WINDHOEK – There is a saying that goes: If it is too good to be true, it probably is. Serious investors, both institutional and private, generally abide by this principle to minimise risk and maximise profit for themselves and for their clients. However, lately the term Forex (Foreign Exchange) Traders has been used by a number of individuals who parade as authorised financial services providers who promise unbelievable returns that are usually associated with pyramid schemes or other illegal activities.
However, despite requesting clarification from the Bank of Namibia two weeks ago on the legality of forex traders in Namibia who represent a number of clients, New Era has not received any feedback from the central bank at the time of going to print.
“You can make money if you know exactly what you are doing. They call it arbitrage. Since currencies are traded in pairs the foreign exchange market does not set a currency’s absolute value but rather determines its relative value by setting the market price of one currency if paid for another; which means using opportunities where there is a huge demand for dollars, and where there is a relatively strong liquid supply in other markets,” said one financial industry expert preferring anonymity.
The industry expert explained that the idea in Forex Trading is to roll cash constantly to make money off the daily variances in change of currency value fluctuations in separate markets. This, he noted, usually involves an element of trading between banks usually called the “interbank market”, spot changes and currency fluctuations in different markets and the ability to act very quickly on these changes.
He continued that legitimate forex traders also need to have solid Information Technology (IT) systems in place to be effective. This normally works through financial institutions and given the sovereignty issue when involving two currencies, forex has little supervisory entity regulating its actions relative to other financial instruments.
All institutional investors, such as Sanlam and Old Mutual, participate in forex trading but these institutions usually hedge their bets using derivative structures such as insurance to only expose their clients or a small portion of their money to it.
These authorised traders also use a natural hedge, which is for instance when the Rand/N$ weakens against the US Dollar, then it makes sense to take some money off-shore to benefit from the stronger US$ and vice versa.
New Era is also aware of a number of cases around the world, even in neighbouring South Africa and elsewhere in the sub-region, where financial industry regulations have been cited to convict so called forex traders, mainly on fraud charges.
For instance, South African authorities recently convicted individuals using that country’s Financial Sector Conduct Authority (FSCA) and for contravening the South African Financial Advisory and Intermediary Services (FAIS) Act. The FSCA said in a statement: “The FSCA welcomes the sentence imposed on them, as it sends a clear message against unscrupulous financial entities and scams.
“Their conviction is also an example of the cooperation that exists between regulators and law enforcement agencies. The authority reminds consumers who wish to conduct financial services with an institution or person to first check with the FSCA whether or not such institution or person is authorised to render financial services, and the exact services they are authorised to render.”
2019-10-18 08:20:44 | 3 months ago