Is Kenya’s retail FX trading industry ready for its next disruption?

By Steve UMIDHA

The proliferation of affordable and fast internet across the country as well as enhanced regulations, are pushing more Kenyans to crypto and forex trading, industry experts now reveal.

In fact, some are now convinced that online forex trading, which has been on the rise since Covid-19 pandemic hit, will experience exponential growth much sooner as more players flock the market, helped by fast grasping of FX transactions by Kenyan youth.

“Yes the challenges exist but you cannot deny the advantages FX trading offers today. It is not like any other business that would require licenses to commence trading, and that flexibility and existence of various platforms to trade will play a key role in that boom that will happen sooner rather than later,” offered William Otiso – an independent analyst in Cryptocurrency trade.

John Kirimi, also an independent industry expert, formerly with Sterling Capital, agrees, but believes that – that growth will only happen if industry authorities cultivate literacy and awareness programs to accommodate the rising interest in FX trading.

“There has been an improved understanding of this trade for a while now and institutions like the NSE have played a big part in highlighting it, but I believe CMA, who is the regulator, has the capacity to offer awareness to the masses,” notes Kirimi.

User base in FX trading is estimated to have grown by over 100,000 active traders in the post establishment of the regulatory framework in Kenya by the Capital Markets Authority (CMA) the regulator, generating an estimated daily forex volume of around $192 Million USD in 2019.

“I would actually bet on the growth of the legislative structure in this country and the level of literacy which is different from other markets we have been in. Good education background made it easier to train the workforce we needed for this trade,” disclosed Moonika Jurgenfeldt, Equiti Group’s Chief Revenue Officer for Africa – a firm operating trading platform FX Pesa, which is powered by EGM Securities.

FXPesa became the first CMA – licensed Kenyan broker to offer Forex and CFD products for the retail market in East Africa, and is currently the sector’s market leader despite more retail and professional traders inflowing the market, according to CBK figures.

Forex trading is basically the process of speculating on currency prices to potentially make a profit. Currencies are traded in pairs, so by exchanging one currency for another, a trader is speculating on whether one currency will rise or fall in value against the other.

Growth rates, not just locally, were more pronounced in developing countries, with traders’ accounts from Africa, Eastern Europe, and Southeast Asia making up about 60 percent of new accounts. In 2020 alone, FX trading witnessed an increase of 300 percent growth globally during the pandemic.

“We are seeing young people from the age of 25 years and above taking interest in FX trading since we announced the program,” in an interview, attributing the rise in FX trading by the firm to financial literacy program the company launched two years ago.

The sector’s growth prediction comes on the backdrop of CBK’s warning in 2019 against dealing with unlicensed and unregulated online forex brokers, arguing that the unlicensed brokers lack adequate money laundering and consumer protection safeguards.

This is after it emerged that some foreign brokerages operating in Kenya offer their services through mobile applications downloaded on various App stores and partake in aggressive marketing through spam emails, and social media.

South Africa and Nigeria are currently Africa’s largest markets. Kenya, Botswana, Namibia, Rwanda, and Tanzania markets are expanding steadily. The entire number of forex traders in Africa is estimated to be around 1.3 million, with South Africa and Nigeria accounting for the vast majority.