Forex Trading in Kenya – The Basics
If you are thinking about earning money without the usual hassles involved in running a business, try Forex trading. In Forex trading, transactions costs are significantly lower. There is no fixed lot size, no middlemen to use, and no commissions to pay.
Before actually investing your money in forex trading, here are the basics you need to know in relation to Forex trading in Kenya.
The Exchange Rate
Forex trading transactions, especially in international markets, involve the use of the US Dollars. It means that, in order to trade, you will have to change your money to its equivalent value in US Dollars. The value will depend on the current exchange rate between the dollar and the Kenyan shilling.
- Example: As of this writing, the US Dollar (USD) – Kenyan Shilling (KES) rate is 1.0000:103.3000. By simple math, 10,000 USD is equivalent to 1,033,000 KES.
When you start trading, you will have to monitor changes in the exchange rate, not only between the shilling and the US dollar. Just in case you will turn your eyes to other markets, you will have to check the exchange rate between the shilling and currencies involved in those markets, such as the EURO, the Japanese Yen, etc, as well.
Currency Value Fluctuations
With some tools of their own, market analysts can determine within the current trading day the value of a country’s exports on which the value of its currency depends. The more in demand a country’s export products are, the higher the products’ prices and the higher the value of its currency become.
Currency values fluctuate on a daily basis. The ratio mentioned above will change as early as the next day. It hardly happens that it doesn’t change within this time period.
Currency value fluctuations are an integral matter in forex trading. In the above ratio example, if the next day, the ratio changes to 1:104.0000, it means the dollar acquired a new value against the Kenyan shilling, which means further that you need to produce 104 shillings to buy 1 dollar.
This is also saying that the shilling has gotten weaker against the US Dollar. If the ratio has become 1:102.0000, then you can say that the shilling has become stronger against the dollar. When investing your money, you would want that the shilling will grow stronger over the period of the investment, because that means profits rather than losses. So, pray for 101, 100, 099, and so on.
How to Calculate Your Profit
The ideal situation for you to earn money is to see that second number decreasing over the period of your investment. Continuing the example above, and given an assumption that the ratio becomes 1:99.0000 after six months, you must have already earned a profit because the shilling became stronger over the period.
Here’s how to determine your profit.
- At this point, you currently have $10,000 + profit. Subtract 103.3000 and 99.0000. That will be 4.3000, which goes to say that for every dollar invested, the gain is 4.3000 shillings. Multiply this by 10000, which is your initial investment. You will have 43000 shillings for your profit.
The money you have in the forex trading broker you are dealing with now amounts to 1,033,000 + 43,000 = 1, 076,000. In USD and based on the current rate, that’s equal to 1,076,000 divided by 99 = 10,868.69 USD. A profit of 868.69 USD over a six-month period has been made in this simple illustration.
Broker Leverage and Pips
Most potential clients don’t have that kind of money to start with. The solution is with hiring a broker, who usually has good things to say to attract new traders.
Your broker will most likely talk about a “leverage” offer. With the “leverage” offer, he will allow you to trade a high amount of money even though your deposit is only a small amount, say for example $100. For a 1:300 leverage offer, the broker will allow you to trade an amount as high as $30,000 with only your $100 as a deposit.
The broker will allow this kind of trading because he wants you to earn more money in a short period of time and because the market movement is usually very slow. With that kind of movement, winning and losing big amounts over a short period of time is usually a remote possibility.
Say, for example, you bought $100 with your shilling money, and deposit that money with your broker, and the broker allows you to trade $10,000 against the EURO.
Now, a $1 movement in the market on a $10,000 trade between the EURO and the Dollar is called a pip. The $100 you earn is also referred to in the industry as 100 pips. If the $100 profit was gained over a period of two days, your broker knows that he would have lost the same amount of money over the same period.
In the worst-case scenario, he would have lost the total deposit and would be obliged to close the deal to prevent further losses. A good broker knows when is the right time to stop to protect his client’s deposit.
How does the broker earn money?
This is related to the “spread”, which is the difference between the buy and sell prices of currency pairs. Spreads are typically low, because they are actually the fees a trader pays brokers for their services, and because there are so many brokers trying to attract potential clients with lower charges.
In the above example, where you gained $100, on a $10,000 EURO-Dollar trade, typically the spread is 3 pips or 3 dollars. This is because the actual movement that the market made is 103 pips. One hundred pips goes to you and the remaining 3 pips goes to your broker. If the trade amount was higher, like $100,000, the earnings will be ten times the base values. You earn 1000 and your trader earns 30 pips.
Forex Brokers in Kenya
It is easy to open an account with international brokers. You can open an account in just five minutes. Deposits, withdrawals, and payments can be easily done online. Paysafecard, Cash U, Webmoney, Neteller, and Skrill are some of the most reliable money processors you can use. Bank transfers are also recommended.
The Forex broker that we recommend is AvaTrade. You can access their official website here.
They have good money processing methods, offer high leverage, require low minimum deposits and allow mobile trading. When you begin trading, you will need a lot of training and coaching. These Forex brokers are some of the best we have when it comes to educating clients. That’s what you need to start off on the right footing.