.

The fourth disadvantage of local brokers is that they lack brand value & appeal for traders compared to global brokers. Due to regulatory restrictions, they can’t expand their product offerings, such as cryptocurrency and other instruments. Many Kenyans still transact through foreign brokers for this reason.

The CMA has developed online classes and study materials on their websites in conjunction with regulated brokers to combat the lack of awareness among investors.

With the changing environment and the growing number of traders, the CMA will likely lower leverage caps and introduce more CFDs under its regulatory framework in the coming years.

Bottom line

Foreign exchange trading has several advantages over other markets, such as flexibility of contracts and near-constant trading hours. Moreover, it will Kenyan traders to leverage their trades by 20 to 30 times, which gives them a chance to increase their gains.

However, you can also experience major losses with such leverage. Also, Kenyan citizens may face some issues with the regulations and reputation of brokers. But, with additional research and dedication, the Forex market is the best to invest in!

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