Forex Trading in Kenya: Complete Guide For Beginners [2024]

If you’re looking to start forex trading in Kenya and want to understand how it works, I wrote this guide just for you. In as simple language as possible, I will provide you with the essential knowledge and insights you need to navigate the forex market with confidence.

So, if you are a complete beginner, don’t worry. I’ll walk you through the mechanics of forex trading, explain key concepts, and introduce popular trading strategies.

You’ll also learn how to access the forex market and an overview of the regulatory environment for forex trading in Kenya to ensure that you’re well-informed about the legal and operational aspects. 

Finally, I will reveal reputable brokers, trading platforms, and how to start trading.

By the end of this guide, you’ll have a pretty solid understanding of what forex trading is all about and whether it is the right fit for you or not.

Let’s dive in!

What Is Forex Trading in Kenya?

Forex trading, short for foreign exchange trading, involves swapping one country’s currency for another’s. Imagine you’re going on a trip and you have to exchange your local money for the currency of the country you’re visiting. Forex trading is a bit similar, but instead of physical exchange at a bank, it happens electronically through special platforms.

Here’s what I mean;

Currencies fluctuate in value relative to each other. Forex trading involves buying one currency while simultaneously selling another. By doing this, traders hope to profit from these changes in value. For instance, if you think the value of the Kenyan shilling will increase compared to the US dollar, you might buy Kenyan shillings with dollars. If the value goes up as predicted, you can sell the shillings back for more dollars, making a profit.

The goal of forex trading is to predict whether a currency will increase or decrease in value relative to another currency. Traders use a currency pair to represent the exchange rate between two currencies, such as the USD/KES  (US dollar against the Kenya Shilling).

To trade forex, you need a forex broker, which is a company or individual that provides a platform for executing trades. Traders can speculate on the future direction of a currency pair by either buying (going long) or selling (going short). If you believe a currency will rise in value, you buy it. If you believe it will fall, you sell it.

You make a profit in forex trading through the difference in exchange rates. For example, if you buy a currency pair at a low price and sell it at a higher price, you make a profit. However, if the exchange rate moves against your prediction, you may incur a loss.

How Does the Forex Market Work?

The forex (FX) market operates 24 hours a day, five days a week, allowing participants to trade currencies continuously. 

Here’s a general overview of how the forex market works:

• Participants: The forex market consists of various participants, including banks, financial institutions, corporations, governments, central banks, speculators, and individual traders. These participants trade currencies for various reasons, such as conducting international business, hedging against currency fluctuations, or seeking profit from currency price movements.
• Currency Pairs: Currencies are always traded in pairs, such as KES/USD (Kenyan Shilling/U.S. Dollar) or EUR/USD (Euro/U.S. Dollar). Each currency in a pair is represented by a three-letter code, and the first currency is called the base currency, while the second currency is the quote currency.
• Market Access: The forex market operates through an electronic network of computers, which allows participants to trade currencies instantly. You can gain market access through various platforms, including banks, brokers, and electronic communication networks (ECNs).
• Bid/Ask Spread: When trading a currency pair, you will encounter two prices: the bid price and the ask price. The bid price represents the price at which traders are willing to buy the base currency, while the ask price is the price at which they are willing to sell it. The difference between the bid and ask price is known as the spread, and it represents the transaction cost of trading.
• Market Liquidity: The forex market is highly liquid due to its large trading volume and numerous participants. This means that traders can buy and sell currencies quickly at competitive prices without significant price fluctuations.
• Market Influences: Various factors influence currency prices in the forex market. These include economic indicators (e.g., GDP, employment data, inflation), central bank policies (e.g., interest rates, monetary policy), geopolitical events, market sentiment, and more. Currency prices are continuously changing as new information becomes available and market participants react accordingly.
• Trading Strategies: Traders use different strategies to speculate on currency price movements. These strategies may involve technical analysis (examining historical price patterns and indicators), fundamental analysis (evaluating economic and political factors), or a combination of both. Traders can take positions to profit from either upward (long) or downward (short) price movements.
• Leverage and Margin: Leverage in forex trading is like borrowing money from your broker to make larger trades than your account balance would typically allow. It’s a tool that enables traders to control a more substantial position in the market with a smaller amount of their own capital. Leverage amplifies both potential profits and losses. Margin is the collateral required to open and maintain a leveraged position. You must be cautious when using leverage, as it increases risk.
• Market Continuity: Since the forex market operates globally, trading continues seamlessly as different financial centers open and close around the world. This 24-hour nature of the market allows participants from different time zones to engage in trading at any time.

Example of a Forex Trade in Kenya

Profit Example

Let’s say that John wants to trade forex in Kenya.

He believes that the Kenyan shilling (KES) will strengthen against the US dollar (USD) due to positive economic news in Kenya. So, he decides to execute a Forex trade.

With an initial investment of $1,000, John takes a long position (buys) on the KES/USD currency pair. The current exchange rate for the KES/USD pair is 110.50, meaning 1 US dollar is equivalent to 110.50 Kenyan shillings.

At the prevailing exchange rate of 110.50 for KES/USD, John purchases 110,500 Kenyan shillings ($1,000 x 110.50). The KSh 110,500 is credited to John’s trading account.

Over the following days, as John predicted, positive economic news in Kenya leads to an increase in the exchange rate for KES/USD to 108.00. Note that a lower exchange rate (110.5 vs 108) means the Kenyan shilling became stronger, so this is an increase.

Seeing this favorable movement, John decides to close his position and sell the Kenyan shillings back into US dollars at the new rate of 108.00.

By converting his 110,500 Kenyan shillings at the rate of 108.00, John receives $1,022.69 (110,500 KES ÷ 108.00 = $1,022.69).

Hence, by executing this trade, John made a profit of $22.69 ($1,022.69 – $1,000).

Loss Example

Now, let’s assume that contrary to John’s expectation, there’s unexpected negative economic news in Kenya, causing the exchange rate for KES/USD to drop to 112.00.

Recognizing the unfavorable movement, John decides to close his position and sell the Kenyan shillings back into US dollars at the new rate of 112.00.

By converting his 110,500 Kenyan shillings at the rate of 112.00, John receives $986.61 (110,500 KES ÷ 112.00 = $986.61).

Hence, in this scenario, John’s trade resulted in a loss of $13.39 ($986.61 – $1,000).

Common FX Trading Terminologies in Kenya 

• Pip: Pip stands for “percentage in point” or “price interest point.” It represents the smallest incremental price movement in a currency pair. Most currency pairs are quoted to four decimal places, so a pip is usually the fourth decimal place. For example, if the EUR/USD moves from 1.3000 to 1.3001, it has moved one pip.
• Lot: A lot is the standardized quantity in which forex trades are conducted. There are three main types of lots:
  • Standard Lot: A standard lot is equal to 100,000 units of the base currency.
  • Mini Lot: A mini lot is equal to 10,000 units of the base currency.
  • Micro Lot: A micro lot is equal to 1,000 units of the base currency.

Lot sizes allow traders to control larger positions with leverage, and the position size determines the value of each pip movement.

• Bid/Ask Price: The bid price is the price at which market participants are willing to buy a currency pair, and it is always lower than the ask price. The ask price is the price at which market participants are willing to sell a currency pair, and it is always higher than the bid price. The difference between the bid and ask price is called the spread.
• Spread: The spread is the difference between the bid and ask price of a currency pair. It represents the transaction cost of trading and is typically measured in pips. Spreads can be fixed or variable and different currency pairs may have different spreads.
• Long and Short: In forex trading, going long refers to buying a currency pair with the expectation that its value will rise. Going short refers to selling a currency pair with the expectation that its value will fall. Traders can profit from both upward and downward price movements by taking long or short positions.
• Leverage: Leverage allows traders to control larger positions with a smaller amount of capital. It is expressed as a ratio and indicates the amount of borrowing power provided by a broker. For example, a leverage ratio of 1:100 means that for every $1 of the trader’s capital, they can control $100 in the market. While leverage amplifies potential profits, it also magnifies losses, so you should use it with caution.
• Margin: Margin is the amount of funds required to open and maintain a leveraged position. It is a percentage of the total position value. For example, if the margin requirement is 2% and a trader wants to open a position worth $10,000, they would need $200 as margin. If the position moves against them, losses can erode the available margin, potentially leading to a margin call or stop-out if it falls below a certain level.
• Stop-Loss Order: A stop-loss order is a predefined instruction given by a trader to automatically close a position at a specific price level. It is used to limit potential losses by exiting a trade if the market moves against the trader’s position.
• Take-Profit Order: A take-profit order is a predefined instruction given by a trader to automatically close a position at a specific price level. It is used to secure profits by exiting a trade when the market reaches a desired target price.
• Margin Call: A margin call occurs when a trader’s account no longer has sufficient margin to support open positions due to losses. The broker will issue a margin call, requesting the trader to deposit additional funds to meet the margin requirement. Failure to do so may result in the broker automatically closing some or all of the trader’s positions.

These are just a few of the many terminologies used in forex trading. It’s essential to familiarize yourself with these terms and continuously expand your knowledge as you engage in forex trading.

Is Forex Trading Legal in Kenya?

Yes, forex trading is legal in Kenya. The Capital Markets Authority (CMA) is the regulatory body in Kenya responsible for overseeing and regulating financial markets, including the forex market. The CMA provides guidelines and regulations to ensure investor protection and maintain the integrity of the market.

However, it’s important to note that forex trading in Kenya is subject to certain regulations and requirements. For instance, the CMA requires forex brokers and intermediaries to be licensed and authorized to operate in the country. Forex traders in Kenya should trade with regulated brokers who comply with the CMA’s regulations to ensure the safety of their funds and adherence to legal requirements.

Also, forex traders should comply with tax regulations and report their trading activities to Kenya Revenue Authority (KRA). Tax obligations may vary based on the individual’s trading profits and other applicable tax laws.

How to Start Forex Trading in Kenya

How Much Can You Earn From Forex Trading in Kenya?

The amount of money you can make from trading in Kenya can vary significantly and depend on factors, like your skills, experience, trading strategy, risk management, and market conditions.

Forex trading involves both profits and losses, and there are no guarantees of consistent or substantial earnings. Some traders may experience significant gains, while others may incur losses.

The amount you can earn from forex trading is influenced by factors such as:

• Trading Capital: The size of your trading capital plays a role in potential earnings. With a larger capital, you can potentially take larger positions and potentially earn more profits. However, it’s crucial to manage risk and not overleverage your account.
• Trading Strategy and Skills: Having a well-defined and consistently profitable trading strategy, coupled with strong analytical skills, can increase the likelihood of earning profits. Successful traders often spend time learning and developing their trading skills to make informed decisions.
• Risk Management: Effective risk management is crucial in forex trading. To help protect your capital and minimize potential losses, you will need to implement strategies such as setting stop-loss orders, managing position sizes, and maintaining a disciplined approach.
• Market Conditions: The forex market is influenced by various factors that impact price movements. Market volatility, liquidity, economic news releases, and geopolitical events can all affect trading outcomes. Successful traders adapt to changing market conditions and make informed decisions based on analysis and risk assessment.
• Psychological Factors: Emotional control and discipline are important factors in trading success. Emotional decision-making can lead to impulsive trades and poor risk management. You’ll need to develop psychological resilience and maintain a rational mindset for better trading performance.

Here’s my advice; 

Approach forex trading with realistic expectations. While it is possible to make profits, you should be aware of the risks you are exposed to.

You must invest time in education, practice with demo accounts, and start with smaller amounts before committing significant capital. 

Most importantly, ensure you seek guidance from experienced traders or financial professionals to avoid significant losses.

Common Forex Trading Strategies in Kenya 

A forex trading strategy refers to a systematic approach or a set of rules and guidelines that traders use to make informed decisions about buying or selling currency pairs. It helps traders identify potential entry and exit points, manage risk, and maximize profit potential.

Here are some common forex trading strategies you use in Kenya:

• Trend Following: This strategy aims to identify and capitalize on sustained price movements in a particular direction. Traders using this strategy may use technical indicators like moving averages, trendlines, or the Average Directional Index (ADX) to confirm and follow established trends. They may enter a long position during an uptrend or a short position during a downtrend.
• Range Trading: Range trading involves identifying periods when the price of a currency pair is trading within a specific range or channel. Traders using this strategy aim to buy near the support level and sell near the resistance level. They set buy orders when the price approaches the bottom of the range and sell orders when it reaches the top of the range.
• Breakout Trading: This strategy focuses on identifying price levels where a currency pair breaks out of a defined range or consolidation phase. Traders using this strategy monitor support and resistance levels and wait for a breakout above resistance or below support to enter a trade. Breakout traders aim to capture significant price moves that may occur after a breakout.
• Carry Trading: Carry trading involves taking advantage of interest rate differentials between currencies. Traders using this strategy borrow a currency with a low-interest rate and use the funds to purchase a currency with a higher interest rate. They aim to profit from the interest rate differential while holding the position. However, carry trades also carry the risk of exchange rate fluctuations.
• Scalping: Scalping is a short-term trading strategy where traders aim to make quick profits from small price movements. Scalpers typically enter and exit trades within minutes or even seconds. They rely on technical indicators, such as moving averages or oscillators, to identify short-term price patterns and execute multiple trades throughout the day.
• News Trading: News trading involves taking advantage of market volatility resulting from significant economic or geopolitical news releases. Traders using this strategy closely monitor economic calendars and news announcements to identify opportunities. They aim to capitalize on sudden price movements that occur when new information is released and may use pending orders or quick execution to enter trades.
• Breakout Pullback Continuation: This strategy combines elements of breakout trading and trend following. Traders using this approach wait for a breakout from a consolidation phase and then enter a trade during a pullback or a retracement to the breakout level. They aim to capture the continuation of the trend after the pullback.

No single trading strategy guarantees success and different strategies work better in specific market conditions. You should carefully consider your risk tolerance, trading style, and market analysis techniques before selecting a strategy. You will also need to capitalize on risk management, such as the use of stop-loss orders and position sizing to protect against potential losses.

Risks of Forex Trading in Kenya 

While it is possible to make money with forex trading in Kenya, you will be exposed to many financial risks. 

These include: 

• Market volatility and price fluctuations
• The use of leverage and margin
• Reduced market liquidity 
• Unexpected political risks 
• Counterparty default or insolvency
• Technical risks 

Best Forex Brokers in Kenya

Here are some of the most credible forex brokers in Kenya:

• EGM Securities (FXTM)
• ForexTime (FXTM)
• HotForex
• XM
• FXPesa
• FXPro
• HF Markets
• Scope Markets
• Exness
• AvaTrade
• IG
• Pepperstone
• ThinkMarkets
• Plus500
• OctaFX
• Alpari
• Admiral Markets
• FBS
• Tickmill

Before picking a forex broker in Kenya, make sure you conduct thorough research, compare features, and consider factors such as regulation, customer support, trading platforms, fees, and available trading instruments. 

Also, note that regulatory requirements and the availability of brokers may change over time, so I recommend you verify the latest information from reliable sources before making a decision.

Is Forex Taxed in Kenya?

Forex trading is subject to taxation in Kenya. The tax treatment may depend on various factors, including the classification of the trader and the source of income. 

Here are a few points to consider:

• Individual Traders: If you are an individual trading forex as a personal investment activity, the income generated from forex trading may be considered taxable under Kenya’s Income Tax Act. Profits from forex trading can be classified as either business income or capital gains, depending on the frequency and scale of your trading activities. Business income is subject to income tax rates, while capital gains may have specific tax treatment.
• Business Entities: If you operate as a registered business entity, such as a company, partnership, or sole proprietorship, the income generated from forex trading is generally subject to corporate tax rates in Kenya. The tax treatment will depend on the specific tax laws and regulations applicable to business entities.
• Withholding Tax: In Kenya, certain payments related to forex trading, such as commissions or fees paid to brokers or intermediaries, may be subject to withholding tax. The withholding tax rate can vary depending on the nature of the payment and applicable tax laws.

Generally,  tax laws and regulations can change, and the specific tax treatment may vary based on individual circumstances. I advise that you consult with a qualified tax professional or seek guidance from the Kenya Revenue Authority (KRA) to understand the current tax obligations and requirements related to forex trading in Kenya.

The Bottom Line 

Forex trading can offer opportunities for financial growth and diversification, but it also carries inherent risks. You should educate yourself, develop a trading plan, and adopt prudent risk management strategies.

As you embark on your forex trading journey in Kenya, remember to:

• Stay Informed: Continuously educate yourself about the forex market, economic indicators, and geopolitical events that can influence currency prices. Stay updated with relevant news and analysis to make informed trading decisions.
• Practice Discipline: Develop a trading plan and stick to it. Avoid emotional decision-making and impulsive trading behaviors. Discipline and patience are key to long-term success.
• Manage Risk: Implement risk management tools such as stop-loss orders, proper position sizing, and diversification. This helps protect your trading capital and minimizes potential losses.
• Seek Professional Advice: Consider consulting with qualified tax professionals or financial advisors to ensure compliance with tax regulations and optimize your trading strategies.