In the first instalment of this eye-opening series, we delve into the murky world of online forex trading in Kenya. This narrative, penned by investigative journalist Otiato Guguyu, uncovers the cunning machinations of fraudulent traders who exploited regulatory loopholes to swindle unsuspecting Kenyans out of their hard-earned money. From the heart of Nairobi to the far reaches of the internet, we explore how these dubious entities operated in plain sight, promising lucrative returns while operating without licenses. This exposé not only led to a crackdown by the Capital Markets Authority (CMA) but also revealed a shocking truth: the vast majority of Kenyans who venture into online forex trading end up losing their investment. As we navigate through this intricate web of deceit, we invite you to join us on this journey of discovery, shedding light on a sector that has cost Kenyans billions and prompting urgent calls for regulatory reform.

By Otiato Guyuyu

The former CEO of the Nairobi Securities Exchange Geoffrey Odundo recently gave an interview on a Podcast platform owned by EGMS the largest online forex trader in Kenya with one of the highest loss ratios.

While there was nothing odd of the former NSE boss gracing the market that had proven more successful in the retail market than the conventional peer he headed, he helped endorse the new marketing ploy exploited by the online forex traders.

The markets regulator expects that the licensed online forex companies do not target retail investors but sophisticated players who can understand the risk they are taking. Although the online forex traders are restricted in advertising, they have been exploiting the blurry social media space offering financial inclusion and risk education to lure in younger investors.

“FXPesa offers free daily online market analysis webinars via its YouTube channel, two financial literacy podcasts titled Financially Incorrect and Bullish Banter, an educational academy with offices in Westlands, Kitengela, Thika, Eastleigh, Nakuru, Kampala, and Eldoret that offers free daily training and client support,” Rufas Kamau, Lead Market Analyst, FXPesa said.

The show Financially Incorrect Podcast describes itself as a fun and informative way to learn about personal finance, debunking money myths and revealing the truth behind common misconceptions.

The production which is done at the EGMS offices at Delta Towers in Nairobi is quite interesting, and engaging and informative.

For instance, when the Podcast recently hosted the former Mr Odundo he revealed his Damascus moment, when as a young trader he ‘discovered’ that Kibaki era tycoons were buying a small stock, East Africa Cables, as Kenya began entering the construction boom.

He chose to buy the stock and convinced his close networks to fund the purchase and when the stock price took off, they were swimming in money.

He smiles through his teeth on how made 20 times the money he put in the stock in just three months making him an equities market genius for his networks. Since then the market which he headed for nearly a decade has never had such a run.

It was a strange sitting where the NSE which had had a bad run during his tenure sat with EGMS, one of the companies that had literally been eating his lunch. Online forex was growing retail clients at a time when the number of ordinary traders at the NSE was falling.

He claimed the media was too critical of his NSE calling it ‘the worst performing market’ and making him squeamish when students visit the bourse and ask why. Funny thing I never expected to hear was that the worst assessment of his NSE had been a story I did comparing the price of stock prices to tomatoes.

“I have seen so many of those things, one time I woke up and found a big two page of the stock market is cheaper than tomatoes, two page on a Sunday, drawn with nice graphics and pictures all over the place and I was like aaahhh, whats on the next page, so I have learned to shake it off,” he said.

Tomato market

I did the story about four years ago after I kept getting questions from friends about investing on the NSE being a ‘knowledgeable’ business reporter. So I did a story, highlighting the fact that 27 out of 64 listed firms were trading at below Kes10, not as ridicule rather, as a means of debunking the elitism of the stock market and how anyone could get in on the action, drawing comparisons on how penny stocks was a big thing in developed markets.

Over the last decade in Kenya where interest rates have been under state control, very few investments offered double digit returns.

Besides real estate pull of dirty cash, the offshore market has created a new fad on how ordinary Kenyans can exploit the global market. From oil, precious metals and currencies , investors are getting offers on pockets of growth outside our infrastructure led boom that only fattened state officials and their networks.

Kenyans were increasingly gaining knowledge of opportunities abroad whose returns surpassed the traditional asset classes like land speculation, stocks and government bonds.

Offshore markets also pulled in pension funds promising outsized returns after the regulator allowed them to put more money in alternative assets.

This set the stage for the potential stock investor to bypass the NSE for global markets. The internet was opening up, a new space that could vacuum out money from unsuspecting gullible investors.

Online trading, lotto or chess?

In 2019 while conducting the research for my story I opened an account with one of the licensed traders, EGMS. A split screen with four charts dancing with zig zag lines like those of a life-saving defibrillator machine is all I could see, and was completely clueless on how the buying and selling happens.

When I signed up, the online broker called me and guided me to set up a demo account and dropped me some YouTube tutorials and reading materials on trading and offered workshops that take you through the basics of forex trading.

I quickly realized that this was not meant for the ordinary investors. I was not alone, this business has a huge dropout rate, out of the 198,801 clients who opened accounts with the brokers only 13 percent are active, or in contrast 87 percent are dormant.

In fact, the regulator expects the brokers to deal only with sophisticated clients, chose and manage investments prudently for its online forex trading clients and develop appropriate investment strategies to hedge for losses.

But the lure of making a quick buck and the attractiveness chic looking money manager will always do the trick.

Con Air

I was privileged to do a media interview with EGMS just about the time the firm was sprucing up its native marketing campaign which gave me a glimpse of why the company is a clear market leader and even I fell for their pied piper boss.

Mr Kenneth Waiganjo had built the company to command 52 percent market share leveraging his finance and marketing skills to establish the premier online forex trader.

Mr Waiganjo had been the finance officer in 2019 and had grown into the Ceo role. He had been in the media buying business at Dentsu but on the financial side, and as usual asked me how legacy media, our part of the business is doing. I confirmed what he knew about it having worked directly with our marketing team.

The media business was dying, and in its place corporates were setting up funded digital newsrooms that offered native advertisement content, calling the pied piper’s tune.

He helped build brand visibility by claiming to educate the public about the huge risks via podcasts titled Financially Incorrect and Bullish Banter. In addition, FXPesa conducts bi-monthly Pips & Brunch networking events to educate traders and help them improve their skills. They say without these support programs, the client-loss ratios would be much higher across the industry.

Unlike my Interweb experience, this open office with open glass paneled walls almost felt it cost money and had some European benefactors behind it. When I met Kenneth Waiganjo, Ceo Scope Markets it would be the exact contrast of Interweb. His fourth floor glass office at Westside Towers building along Lower Kabaete Road in Nairobi’s Westlands area, overlooked a relaxed side of the city’s upmarket.

The young boss with the photo of a happy family overlooking greenery in Nairobi’s upscale markets is the dream of any ambitious youth. He believed in his own success and the opportunity he was helping to bring to young Kenyans who could resonate with his ideas of success.

According to Mr Waiganjo, he was allowing Kenyans to be part of the American dream while sitting under a tree in Africa with a Chinese mobile phone. His analogy was befitting something possible, recent, a market run that even I ideally had in my grasp.

“When Tesla first launched its Model three, you could either buy the car or the company’s stock. Those who bought the car are watching it depreciate, those who bought the stock can buy ten Model 3’s because the stock prices have gone up more than tenfold,” he said.

“Now the world has evolved so much that you do not have to be in America to buy a Tesla share, sitting in front of your computer, his company can give you an account where you can trade on stocks all the way in the USA,” he said.

And not just Tesla, they can offer you stocks, currencies, commodities and metals like gold online or even complex products like derivatives, shorting things you may only read about in Wall Street journal and watch in movies.

Illusion of safety

The Scope Markets Ceo says unlike foreign based players those registered to operate in Kenya have physical offices and a flexible way to withdraw client cash. They also operate in line with Central Bank Rules on know your customer to avoid money laundering.

I resonated very much with this dream and the impression offered by these foreign investors who were bold enough to set up an office in Kenya so that if we lost money, we could at least trace their location.

But while online forex offers high returns, it is usually a very risky business with ability of making huge losses

In reality the money was actually lost in the odds stuck against any investor who puts money in such schemes. The online forex players had found a legal way into the system which they all but intended to navigate with their financial might and marketing ploys.

The final part coming up….

Cover image generated by AI.