So many people have been caught out by the get rich quick advertising of foreign currency trading platforms and have failed to do their homework properly. If you really want to get into foreign currency trading, you can do it for a faction of the cost.
Last year we wrote about companies offering courses on foreign currency trading through online adverts and social media. Through readers letters we raised a warning about their methods.
There are many companies offering to teach you the secrets of trading at a substantial fee. Mostly they target foreign currency trading but some may also advertise similar services for trading on the JSE.
One company that has been very aggressive in its marketing has been Knowledge to Action. They offer an intensive weekend course for R18 000 and once you start trading you have to open an account with a minimum deposit with an overseas trading platform called ETX Capital. You also have to subscribe to charting software at R 1000 (125 USD) a month.
What they do not tell you is that you can obtain all of this for free by going directly to the broker. These companies are simply charging you for something you could access yourself; its just that you didnt know you could.
South African based foreign currency trading houses like Global Trader, World Spread Trader and Standard Banks Standard FX Trader all offer have free training, free access to the platforms, free research and free charting software.
How they operate
These advertised businesses are built around legitimate overseas trading platforms. James Saulez, head of online trading at Global Trader explains that legitimate offshore brokerages sign contracts with local introducing agents or partners in other countries who receive a kickback off revenue earned.
Saulez says these agents go on to build businesses around these agreements. These businesses offer educational seminars, courseware and access to a platform all at very inflated prices. ETX Capital for example is an above the board London based derivative broker. If you went directly there would be no minimum deposit or monthly fee, it is so competitive overseas. It is the local partners that have put in all the costs.
They get a kick back on the trade but they prefer to make upfront revenue by charging for educational material and seminars and make promises about ongoing education that never happens, says Saulez.
Global Trader has experienced some of these tactics first hand as they have had to cancel some of their contracts with their own introducing agents when they discovered that the agents were telling clients they represented Global Trader and that they required R15 000 for the platform, even though accessing Global Traders platform is for free. We would get calls from clients asking if we had received the R15 000 says Saulez who explains that many of these companies are selling trading platforms and technical packages that are actually available for free. They charge enough to make people believe it is serious but amounts small enough to put on your credit card.
The aspirational sale
One way to know whether or not you are dealing with a legitimate broker is the marketing. If you look at websites like Global Trader, World Spread Trading or Standard FX Trader, there is no aspirational marketing, no promise of getting rich quick. Yet these other businesses sell the promise of easy money and great riches and that you are just one seminar away from making big bucks.
Aspirational based advertising should be a warning sign and it is very misleading. The reality is that you can lose a lot of money trading forex. Our emphasis is all on education, you will not see any aspirational elements in our marketing material, says Saulez.
Breaking the law
Apart from the fact that you are being taken for a ride, you may also be breaking the law. Many of these companies allow you to trade using your credit card. This is against the rules of our exchange controls. If you want to trade overseas you have to get foreign exchange approval and it must form part of your foreign investment allowance.
How to access trading for free:
Global Trader, World Spread Trader and Standard FX Trader are three South African based companies with global ties that allow you to trade currencies and you only pay a fee when you trade.
There is no fee to access the platform; they provide charting tools, technical analysis and educational support for free. So rather than blowing R15 000 to R20 000 on signing up to dubious platform, use it to kick start your trading portfolio.
Global Trader and World Spread Trader both offer spread trading which allows you to trade currencies with rands so you do not have to use your foreign investment allowance. They also offer offshore trading capability for investors with offshore funds. Standard FX Trader offers foreign currency trading offshore so you will need to apply for your foreign investment allowance.
Rupert Brown, head of collateralised foreign exchange trading at Standard FX Trader says the advantage of dealing with an institution like Standard Bank is that you are dealing with a large reputable bank and you know where your funds are should you encounter a problem.
Good brokerages make their money through long-term relationships so the focus in on educational support. They cannot grow their businesses if customers are losing money. Any good brokerage offers simulated accounts which allow you to trade without using real money until you are comfortable to begin.
Brown says Standard FX Trader offers a 3y risk-free no obligation demo account. This simulated trading is exactly the same as live trading; there is no difference except you are not using real money.
This allows first time traders to get a real feel for what trading is about and the risks that are involved. Clients are encouraged to phone the team and ask for help and advice. We tutor people on how to trade so they can make informed decision without putting any cash down
Brown says they also encourage people to go onto the website which provides detailed educational information such as video tutorials. (http://corporateandinvestment. standardbank. co. za/standardfxtrader/education_centre. html)
Education is free, the platform is free, there are no monthly fees and we dont charge fees for additional charting platforms.
Although Standard FX Trader does not provide advice on what to buy, once you become an active client you have full access to their global research to help you make your own decisions.
Global Trader (www. gt247.com) offers free seminars and next year will be creating learning plans that will take clients through a 3 to 4 month experience learning on simulated platform before starting real trades. Global Trader has a trading desk that will assist clients with trading ideas and clients will receive regular phone calls from the team to offer support.
Saulez says one of the biggest problems with the seminars offered by the marketing companies is that they cram your head full of information over a weekend and then tell you that you are ready to start trading, there is no follow through or on-going support.
Saulez says only brokers that are registered with the Financial Services Board (FSB) can offer advice. If you receive trading advice from someone who is not registered you will not be protected under the FAIS Act.
One of the selling points the marketing companies use is that local trading platforms are too slow to take advantage of international markets and therefore you have to use international platforms. Saulez says the difference is literally milliseconds and only makes a difference to institutional or highly professional forex traders who are using algorithmic based trading and rely on high end technical analysis techniques.
Global Trader does offer these services through its London partner, however for the average retail customer it makes absolutely no difference and those more complicated platforms are not a good place to start. Even if you did want to trade on those platforms, it is also free!
Brown says a clients internet connection is more of an issue and that ideally one should have an ADSL line installed to trade as clients find that 3G connectivity although capable is not as reliable.
Standard Online Trading offers free day seminars on various aspects on investing including: Contracts for Difference, Warrants, understanding company financials, trading futures, technical analysis. https://securities. standardbank. co. za/ost/
This article by Maya Fisher-French was first published in City Press
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