L. Trading and investing (ways 119–126): forex, Deriv, crypto, NSE, T-bills and MMFs, an honest guide
Forex, Deriv and crypto trading are some of the most searched "online money" topics in Kenya, and some of the most dangerous. Social media is full of young people showing cars and screenshots of profits, selling "signals" and "mentorship". Behind the scenes, most retail traders lose money, and many lose savings, school fees and loans. This unit explains what trading really is, how forex and Deriv products work, how to practise safely, how to recognise scams, and the safer ways Kenyans grow money: Treasury bills, money market funds and shares.
Trading vs investing
| Trading | Investing | |
|---|---|---|
| Time | Minutes to weeks | Months to decades |
| Goal | Profit from short price moves | Grow wealth through interest, dividends, business growth |
| Risk | High (especially with leverage) | Lower to moderate (depends on product) |
| Skill and stress | Very high | Lower; consistency matters most |
| Examples | Forex, synthetic indices, crypto day trading | T-bills, bonds, money market funds, shares held long term, SACCO savings |
For most people, investing is how wealth is built. Trading is optional, and only after you have an emergency fund and income from work.
119. Forex trading
What it is. Speculating on exchange rates between currencies (e.g. EUR/USD, GBP/USD, USD/JPY), usually through CFDs (contracts for difference) offered by online brokers. You don't own currency; you bet on price direction, with leverage.
Key terms explained:
| Term | Meaning |
|---|---|
| Currency pair | EUR/USD = 1.0850 means 1 euro costs 1.0850 US dollars. First is the base, second the quote currency. |
| Buy (long) / Sell (short) | Buy if you think the price will rise; sell if you think it will fall. |
| Pip | The standard small price step: 0.0001 for most pairs (0.01 for JPY pairs). EUR/USD moving from 1.0850 to 1.0870 = 20 pips. |
| Lot size | Standard lot = 100,000 units; mini = 10,000; micro = 1,000 (0.01 lots). On EUR/USD a micro lot is worth about $0.10 per pip. |
| Spread | The difference between buy and sell prices: the broker's built-in cost. You start every trade slightly negative. |
| Leverage | Borrowed exposure. 1:100 means $100 controls $10,000. It multiplies losses as much as profits. |
| Margin | Money locked to keep a leveraged trade open. If losses eat it, the broker closes your trades (margin call / stop out). |
| Stop loss | An order that closes a losing trade at a set price to limit the loss. |
| Take profit | An order that closes a winning trade at a set price. |
| Swap | Overnight fee or credit for holding positions. |
A worked example of risk control:
- Account: $200. Rule: risk at most 1% per trade = $2.
- Trade idea on EUR/USD with a stop loss 20 pips away.
- With a micro lot (0.01), each pip ≈ $0.10, so 20 pips ≈ $2. Correct size: 0.01 lots.
- A beginner using 0.10 lots would risk about $20 on the same trade: 10% of the account. Ten losses in a row (which happens) would wipe out the account.
How to learn responsibly, step by step:
- Learn the basics from free, reputable education (broker academies, BabyPips' free school of pipsology, CMA investor education materials).
- Choose only a CMA-licensed broker if you trade from Kenya: check the Capital Markets Authority's list of licensed online foreign exchange brokers at cma.or.ke. Licensed brokers must follow rules on client money and conduct, and give you a regulator to complain to.
- Open a demo account (virtual money) and trade for at least 3 months with a written plan.
- Keep a trading journal: date, pair, reason, entry, stop loss, take profit, result, emotions. Review weekly.
- Measure honestly: after 100+ demo trades, are you profitable after spreads and costs? Most people aren't, and that's important information.
- If you go live: start tiny, always use a stop loss, risk 1% or less per trade, never add money to "win back" losses.
Think about it: A friend turned KSh 5,000 into KSh 60,000 in one week of forex trading. Does that prove they're skilled?Show answer
No. Huge short-term gains usually come from very high leverage and risk, which also means the next few trades can lose everything. One good week says almost nothing about skill. What matters is consistent results over hundreds of trades with controlled risk, and very few retail traders achieve that.
120. Deriv: synthetic indices, options and multipliers
What it is. Deriv is an online broker very popular in Kenya, known for synthetic indices (such as "Volatility 75", "Boom and Crash", "Step Index") as well as forex, options and multipliers.
What you must understand:
- Synthetic indices are not real markets. Deriv describes them as simulated markets whose prices are generated by a random number generator. There is no economy, company or news behind them. You are trading a product created by the company you are trading against.
- They run 24/7, which makes over-trading and chasing losses easier.
- Options and "rise/fall"-style contracts with short durations behave much like bets: you pay a stake and either win a fixed payout or lose the stake. Over many trades, payouts are set so the platform has an edge.
- Regulation: check whether any broker you use is licensed by the CMA in Kenya. Brokers licensed only offshore give Kenyan clients little local protection if something goes wrong. Check the CMA list yourself before opening any account.
- Deposits and withdrawals through unofficial "payment agents" and peer-to-peer arrangements carry extra risk of fraud; never send money to individuals promising to "fund your account" or "trade for you".
Honest view. Synthetic index and short-term options trading attract many young Kenyans because they're always open and move fast, and that's exactly what makes losses quick. If you choose to learn, use demo only for a long time, set strict limits, and treat any money you put in as money you're prepared to lose completely.
121. Crypto trading
What it is. Buying and selling cryptocurrencies (Bitcoin, Ethereum, USDT and thousands of others) on exchanges, hoping prices rise (or using leveraged futures).
Risks:
- Extreme volatility: prices can fall 50% or more; small coins can go to zero.
- Scams everywhere: fake exchanges, "investment" platforms, pump-and-dump coins, fake celebrity giveaways, romance scams that end in "crypto investment".
- Exchange failures: exchanges have collapsed and frozen customer funds (FTX in 2022 is a famous example).
- Regulation in Kenya is developing: Kenya has been creating a licensing framework for virtual asset service providers, and the Central Bank of Kenya has repeatedly warned the public about crypto risks. Check the current law and tax rules (crypto taxation in Kenya has changed several times; see KRA).
If you choose to learn:
- Learn what blockchain, wallets, private keys and seed phrases are. Never share your seed phrase; anyone with it can take your coins.
- Use well-known exchanges, enable two-factor authentication, and start with tiny amounts.
- Avoid leverage (futures) as a beginner.
- Ignore "guaranteed daily returns" platforms: they're scams.
122. Investing in NSE shares
What it is. Buying shares of companies listed on the Nairobi Securities Exchange (NSE) (e.g. telecoms, banks, manufacturers), owning a small part of the company. You can earn from dividends and price growth over time.
How to start:
- Open a CDS account (Central Depository System, run by CDSC) through a licensed stockbroker or investment bank; many offer mobile apps. Check licensed firms on the CMA website.
- Learn the basics: what a company does, profits, dividends, price-to-earnings ratio, diversification.
- Invest small amounts regularly in solid companies or funds; think in years, not days.
- Reinvest dividends; review annually.
Risks. Share prices can fall for long periods; don't put all your money in one company.
123. Treasury bills and bonds
What it is. Lending money to the Government of Kenya:
- Treasury bills (T-bills): short-term, 91, 182 or 364 days.
- Treasury bonds: longer-term (2 to 30 years), paying interest (coupons) usually twice a year; some infrastructure bonds have had tax-exempt interest.
How to start: the Central Bank of Kenya's DhowCSD platform (via the CBK website and app) lets individuals open an account and bid for T-bills and bonds directly; minimum investment amounts apply (check CBK's current terms). Banks and brokers can also help.
Why consider it. Considered among the lowest-risk investments in Kenya in local currency terms (government-backed), with predictable returns. Rates change with each auction.
124. Money market funds (MMFs)
What it is. Collective investment schemes (unit trusts) that pool money from many people and invest in short-term, low-risk instruments (T-bills, bank deposits, commercial paper). Interest is typically calculated daily.
How to start:
- Choose a fund managed by a CMA-licensed fund manager (check the CMA website); compare published yields, fees and withdrawal times.
- Open an account (often online or via app with ID and KRA PIN), deposit via M-Pesa or bank.
- Use it for your emergency fund and short-term savings goals.
Notes. Returns aren't guaranteed and change over time; interest is subject to withholding tax; avoid "funds" not regulated by the CMA.
125. Copy trading
What it is. Automatically copying another trader's trades on a platform.
Risks. Past performance doesn't predict the future; top traders on leaderboards often took huge risks; you still lose your money if they lose; some "copy trading" offers are scams run through Telegram. If you try it, use regulated platforms, small amounts and check the trader's long-term drawdowns (biggest losses), not just recent profits.
126. Introducing broker / trading affiliate (with ethics)
What it is. Earning commissions for referring clients to brokers (as an "IB" or affiliate), often per trade the client makes.
Ethical and legal issues:
- Your income grows when your referrals trade more, and most retail traders lose money, so this model can profit from your followers' losses.
- Promoting unlicensed brokers or "investment schemes" to Kenyans can break CMA rules; the CMA has warned the public about unlicensed online forex activity and promoters.
- If you work in this area, promote only licensed brokers, show risk warnings clearly, never promise profits, and never "manage" other people's money without a licence.
The safe money ladder (what to do first)
- Income first: build a skill and earn from work (the rest of this subject).
- Emergency fund: 3–6 months of expenses in a money market fund or savings account.
- Clear high-interest debts (mobile loans, overdue credit).
- Long-term investing: T-bills/bonds, MMFs, diversified shares, SACCO savings, pension (e.g. a registered personal pension scheme).
- Only then, if at all, small "learning money" for trading, never more than you can lose.
Scam patterns to recognise
| Scam | How it works |
|---|---|
| "Account management" | You send money to someone who "trades for you" with guaranteed returns. They disappear or pay early "profits" from new victims' money (Ponzi). |
| Signal and mentorship groups | Sell "VIP signals" and expensive classes using fake profit screenshots; profit comes from selling to you. |
| Fake brokers and apps | Professional-looking platforms where deposits are easy but withdrawals are "blocked" until you pay "taxes" or "fees". |
| Recovery scams | After you lose money, someone offers to "recover" it for a fee. Second scam. |
| Pyramid "investment" clubs | Returns depend on recruiting new members. Illegal and collapses. |
Always check: Is the firm licensed by the CMA (or CBK for banks)? Can you withdraw easily? Are returns guaranteed? (If yes: scam.)
Practice tasks
- Visit cma.or.ke and find the list of licensed online foreign exchange brokers and fund managers.
- Open a demo forex account and place 10 trades with stop losses; record them in a journal.
- Calculate the position size for: account $500, risk 1%, stop loss 25 pips on EUR/USD (micro lot ≈ $0.10/pip).
- Compare three money market funds' recent yields, fees and minimum deposits.
- Read about DhowCSD on the CBK website and list the steps to buy a 91-day T-bill.
Summary
- Trading (forex, Deriv, crypto) is high-risk speculation, not a salary; most retail traders lose money.
- Forex uses pips, lots, spreads, leverage and margin; control risk with stop losses and 1% risk per trade; use only CMA-licensed brokers and practise on demo for months.
- Deriv's synthetic indices are simulated markets generated by an algorithm and run 24/7; short options behave like bets; check regulation.
- Crypto is volatile and full of scams; protect seed phrases, avoid leverage.
- Safer wealth-building: T-bills/bonds (DhowCSD), money market funds, NSE shares held long term, SACCOs and pensions.
- Recognise scams: guaranteed returns, account managers, signal sellers, blocked withdrawals and recovery scams.
Check yourself
Which Kenyan regulator licenses online forex brokers and fund managers? Write the abbreviation.
Show answer
CMA
On most currency pairs, what is one pip? Write the decimal.
Show answer
0.0001
How many units are in a standard lot?
Show answer
100000
With 1:100 leverage, how many dollars of exposure does $100 control?
Show answer
10000
What order closes a losing trade at a set price? (two words)
Show answer
stop loss
What maximum percentage of your account is a common risk rule per trade?
Show answer
1
Which CBK platform lets individuals buy T-bills and bonds directly?
Show answer
DhowCSD
Are returns guaranteed in genuine trading? (yes or no)
Show answer
no
Account $500, risk 1%, stop 25 pips, $0.10 per pip per micro lot. How many micro lots?
Show answer
2