How to Invest in Derivatives Both Offshore and Locally in Kenya

Introduction: The Power of Derivatives in Wealth Creation

Imagine being able to profit from rising, falling, or even sideways-moving markets with a fraction of the capital required in traditional investments. That’s the power of derivatives—a financial instrument that has transformed how traders and investors engage with global and local markets. Whether you are in Kenya looking to hedge your investments or an offshore investor seeking global diversification, derivatives offer an avenue for high returns—if used wisely. But how do you get started, and what should you watch out for?

In this guide, we will break down everything you need to know about investing in derivatives both locally in Kenya and offshore, including key platforms, risks, and strategies for success.

Understanding Derivatives: A Brief Overview

Derivatives are financial contracts whose value is derived from an underlying asset, such as stocks, bonds, commodities, interest rates, or even cryptocurrencies. They are widely used for hedging risk, speculation, and portfolio diversification.

Types of Derivatives You Can Invest In

1. Futures Contracts – Agreements to buy or sell an asset at a predetermined price on a future date.
2. Options Contracts – Grants the right (but not the obligation) to buy or sell an asset at a specific price within a timeframe.
3. Forwards – Similar to futures but traded privately over-the-counter (OTC).
4. Swaps – Agreements to exchange cash flows, commonly used for interest rate or currency hedging.

Investing in Derivatives Locally in Kenya

Kenya’s derivatives market is still in its early stages but has gained traction through the Nairobi Securities Exchange (NSE) Derivatives Market (NEXT). This market allows traders and investors to access futures contracts on specific stocks and stock indices.

How to Invest in Derivatives in Kenya

1. Open a Trading Account – You must have a Central Depository System (CDS) account with a broker licensed by the Capital Markets Authority (CMA) of Kenya.
2. Choose a Licensed Broker – Some key brokers offering derivative trading in Kenya include Scope Markets Kenya , AIB-AXYS Africa, etc.
3. Fund Your Account – Ensure you deposit the required margin to start trading.
4. Select a Derivative Contract – NSE offers futures contracts on: Single stocks (e.g., Safaricom, KCB, Equity Bank) The NSE 25 Share Index
5. Monitor & Manage Risk – Since derivatives are leveraged instruments, use risk management tools such as stop-loss orders to minimize potential losses.

Pros and Cons of Trading Derivatives in Kenya

Pros

• Regulated by CMA for investor protection
• Lower capital requirements due to leverage
• Helps hedge against stock market volatility

Cons

• Limited asset choices (only a few futures contracts available)
• Requires knowledge of derivatives trading
• High volatility and risk.

Investing in Offshore Derivatives

For those looking for more options and global exposure, offshore derivative trading offers access to a wide range of assets, including commodities, forex, cryptocurrencies, and international stocks.

Where to Trade Offshore Derivatives

1. Global Brokers – Several international brokers offer derivative trading to Kenyan investors, including:
2. Cryptocurrency Derivatives Exchanges – If you are interested in crypto derivatives, you can use platforms like:

How to Get Started with Offshore Derivative Trading

1. Choose a Reputable Broker – Ensure it is regulated by authorities like the U.S. SEC, FCA (UK), or ASIC (Australia).
2. Open and Verify Your Account – Submit KYC (Know Your Customer) documents such as ID and proof of address.
3. Fund Your Account – Most offshore brokers accept funding via bank transfers, credit/debit cards, or crypto.
4. Select Your Derivative Instrument – Trade in futures, options, or CFDs based on your risk appetite and strategy.
5. Trade with a Strategy – Leverage is high in offshore derivatives, so risk management (stop-loss orders, portfolio diversification) is critical.

Risks of Offshore Derivative Trading

• Regulatory Risk – Kenyan regulators (CMA, CBK) do not oversee offshore markets, so investor protection is limited.
• Currency Risk – Offshore trading accounts are often in USD, EUR, or GBP, making your returns subject to forex fluctuations.
• Counterparty Risk – Ensure your broker has a strong reputation and is well-capitalized to avoid the risk of default.

Local vs. Offshore Derivative Trading: Which is Better?

Who Should Invest in Which Market?

• If you're a beginner, start with the NSE Derivatives Market to understand futures trading before going offshore.
• If you want global exposure and are comfortable with higher risk, offshore derivatives trading offers better diversification.

Best Practices for Derivative Trading Success

1. Educate Yourself – Learn about derivatives, technical analysis, and risk management strategies.
2. Use a Demo Account – Many brokers offer demo accounts where you can practice before risking real money.
3. Risk Management is Key – Use stop-loss orders, set risk limits, and diversify your positions.
4. Monitor Market Trends – Stay updated with financial news, interest rates, and global economic indicators.
5. Start Small – Avoid overleveraging and gradually scale up your positions as you gain experience.

Conclusion: Take the First Step Toward Smarter Investing

Derivative trading presents exciting opportunities for both local and offshore investors. Whether you're looking to hedge against market volatility, generate short-term profits, or diversify your portfolio, derivatives can be a powerful tool—if used wisely.

If you're new to derivatives, start with the NSE derivatives market for a regulated and controlled environment. For those ready to expand, explore offshore brokers to access a wide range of financial instruments.

Ready to start trading derivatives? Open an account with Scope Markets Kenya a local NSE broker or explore offshore platforms to take your investment journey to the next level. The market rewards the prepared—are you ready?