A contract on the dollar-shilling rate

A contract, not a counter

A contract for difference on the dollar-shilling rate is an agreement to exchange the difference between the rate at opening and the rate at closing, settled in the account’s currency. No shillings or dollars are handed over at a counter, and no banknotes change hands. The contract tracks the rate, but it does not give the holder any claim on currency itself.

Cash has to be exchanged at a counter, where a bank or bureau quotes a buying rate and a selling rate. The spread between those two rates is the cost of the exchange. In a contract settled in dollars, that spread has no meaning; the contract’s cost is the difference between the opening and closing prices, plus any fees the broker charges.

The spread has no meaning here

A bank or bureau spread is the difference between the rate at which it buys and sells a currency. It exists because the bank or bureau holds inventory and takes counterparty risk. In a contract for difference, there is no inventory and no counterparty risk of the same kind; the contract is settled in the account’s currency, and the broker’s own costs are built into the price it quotes.

That does not mean a contract is cheaper than cash exchange. It means the costs are different and must be read in the terms. A reader should compare the contract’s spread, any overnight financing charge, and any commission against the bank or bureau spread, and decide which suits the purpose.

What to read in the terms

Before an account is opened from Kenya, a reader should read the broker’s terms for the contract. The terms state how the price is quoted, what fees apply, and how the contract is settled. They also state what identification is required and how long it takes to open an account.

The terms should say whether the contract is settled in dollars or in another currency, and what happens if the account is left open overnight. A practice account exists and costs nothing, and it is the place to see how the contract behaves before any money is put in.

FxPro is not licensed by the Capital Markets Authority of Kenya. An account is opened with a company regulated outside Kenya - the group is authorised by the FCA in the United Kingdom and CySEC in Cyprus - so a resident here deals with a foreign firm and the protections of a locally licensed one do not apply. Moving foreign currency abroad for trading goes through a bank or a mobile-money provider and is subject to their rules and to Central Bank of Kenya requirements. Nothing on this site is investment advice.