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CMA demands online forex traders be more upfront about risks

Brian Murimi by Brian Murimi
September 21, 2023
in News
Reading Time: 2 mins read

The Capital Markets Authority is directing online foreign exchange brokers to implement new measures to protect investors from the risks of trading complex financial products like contracts for differences (CFDs), according to a press release Thursday.

CFDs allow traders to bet on asset price movements without owning the underlying assets. But the leveraged derivatives can lead to rapid losses if prices move against the trader.

Read more: Kenya’s public sector fails to meet 5 percent quota for persons with disabilities

To mitigate risks and losses, the regulator is collaborating with licensed brokers on enhanced disclosure requirements and transparency standards.

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“In an effort to foster and deepen growth in the online forex trading industry, CMA has facilitated setting up of a Technical Working Group comprising of the licensed online foreign trading brokers as well as other stakeholders including peer regulators to assess the state of the market and propose recommendations to mitigate the challenges faced by investors, traders and licensed players,” said CMA Chief Executive Wyckliffe Shamiah in the release.

The CMA has so far licensed nine non-dealing online foreign exchange brokers and two money managers to operate in the country. Shamiah said continued collaboration with the Central Bank of Kenya and other regulators is key to protecting Kenyans from unlicensed or fraudulent brokers.

Read more: CMA approves first Islamic bond to finance housing developments

The non-dealing online foreign exchange brokers are EGM Securities Limited (Trading as “FX Pesa”); SCFM Limited (Trading as “Scope Markets”); Pepperstone Markets Kenya Limited; Exinity Capital East Africa Limited; HFM Investments Limited (Trading as “HF Markets”); Windsor Markets Kenya Limited; Tadenex Limited (Trading as Exness); Ingot Africa Limited; Admirals KE Limited. The money managers are Standard Investment Bank (Trading as “MANSA X”) and Trade Sense Limited.

The new guidelines from the CMA aim to boost transparency and ensure “integrity in CFD products to deliver satisfactory outcomes for all stakeholders,” the release stated. Specifically, enhanced disclosure mechanisms will provide investors with clearer information on the risks associated with CFDs and leverage.

With better disclosures and education, the CMA aims to ensure consumers understand the risks involved with betting on volatile asset prices through CFDs. While the leveraged products provide opportunities, they can also lead to rapid, outsized losses if used improperly.

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Brian Murimi

Brian Murimi

Brian Murimi is a journalist with major interests in covering tech, corporates, startups and business news. When he's not writing, you can find him gaming, watching football or sipping a nice cup of tea. Send tips via bireri@thesharpdaily.com

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