LIFESTYLE

Why Forex Trading Is Becoming Such A Big Deal In SA

It's "risky, volatile, erratic, intense and stressful" -- and is still mostly unregulated.

09/06/2017 07:49 SAST | Updated 10/10/2017 12:13 SAST

The internet is littered with these ads. You'll be happily going about your internet way and one of them just pops up. Or you hear a voice in the background saying something along the lines of: "Start your financial freedom today! Learn how John Smith became a multi-millionaire by his mid-20s. Don't wait another day to begin your journey to wealth." Then they invite you to a seminar and offer one-on-one coaching on the latest get rich quick craze to hit South Africa -- forex trading.

While one in the past could've easily dismissed these get rich quick promises, it's harder to do now because of the real people, particularly with an online presence, who claim forex trading has indeed worked for them. These traders are also not too shy to show off the lifestyle forex trading has afforded them. A brief online search with hashtags #lifeofatrader #forextrading and #forexsignals shows you just how much money they claim to have made.

Bmw gang😬😬😬 #lifeofatrader #cashflowteam #convocation #supercars #bmwi8 #bmwgang

A post shared by jabulani Ngcobo (@cashflowngcobo) on

The biggest financial mistake I have made was not thinking big enough. Always aim for more 📈📊💰 There's no shortage of money on this world, only a shortage of people thinking big enough 🙏🏿📈 #lifeofatrader #forex #financialfreedom #forexoptions #forextrading

A post shared by Quan Flipper (@quanflipper) on

Drinks and papers!!💵💷 #lifeofatrader #SGiLifestyle #happy #liveyourlife

A post shared by SmardGroupInvestments (Pty)Ltd (@samza_thwala) on

They even stunt on their exes.

Forex trading seems be garnering so much of an interest in South Africa that even UNISA now offers a short course on it.

So what's the big deal?

So, when people say they are into forex trading what exactly do they do?
Because if we go by social media, to trade requires an open laptop with a moving graph.

Simply defined, forex trading is the buying and selling of currencies based on market activity. Forex traders speculate on whether the exchange rate will go up or down and just like any other form of speculation, they want to buy a currency at one price and sell it at a higher price in order to make a profit.

For example, if they think the euro is going to rise against the U.S. dollar, they can buy the EUR/USD currency pair low and then sell it at a higher price to make a profit. However, if they buy the euro against the dollar (EUR/USD), and the U.S. dollar strengthens, they will then be in a losing position. They will then lose the trade or the money they risked on that specific trade.

However, there is no way of accurately predicting how the currencies will perform. According to Jaba Investments, forex traders "take calculated risks by relying on statistical probabilities to determine trades".

But it's not quite that simple.

The biggest misconception: a get-rich-quick scheme
Volatile, erratic, risky, personal, emotional, intense and stressful are some of the words Forex traders used to describe the trade to HuffPost SA. All emphatically share the sentiment that it is far from easy and definitely not a get-rich-quick scheme.

"You pack people into a class and ask them to pay R25,000 for two days, promise them riches but only 5% of them make money after," says Forex Academy's Ernest Klokow. "These people are overpromising because quick returns are largely not possible."

"What they don't tell you is that all beginner traders have a 95 percent chance of failing," warns Real Trader's Chrizette Rossouw. Rossouw had her accounts completely wiped out when she started trading and it took her years before she made any real money out of forex trading.

ACM Gold's David Rosenthal says people who have made money quickly normally end up losing it the same way. His advice: "Steady and easy. Trade money as you would any other investment." Rosenthal blames false advertising for creating unrealistic expectations and misleading people.

Johannesburg-based forex trader, Tshepo Brand, warns potential investors not to fall for brokers who guarantee returns. "There are no guarantees, and any forex trader who tells you that is a liar," he tells HuffPost SA.

Colin Abrams agrees. A full-time forex trader himself, he tells HuffPost SA: "If you think it's quick wealth, you are inviting short-term trouble. It is trickier and more complicated than people think, but people underestimate its difficulty."

You will lose money -- guaranteed
Maria Bongwe lost R1,6 million. The 40-year-old from Polokwane, who had been trading for just a couple of weeks, made a R100,000 initial investment that quickly grew to R1,6 million. She then lost it all.

"I just did not have the proper knowledge and relied on the broker," she tells HuffPost SA. Bongwe recalls how shattered she was at the loss: "I was literally burning and they had to pour ice water on me."

Johannesburg-based forex trader, Siphiwe Magudulela, paid R35,000 to attend a trading seminar and has been trading full-time since. He says he made his first million in September 2015, but lost it all in February of 2016. "I made two bad trades and to this day I am still recovering," he says. "It is not easy, you need to have an appetite for risk-taking."

Percy Ngwenya, from the North West, blames losses he has made as a forex trader on greed. Ngwenya, who labels trading as a "very dangerous investment" tells HuffPost SA he miscalculated how the market would perform during Brexit. "I woke up and started trading late and instead of pulling out of the trade, I stayed longer, and lost all my money" he confesses. He has lost R25,000 in one day in one trade. Trying another form of trading, he lost R60,000 in one go. "It's sometimes a game of making gains and losses." Ngwenya says he is taking a break to recover, but he will go back to it because he "loves trading".

Another forex trader, Thanda Zulu, who is based in Durban, has also been doing it full-time for almost five years. She paid R10,000 to attend a seminar about trading and was immediately hooked. Unemployed at the time, she saw it as a great opportunity to earn some income. A view she still strongly holds. She admits, however, it hasn't been an easy journey. "The seminar was just not enough. I had to teach myself and be hungry for it." Zulu says it's been up and down, making and losing money. She does not believe she has fully reaped the benefits forex trading can afford her.

The scammers
Jaba Investments says the market is full of them. Fake trainers, fake brokers, fake traders or trading companies; all they care about is getting their hands on people's money. Next thing, their offices are closed and they can't be reached on the phone or traced on social media.

Klokow, Rossouw, Rosenthal, Brand, Abrams, Magudulela, Zulu all agree that scammers prey on people's desperation. These are people who may be looking to make a quick buck, while others are just fed up with being unemployed and hope forex trading will provide them with much needed income.

A reader who wrote to City Press had invested a lot of money with a forex trading company that later disappeared. The reader was no longer receiving withdrawals and subsequently lost a house, car and other valuables.

To try prevent such situations, potential traders and or trading companies have every right to check if the company they want to invest money in is registered with the Financial Services Board. The FSB is an institution for non-banking financial service providers, aimed at protecting South Africans who want to branch into non-banking financial avenues such as Forex from losing their money as a result of fraud or scam.

The board says: "Persons rendering financial services without a licence or without being appointed as representatives are acting in contravention of the Financial Advisory and Intermediary Services Act. Transgressors can be fined and or imprisoned."

Where forex trading trainers are concerned, however, Rossouw says scammers may still be getting away with it because forex trading training in South Africa is still unregulated. "There is no standard to adhere to, no set of rules, no formal body that can regulate the type of training people are receiving or are being promised," she says.