Fast Internet drives boom in illegal private forex trading

• Some dealers have opened personal dealing bureaux where they hire university graduates to oversee the trading
• Also lured by the flourishing business are bank employees not directly attached to Treasury
• Central Bank of Kenya Governor Prof Njuguna Ndung’u terms the private dealing a criminal activity
• Neither the Central Bank nor the Kenya Revenue Authority seem to be aware of the flourishing private forex dealing
• Trading accounts are opened with no minimum balance requirement

“The Central Bank of Kenya is not aware of any fraudulent forex dealings by employees of commercial banks or other individuals. We would appreciate receiving the details of the cases in question to enable us to undertake relevant investigations and proactive action to uphold market integrity,” the governor said, adding, “Any cases of individuals dealing in forex without Central Bank authorisation should be reported to Banking Fraud Investigations Department for appropriate action.”

The leading trading sites include www.oanda.com and www.AvaFx.com.

In Nairobi, the majority of forex training colleges are based on Upperhill and Moi Avenue. According to Gilbert Kimari, a trainer and trader at Genius Forex Ltd, one cannot be successful in forex trading without training in how to reduce the risk of making losses.

To open an account with these online brokers, applicants must demonstrate that they are “intermediately experienced” investors, albeit not necessarily in forex.

This may entail disclosure of one’s investment history supported by trading statements.

In addition, the applicant must demonstrate an understanding of the risks involved in the business.

Trading accounts are opened with no minimum balance requirement.

“Despite the fact that currency trading is inherently an activity for central and private sector banks, non-banking international corporations and hedge funds, technological innovations have made it feasible for individual investors to monitor currency markets and to trade via intermediaries,” Gerald Ndung’u, a chief dealer at Invest Dealers Ltd said.

Bank dealers attribute the pull of currency dealing for private investors to the 24-hour trading, five days a week with continuous access to global dealers, an enormous liquid market making it easy to exchange most currencies, volatile markets offering profit opportunities and recognised instruments for controlling risk exposure.

Other factors that have catalysed the process include the leveraged trading with low margin requirements and zero dealing commission-principle.

Today, more than $1.5 trillion exchange hands daily across the world.

“When I first heard about it, I thought it was a fraud, but currency trading can achieve such high gains. It is important though to understand that leverage magnifies both gains and losses and it is easy to lose a substantial amount of money within a very short period. Nevertheless there are strategies to protect ones profits and minimise losses,” a dealer based in Westlands told The EastAfrican.

“In order to limit risk, a trader should routinely monitor positions against the market and should run risk-control safeguards against each open position,” says Shani Shamah, the author of Foreign Exchange Primer, adding: “The success of an institution trading in the foreign exchange market depends critically on how well it assesses, prices, and manages risk, and on its ability to limit losses from particular transactions and to keep its overall exposure controlled.”