The forex market is the largest financial market in the world. In recent years, it has experienced traders emerging from developing countries. The forex market in Africa has surged with more brokers welcoming traders from African countries.
However, a lot of forex trading in these African countries has, for many years, gone unregulated and illegitimate brokers, or scam brokers, have taken many chances at ensnaring unsuspecting traders in elaborate scams.
Forex trading is legal in Kenya and the country has its own regulatory body, the Capital Markets Authority, which oversees brokers based in, and operating from, Kenya itself.
Numerous brokers around the world have the required regulations and authorization to offer their services and solutions to Kenyan traders. These brokers have increased in recent times due to competitiveness present in the industry along with obtaining requisite regulation to offer trading.
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More Kenyan traders have had the opportunity to engage in the forex market. Another factor that has led to an increase in Kenyan traders is that brokers offer live trading accounts from as little as $1.
This means that more Kenyan traders can trade forex from small amounts of capital, allowing them to benefit from the profits which can be made from forex trading.
Due to the number of unregulated brokers who try to entice traders into registering a live trading account and depositing capital, the CMA has cautioned traders investing online.
Furthermore, the CMA has also stated that traders may be at risk of losing legal protection should they deal with unlicensed providers.
As of December 2020, there were only four brokers who are regulated by the CMA namely EGM Securities and its subsidiary FxPesa, SCFM Limited (operating as Scope Markets), and Pepperstone Kenya.
This is part of CMA’s plan to provide a legal framework for online forex trading by making amendments to the Capital Markets Act. According to these proposed amendments, no person or entity may carry out business as an online forex broker unless s/he, or it, has obtained the relevant licence from CMA.
The only entities permitted to engage in foreign currency dealing in Kenya are those licensed under both the Banking Act and the Central Bank of Kenya.
Brokers who are interested in applying for a license with CMA must have a minimum capital of Sh50 million, which must be maintained at all times along with 5 per cent of liabilities owed to forex customers more than Sh50 million.
Along with this, the applicant must ensure that Sh40 million, or 80 per cent, of its capital, or whichever is the highest, is in the form of cash as well as cash equivalents in financial instruments at all times.
Applicants, subsequently licencees, must hire a chief executive who is fit to serve in the position. Besides, the chief executive must have experience of no less than five years in the business of buying, selling, or dealing in forex, forex futures, or futures contracts.
Applicants who operate as a subsidiary, or a branch, of a regulated foreign forex firm, are required to provide proof of the existing relationship.. Forex firms who are regulated in other jurisdictions must provide the appropriate letters from regulators - confirming both the licensing and good standing.
The legal framework for online forex trading will ensure potential traders are provided with a safer trading environment. It will also allow diversification of financial activities and strengthen Kenya’s position as a financial hub.
The CMA has imposed a limit on the amount of leverage that licensed brokers may offer to Kenyan traders. Leverage should not exceed ten times the deposit of the client for trading in forex pairs between the Kenya shilling, any hard currency, or any other Eastern African Community currency.
In the case where two hard currencies are traded, leverage must be capped at 20 times the deposit amount of the trader.