By Dianah N. Igati Advocate of the High Court
The capital markets and the financial markets at large play a significant role in economic growth, not only in Kenya but also in the global platform. Capital markets offer a variety of financial instruments that enable economic agents to pool, price, and exchange risks. Through the high yields, liquidity, and risk characteristics, it encourages investments in financial forms. Additionally,it brings together suppliers and users of medium and long-term capital for investments in development projects.
Traditionally, the capital markets only offered two ways of investments namely; Equities/Stocks and Debts. Notably, through Equities/Stocks, individuals or investors acquire the shares of a company at a given share price whereas through Debts, an individual or investor lends money to a company for a particular period of time at an agreed annual yield and upon maturity, the company refunds the investor the money invested.
In Kenya, the Capital Markets Authority has been mandated to, among other functions, govern and develop the capital markets. As such, over the years, the market has foreseen tremendous growth through the introduction of products such as; Real Estate Investments Trusts (REITS), Asset Backed Securities, Exchange Traded Funds(ETFs), and Online Forex Trading. These products are in addition to the traditional issues of Shares and Bonds to the Public.
So, what is Online Forex Trading? With technological advancement becoming the order of the day within the contemporary society, financial markets have gradually evolved with the aim of fully embracing technology. The introduction of Financial Technology Products, commonly referred to as FinTech has largely impacted financial markets. FinTech enables investors to invest and get value for their money through technology. Though it is not a new concept in Kenya, Online Forex Trading is the most recent approved financial product in Kenya by the Capital Markets Authority through the gazettement of the Online Forex Trading Regulations, 2017.
The Forex market is a decentralized global market where individuals trade currencies. Online Forex tradingconstitutes four times the global GDP with almost $5.3 trillion beingtraded every day in the forex market. Unlike the traditional forex bureaus which required the physical exchange of currencies, Online Forex Trading does not require any physical exchange of the currencies.
Trading happens through an Online Forex Broker who offers a trading platform with the most common platform being the Meta4 Trader platform. Once the trader has opened a trading account and normal KYC and AML checks have been conducted by the broker, the trader deposits his investment amount with a segregated account provided for by the broker.Upon depositing the investment amount, the trader gets the ability to trade online through your laptop or any other electronic gadget. So why engage in online forex trading? Essentially, online forex trading is the act of simultaneously buying one currency while selling another, for example USD/EUR, primarily for purposes of speculation. The common goal of online forex trading is to profit from the changes in value of one currency against another by making calculated decisions on how forex prices are likely to change in the future.
There are a couple of reasons as to why I would recommend one to engage in this form of investment. Ideally, most people engaging in this lucrative form of investment are young people who are often driven by the need to be in control of their finances be it their income or expenditure. Therefore, Online Forex Trading offers an alternative form of investment against the traditional stocks which in most instances, are majorlylong-term investments. Secondly, as an economy, we need to ensure that the large amounts invested in forex circulates within our economy. Lastly, being an approved product, though high risk in nature, it offers an investor with comfort and security. This is due to the fact that, it is not only a lucrative form of investment but also, a safe investment environment as being that, the conduct of the Online Forex Brokers and any other person involved in it is regulated by the Capital Markets Authority.
Recently, the Capital Markets Authority issued its first Online Forex Broker license to Execution Point Limited which has since rebranded to EGM Securities. The company will offer a trading platform which will enable both retail and high net worth investors to trade on their own or through a licensed money manager as provided for in the Regulations.
Even with the launch of this new product, it is only wise to say that an investor has a variety of products to leverage on from the capital markets. Online Forex Trading is a high-risk form of investment and therefore, not of everyone. That being said, there are still a variety of products that you can invest in. If you are interested in such investments, the Authority has licensed investment advisory institutions which will walk with you through this investment journey.