Sila Obegi has witnessed the figures in his account drop extensively more than several times since he started trading currencies. Yet he refused to quit the high-risk, high-reward foreign-exchange business.
Obegi, who graduated with a bachelor’s degree in business management from Moi University in 2013, began trading online currencies while in his third year at the university.
Without any clear knowledge of how to go about the trade, he tossed himself into the business because he had heard people say that online forex trading is rewarding. But he would later learn that the reward doesn’t come easy, especially if one is a novice trader.
“I made quite some losses as a new entrant. However, with time I picked the trick and this is what I have been relying on for the last six years,” explained Obegi, who later teamed up with three friends to start the Nairobi School of Forex to train people on online forex trading.
The business basically involves taking a position with regard to a particular currency and trading it through the internet, with the aim of buying low and selling high.
Though not new across the world, online forex trading is still quite new in the country. And like many online businesses, it is a slowly and steadily spreading investment platform among the savvy internet users, especially the youth.
Many people in the country, however, shy away from it, claiming it is some sort of scam.
But Obegi, automated forex trading specialist and a director at Nairobi School of Forex, disagrees, saying that the trade has been around for close to two decades and that it is also regulated.
While forex trade is not a scam, it has been associated with a number of scams, especially in countries where there are no regulations, the expert said. As with any new industry, plenty of predators exist out there, looking to take advantage of newcomers, he added.
When forex trading first became available to retail traders in 1999, it was quite wrought with overnight brokers who seemed to pop up before closing down shops without notice.
“The business is genuine, just like the stock market, but traders have lost money by investing through unregulated brokers who at the end of the day disappear with their monies,” Mr Obegi explained.
Until last year for instance, Kenya did not have its own licensed online forex broker, leaving local forex traders at the mercy of foreign brokerage firms.
The Capital Markets Authority (CMA), the capital market regulators, recently licensed EGM securities, making it the first and so far the only licensed online forex broker in the country.
Eugene Abungana, a forex trading strategist, says the licensing of local brokers will not only spur more investment in the business but will also guarantee local investors some investment security.
“It is advisable that before you invest in forex trading, you find a good broker. This includes knowing who is regulating your broker so that in case of any disputes you can report to the regulator to help you recover your money,” noted Mr Abungana, who urged Kenyans to trade with local brokers.
He noted that like the stock market, the more people invest in online forex trading the more vibrant and profitable it becomes.
Forex is so far the biggest financial market in the world, with about $6 trillion changing hands on an average day. While it is dominated by big banks, corporations and private investment funds, the retail segment is the fastest-growing, according to Bank for International Settlements.
The 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.
Mr Abungana, however, pointed out that because the business is not for the faint-hearted, since it is highly volatile and also requires a lot of caution and knowledge about the market.
“The trade is quite prone to risks since it is influenced by factors such as geopolitics which can result in fluctuations. Basically, over 90 per cent of general forex traders, both new and old, lose 90 percent of their capital within the first 90 days due to lack of the right education,” explains Mr Abungana, adding that one needs to have some training to be a successful trader.
In this kind of trade one could lose or make money in a blink, he noted.
He adds that trainings or mentorships are important for anyone who wants to enter the business since learning through losing money is a terrible experience. The training lasts about a month.
He further advises that one can engage in forex trading as a real business and make real profits, but it must be treated just like any other business.
Mr Abungana, who is also a forex trader, explained he began the trade while a student at Kenyatta University.
“During our time, online academic writing was very popular and was quite paying. But I later switched from online writing to forex trading after I was introduced by a friend,” explained Mr Abungana, who has a degree in commerce and finance.
Before qualifying to become a trader, one needs to open an account with a regulated brokerage firm, the broker will then provide you with a mobile application which you will use to access the market. You will then need to deposit at least Sh10,000 to begin trading.
“Don't look at forex trading as a get-rich-overnight business. It calls for a lot of patience,” he advised, “don’t risk more than two per cent of your portfolio at any one time. Trade with a small risk, target small returns at the beginning and you will survive for long.”
The app enables you to analyse the market, and it can also make sales for you even while you are asleep, the experts explained.
If, for instance, you bought $1,000 in May 2018 at the rate of Sh98.77 for one dollar, you paid a total of Sh98,770. If you decided to sell them in November 2018 at the rate of Sh102.80 per dollar, you would have a made a profit of Sh4,030.
Unlike a manual foreign transaction, which involves exchanging a local currency against another while in a foreign country, for instance, online forex is purely for business purposes.
“You can begin with Sh10,000, but you need to spend at least two hours daily on the app to analyse the market,” noted Mr Abungana.
Kevin Ng’ang’a, chief executive of EGM Securities, advises newcomers to start by using a demo account. Using a demonstration account helps new entrants to learn how to make baby steps before they begin the actual trading.
EGM Securities, the only licensed forex brokers in the country so far, is a non-dealing forex broker, meaning they provide local forex traders with a local platform that they can use to interact with the global forex market.
“Also specialise in one currency pair,” Mr Ng’ang’a further advised.