How to Spot a Forex Scam in Kenya: Caution for Investors & Traders

The advent of digital age has come with the advantage of online business opportunities that people can do to survive or complement their jobs. Despite their risky nature, Internet businesses have seen growing interest during pandemic and have improved financial, economic status of many homes in Kenya and other African countries.

Part of these online business opportunities is Investing in financial markets through online apps & brokers. Among which Online Forex trading and other online market trading activities has grown popular during pandemic. Retail Investors & traders trading for the first time have increased significantly since the start of the pandemic, with the people stuck at home & looking for new income streams.

However, it could also be a source of misfortune because there are a lot of scammers who have filled the online space, duping many gullible investors & traders, most especially new traders, promising bountiful and unrealistic returns.

The purpose of this article is to enlighten new online Forex traders in Kenya on how to avoid falling victims.

Online Forex Trading is Legal in Kenya

Online Forex Trading in Kenya is legalized and includes CFDs on underlying foreign assets; it is regulated by Capital Markets Authority (CMA). CMA issues 3 types of licenses to entities offering forex trading services – first one is dealing forex broker (acting as a market maker/counterparty), second is non-dealing forex broker (acting as an intermediary to forex market for commission) and last is money manager (acting as a forex investment portfolio manager for clients).

There are currently six non-dealing Online Forex Brokers in Kenya that are licensed by CMA to offer forex and CFDs. Initially, they were four in number, and 2 were licensed recently. These include EGM Securities which was first to be licensed (EGM also operates the brand FXPesa), Scope Markets, Pepperstone Kenya, Exinity Capital East Africa, HFM Investments Limited (HotForex) and Windsor Markets (Kenya) Limited. Additionally, one company is given money manager license i.e.: Standard Investment Bank (Mansa X).

In Kenya, non-dealing forex broker serves as a link between the Forex market and the trader. The non-dealing broker, in return will get a commission or mark-up spreads charged to the Forex trader. While money manager acts as portfolio manager and invests your money through a dealing or non-dealing broker.

As per CMA rules, the forex broker doesn’t directly engage in trading and market activities. Also, they do not trade on behalf of the clients or offer advice to them. Their duty is to ensure that the traders have access to online trading platforms, which will make them perform their duties anywhere with the use of electronic tools.

As a new investor if you are investing without the help of a money manager, the first step you should do is to check if your Forex broker is permitted or licensed to operate in Kenya through CMA. After which you should compare the brokers because their fees are not the same.

Apart from choosing the right broker; always ensure you match the broker to your budget or minimum deposit and preferred payment method like you might want a forex broker with MPesa option that is a popular payment method.

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So, you are starting out, how would you Spot a Forex Scam?

These are quick questions that you should ask before your put your money with any Forex or Capital Market Investment.

1. Is the Brokerage or Online Dealer Regulated by the CMA?

If you are a new Forex Investor or Trader in Kenya, so as to avoid the possibility of falling victims to scammers, it is highly advisable that you should only choose a forex broker that is regulated by CMA and has a good reputation.

Forex Traders in Kenya must only trade via any of the six licensed non-dealing FX Brokers.

Why should you avoid unlicensed or Fake Brokers? There are now many fake brokers out there who are masquerading as genuine brokers and appear real, but their sinister motive is to dupe the unsuspecting traders. They engage in practices that are harmful to the traders trading through them.

For instance, a greedy forex broker or its owners can use the money that has been deposited by traders for their own selfish interests. They may end up losing such money and may not be unable to return it to the traders.

So, Kenya online traders should always ensure that their brokers are recognized and licensed by the CMA so that they can have legal redressal in case of wrongful practices by a broker.

The regulation provides more accountability to traders. If a broker holds licenses from reputed regulatory authority like CMA, then such a broker may be considered to be reliable.

If you are a new Forex trader in Kenya, please go through the CMA’s List of Licensees to know the brokers that are licensed.

It is not enough to simply accept the claims of a Broker, you should also ask them for proof of their legitimacy. Please, don’t hesitate to contact CMA when you are in doubt.

2. ARE THE RETURNS TOO GOOD TO BE TRUE?

One of the best ways to easily spot or identify a fraudulent Forex broker is that they usually promise mouth-watering or exaggerated returns on small Investments.

For ex. If you see someone promising 10% Returns in 15 days from Forex or any other investment, then you should know that it is most likely a scam.

Forex scammers are always very innovative and come up with creative and appealing ways to take advantage of new traders & general public, who are their main targets. Most of these scammers don’t even invest your money in the markets & are simply Ponzi schemes.

New Forex traders in Kenya should bear it in mind that promises of high and guaranteed returns are big warning sign that the risk of being defrauded is in the offing.

The new traders should note that in Forex market trading, these “guarantees” are nearly impossible to predict due to the fact that the market is extremely volatile.

New traders should be careful of brokers or organizations, individuals that make guarantees of unrealistically high profits.

3. Is the Broker Charging Excessive Fees & Offering Tempting Bonuses?

Another thing a new investor in Kenya should note is that a lot of scam brokers usually charge very high fees.

The normal spread (relative value trade) usually ranges from 1 to 3 Pips for EUR/USD. The traders should be wary of brokers who offer spreads of seven pips as they may be scammers in disguise.

Also, these brokers will try to tempt traders with bonuses, and promises of Rewards to attract you to deposit your funds with them. They could also offer features like Unlimited Leverage.

You should stay away from such brokers. A Regulated broker would never engage in such activities that are not allowed by Regulators.

4. RISK FREE RETURNS?

New Traders joining the Forex market in Kenya and African countries should note that the phrase “Risk Free Return” does not exist in the dictionary of Online trading in Forex & other capital markets.

Traders & Investors should have it mind that the Forex market is volatile and carries high degree of risks. That is why it is advisable to use your spare money for the trading.

About 70-80% of all forex traders lose more money than they gain. This happens because forex markets are extremely unpredictable due to its volatile nature.

There are no proven strategies yet that guarantee that Forex trading is a Risk-Free venture; so, if someone or a group promises you that they have strategies that will always help you make profits in Forex market, then you should beware of them, they are scammers.

5. Is there a Time Pressure to Invest: Limited Period Offer

Online Forex scammers are very aggressive in their appeals and use all forms persuasive skills to woo new and gullible traders.

One of the methods they use are time frame of the purported Investment they are advertising to you. They will tell you that there is a limited period for the “juicy offer” they are bringing to you.

They will make use of appealing means within their power to convince you to spend your money. So, don’t fall victim to the “limited time offer” gimmicks.

6. UNSOLICITED ADVERTISING

One of the gimmicks being used by online Forex scammers is unsolicited advertisement.

Some of them may send you unsolicited e-mail messages; and in most cases requesting for your personal information such as your name, phone number, and home addresses.

They will try to build credibility by claiming to be with a reputable organization or to have a unique credentials or experience.

What to Do If you Have been Scammed?

If you have fallen victim to online Forex fraudsters, quickly contact the Capital Markets Fraud Investigation Unit (CMFIU). The anti-fraud unit was established in 2009.

The establishment was a joint partnership involving the Kenya Police and CMA so as to investigate and take necessary disciplinary actions against suspected scammers.

CMA has a helpline that you can call, and they also have an email on their website.

The Regulatory body regulates Online Forex Brokers in Kenya and Protects investors’ interest. That is why you can report any incident of scam relating to Online Forex Trading to CMA.