Why forex trading isn’t everyone’s cup of coffee
Expert likens it to high-stakes roulette game
Forex trading is not dissimilar to gambling if you’re not an appropriately qualified and experienced trader, and it should be avoided altogether, unless you are among the few South Africans whose financial planning affairs are in order, says top financial planner Craig Gradidge.
Your financial affairs are “in order” when you have enough saved to cover your retirement, your children’s education, your emergency fund, and your lifestyle, says Gradidge, who holds the certified financial planner qualification and is a director of GradidgeMahura Investments, a financial planning practice approved by the Financial Planning Institute.
Then, and only then, should you consider forex trading, “and only as an alternative to gambling”, he says.
“The random outcomes in forex trading are similar to that of betting on black or red on the roulette table. There’s a one-in-36 chance that the green could come up in roulette, so perhaps forex is slightly less risky, as the currency could go up or down.” However, given how few South Africans can afford to retire and maintain their standard of living and our high level of exposure to debt, there are very few people who can safely dabble in forex trading. The people who make money from forex trading are often those who sell training programmes or offer forex trading platforms, Gradidge says. While it’s not impossible for the average person to make money from trading forex, the odds are stacked against you, he says.
Gradidge has seen scams offering a guarantee to double your money in 30 days.
He says if such returns were possible and you could invest R100,000, and re-invest it and the returns every month, your investment would grow to R3.6bn after two years and R1.7tn in under four years. Such guarantees are meaningless and aimed at getting you to part with your money. “You are the source of their ‘return’,” he says. Faizan Anees, the cofounder of broker ThinkMarkets.com South Africa, says consumers need to be careful not to be lured by the marketing tricks used by people posing as forex traders.
As an investor, you should ask yourself why some stranger would want to make you ultra-rich, he says. Successful forex traders are unlikely to share their hardearned tips and tricks with Joe Public. To protect yourself from being scammed, he says you can check that the broker or bank they’re trading with is reputable, whether the company is regulated and how long it has been in business, and you can ask to see trading statements.
Ask to see signed and certified statements from the broker and check if the broker is regulated.
Anees says you should be careful of people who try to put you under pressure.
“If the opportunity will expire and never return, beware!” He advises that you begin by investing only a small amount. “A trader that has a profitable strategy can perform with small and large funds, so there should not be any rush to invest everything. Plus, only commit money that you can afford to lose.”
No more ‘Cashflow’
Last week, the Financial Sector Conduct Authority (FSCA) reported the conviction of conmen posing as forex traders in two separate scams.
Port Elizabeth-based David Wilmot, through his company Nava Shore Holdings, took funds from clients under the guise that he would trade forex on their behalf.
The FSCA says Wilmot exploited relationships within a church to misappropriate most of his clients’ funds. He has been convicted for money laundering. Meanwhile, Jabulani “Cashflow” Ngcobo and Mzabalazo Welcome Dlamini also misrepresented themselves as authorised FSPs who could trade forex for clients – a criminal offence.
The pair have been sentenced to six years’ imprisonment, two of which were suspended, and a fine of R200,000 wholly suspended for five years.