Online Forex Trading can be defined as speculation of currencies whereby a person trades on one currency against the other with the anticipation of making profits. One makes profits by buying a currency that gains value in a buy trade and selling a currency that its price drops in a sell trade. Losses occur when the opposite happens.
According to Silah Obegi – An automated Forex trading expert and also Director at Nairobi School of Forex, Online Forex Trading can act as an investment vehicle for creating secondary income for most individuals at the same time it can be the main source of income for those who take it seriously as a full-time job.
“Forex can be compared to the stock/share market and you may equate a currency for a country to a stock for a company, political situation of a country to corporate governance of a company and economic data of a country to financial statements for a company. Using this comparison, the approach to trading Forex is partially the same as shares trading hence a Forex trader can easily become a stock trader and vice versa” says Silah.
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Mr. Silah opines that there are different approaches to trading the Forex Market that one needs to follow, they include:
This is the most favored approach for most traders, it involves analyzing the past and recent currency price trend behavior to predict where the price may move going forward. This trading approach encompasses various individual trading methods to detect trading opportunities.
This kind of approach involves analyzing currency inflows and outflows of a country usually influenced by the Central Bank’s currency decisions, geo-political situation, and economical news and data. When a country has solid monetary policies, stable political situation and positive economic news then its currency is likely to gain value. The opposite is also true.
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This is also referred to as Algorithmic Trading. This involves writing your trading ideas to a computer program called an algorithm used to partially or fully make trading decisions on your behalf. A trader would usually rent a cloud server with a hosting service provider, activate the automated trading systems and let them trade on your behalf. When these systems spot a trading setup, they execute a buy or sell trade and manage the trade according to the set rules until it closes with minimum to no human intervention.
Online Forex Trading is regulated by the Capital Markets Authority under Capital Markets (Online Foreign Exchange Trading) Regulations, 2017. The regulation clearly stipulates the requirements for conducting the Online Forex Trading business in Kenya covering Forex Brokers, Money Managers, and Introducing Brokers. Under the regulation, Forex Brokers are required to maintain a minimum paid up capital of between Sh30 million and Sh50 million while Money Managers are required to maintain a minimum paid up capital of Sh10 million among other requirements.
Before embarking on Forex Trading, one needs a firm grasp of the Forex markets, understand how to do analysis using various approaches and make profitable trading decisions.
The Nairobi School of Forex Trading, for instance, offers value-add services for Online Forex Trading in Kenya including a comprehensive course for both retail and institutional clients. The Forex Trading Course equips beginners with adequate tools and skills necessary to trade in a profitable, consistent and sustainable manner. The directors have a combined experience of over 20 years and they have trained over 100 students in their offices and over 1000 through seminars and hackathons in Nairobi.
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Topics covered include introduction to Forex Trading, local and global Forex regulation, selecting a broker that meets your trading needs, navigating the trading platforms, various trading analysis (technical, fundamental and sentimental), automated trading, money management, risk management and formulating a trading plan among other topics.
“By the time our students complete the course, they already have a full understanding of the Forex markets and know how to make informed and profitable trading decisions. We have also developed over 25 automated trading tools to complement manual trading by our students,” says Silah.
He adds that during the training period, students learn and practice on demo accounts, which allows them to have a feel of the real markets with virtual money. However, there is usually a huge gap when transitioning from demo trading to live trading due to the emotional attachment associated with real money.
To bridge this gap, the school has introduced learning and practicing on Sh50,000 ($500) live accounts powered by Meta Capital Limited and EGM Securities. The practice live accounts are opened with EGM Securities under Meta Capital and the students are given login details to the accounts to practice with.
“This will ensure that our training program becomes as effective as possible and our students know how to trade with real money by the end of the course” added Silah.
Kenya’s capital markets regulator (Capital Markets Authority) estimates that about 50,000 people, including brokers, dealers and money managers, are in the business and are mainly using offshore platforms that are not overseen by Kenyan regulators to offer the service.
Kenyans who have become techno-savvy have increasingly been inclined to take up new products which may, however, open the Kenyan currency to volatility, money laundering or gullible investors become vulnerable to fraud.
In order to streamline online forex in the country, capital markets authority last year stepped up the effort to regulate the industry from unlicensed traders.
CMA boss Paul Muthaura noted that there are several individuals and entities carrying on the business of an online foreign exchange broker or a money manager without the relevant license by the Authority.
“The Authority will also take appropriate enforcement action against any persons or entities illegally conducting online foreign exchange trade or collecting client funds in contravention of the above regulatory provisions,” Muthaura said.