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To easily explain how forex trading works we will give you a simple example. Let's consider that you bought 10,000 US Dollars in January 2015 at the rate of 90.75 Kenyan Shillings for one dollar. You paid a total of 907,500 Kenyan Shillings (KES). After holding the US Dollars (USD) for six months you decided to sell them in July 2015 at the rate of 100 KES per USD. You would have gotten exactly 1 Million Shillings and made a profit of 92,500 Shillings in six months, since you bought the dollars cheaper than you sold them.
This is how you make money by trading currencies. In the above example you probably saw that you needed 10,000 dollars to make a profit of about 1,000 in six month. That's a lot of money and a lot of time, but don't worry, there are ways to overcome this issues very easy.
Trading forex is done through a forex broker. The broker is a specialized company that creates the perfect environment for traders to take advantage of the currency fluctuations in no time. Opening an account with a forex broker will allow you to trade on the international forex markets with huge amounts of money and make profits much faster. How is that possible? Through leverage.
Forex brokers offer leverage in order to allow their clients to trade high amounts of money. A broker that gives you a leverage of 1:200 allows you to trade 200 dollars for every dollar you have on your account. If you make a deposit of 100 USD you are able to trade worth of 20,000 USD because of the leverage effect. Why is the broker allowing this? Because he knows currency markets move very slow, and in order to be able to make significant profits in short intervals of time you need to trade with lots of money.
Here is another example to explain why the broker gives you leverage. Let's consider the currency pair EUR/USD, the most traded currency pair in the world. At the time of writing this article, the rate for EUR/USD is 1.1031 which means that one Euro costs 1.1031 US Dollars. In order to buy 10,000 Euros you need to pay 11,031 US Dollars. Let's say a trader buys 10,000 Euros through his forex broker at the above mentioned rate, and two days later sells them at 1.1131 (a difference of 100 pips which means a movement of only 0.9% which happens frequently in a two days period). Our trader would make a profit of exactly 100 USD with this trade (notice that for the EUR/USD currency pair, one pip equals one dollar when trading 10,000 - the 'pip' is the fourth decimal of the rate). Since he made a profit of $100 in two days the broker knows that his risk is also limited in a two days period, and even if he loses he can't lose too much. If the trade would have gone the wrong way in the same amount, he would lose $100 only. This is why the broker is willing to allow the trader to buy 10,000 Euros while depositing only 100 dollars. In the worst case scenario when the trade goes bad and the loss gets to 100 dollars the broker will automatically close the trade and limit the loss to the total deposit.
To make a long story short, leverage is given by the brokers in order to help traders make bigger winnings at the risk of higher losses in shorter times. That means, trading more. The more you trade, the better it is for the broker, because of the so called 'spread', which is the difference between the buy and sell price of each currency pair. The best part is that forex spread are very low because competition among forex brokers pushed them to lower the spreads to be more attractive to clients. A typical spread for EUR/USD is 3 pips, which means the broker charges only 3 dollars for a trade worth 10,000 Euros. In the above example when our trader won $100, the market moved 103 points for our trader to make a profit of 100 dollars and the broker a profit of 3 dollars (this is because of the 3 pips difference between the buying and selling price).
Unfortunately there are no reliable forex brokers in Kenya right now, so the only option Kenyan traders have to profit from the forex market is to use an offshore broker (a broker from a foreign country). Luckily for us, there are many international brokers that accept traders from Kenya and where you can easily deposit and withdraw money. You can open an account online in less than five minutes and deposit money with your debit card or other online payment methods such as Skrill, Neteller, Webmoney, Cash U, Paysafecard and many more. Of course, you can also deposit with bank transfers if you want to make larger deposits or withdrawals.
After checking the largest forex brokers in the world I have selected the ones that are most friendly with Kenyans and have the best trading conditions as well as the most accessible deposit and withdrawal methods.
The best forex brokers for Kenyans are:
All of them offer high leverage. mobile trading, low minimum deposits and very advanced trading platforms. They also have plenty of educational material to learn more about trading forex and how to make money trading forex online.