• More people are becoming aware of the potential benefits and risks of forex trading
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In February 2019, the Kenya shilling was trading at an average of Sh100 to the dollar. Five years later in the same month, Kenya's currency was trading at an official average price of Sh157 to the dollar.
Someone who bought US dollars in early 2019 could have sold them off in February 2024 at a profit of Sh57 for each dollar. Sounds cool, right? If you had Sh1 million worth of dollars bought at Sh100 each in February 2019, your holdings would be worth Sh1.57 million exactly five years later.
By mid-February 2024, the Kenya shilling had strengthened against the US dollar, closing at an average price of Sh145 to the dollar on February 16. Social media reports indicated that some forex bureaus were buying US dollars from the public at rates below Sh140.
For someone who bought the dollars at 2019 prices, the profit per dollar suddenly dropped from Sh57 to less than Sh40 in just a few days. Ministry of Finance officials were happy with the strengthening of the shilling.
"This is very good news,” Dr Chris Kiptoo, Principal Secretary in the National Treasury, said. “Sell your dollars and get back to business. Don't do any speculation anymore," he advised.
There’s no telling whether the Kenya shilling will sustain its rising fortunes or if it's a short-lived spike in value. Either way, the saga highlights the biggest drawback to holding foreign exchange (forex) as a form of investment. The potential gains can be huge, but exchange rates fluctuate so rapidly that those gains might vanish in hours.
Lots of people in Kenya have shown an interest in forex trading, not only because it can be profitable but also because there are plenty of online platforms facilitating the business.
"More people are becoming aware of the potential benefits and risks associated with forex trading," David Manzi of FX Champions, a forex education and training portal, says.
Speaking while launching the firm's forex trading office, Manzi said financial education has increased in Kenya, which has empowered individuals to explore alternative investment opportunities, such as forex trading.
Like any other type of investment, forex trading has pitfalls to watch out for.
1. Beware of fraudsters: The Commodity Futures Trading Commission warns of deals claiming to provide high returns on investment at low risk. Anything that promises quick riches is likely to be a fraud. High-pressure tactics aimed at convincing you to send or transfer cash immediately are a red flag.
2. No guaranteed returns: Forex trading software programmes, seminars and courses are available for prospective investors, but it is very hard for anybody to predict the movements of foreign currencies. Forex investments remain risky even when purchased through the most reputable of dealers. Only invest what you can afford to lose.
3. Disruptions: Trading delays can severely affect results. You may not be able to buy or sell forex whenever you wish because of a lack of liquidity in the market or problems with computer systems. This poses a significant risk because exchange rates fluctuate over very short periods.