Due to the various macroeconomic factors that have contributed to the current economic slump, the prospect of quick and large returns has made platforms like Bitcoin, cryptocurrency and Forex trading all the more popular.

The ease of entry and the decentralised nature of forex trading has caused most people to gravitate towards it. This has made multiple people prey to scammers and inexperienced and unqualified traders. There are countless invasive adverts offering training and trading services on social media, investment websites and so on. The question begs, do we truly fathom forex and the risks associated with it?

The concept of trading has existed in Botswana for decades. People used to exchange currencies for those who were travelling to other countries or those who were sending money to relatives. They would make a profit from these exchanges. Currency exchange businesses began to set up shops in the country. There was then a boom in the popularity of forex in the past years.

Forex refers to the ‘FX’, the foreign exchange market. This marketplace is where currencies from all across the world can be exchanged for reasons such as business, trading etc. The global foreign exchange market size reached US$ 753.2 billion in 2022.

The market is mainly concerned with the purchasing and selling of different currencies. These currencies are traded in pairs, so traders speculate on whether the value of one currency will rise or fall over the other in the hopes of making a profit.

The forex market has different participants, these include governments, commercial banks, central banks, corporations, investment funds and traders. Some of these players influence the forex market. This is why it is volatile and high risk. Entities like the government can influence currency prices through geopolitical developments and macroeconomic goals.

As the popularity of Forex increases across the world, it is important to comprehend the risks and pitfalls that may occur. These risks can be both within or beyond your control. Forex is a zero-sum game, much like with gambling, one person’s loss becomes another person’s gain.

Most of the brokers who take advantage of citizens are unregulated individuals who overpromise and make claims of guaranteed profits without expressing the risks to clients. Regulated brokers are governed by the Non-Bank Financial Institutions Regulatory Authority (NBFIRA) and the Bank of Botswana. The forex market lacks transparency. There is a dependence upon third parties (brokers), traders may not know how they performed, whether they made a profit or a loss.

Most independent brokers are not experts, especially those who do not belong to an organisation and are unregulated. Extensive measures need to be taken to verify the validity and reliability of any broker.

This is easier when they can be governed by the law and brought to task when things go haywire. Forex trading is a financial branch and with all financial activities, good strategies are required. One of the largest mistakes new traders make is overtrading. This can be in the form of opening and closing positions speedily without proper observation, thought and preparation or using a broad-based strategy where you trade various currency pairs concurrently.

Those who are beguiled by advertisements, who have no idea what transpires in trading or the background of the traders and are simply enthralled by the possibility of making easy profits, should ask themselves the following questions: why would anyone truly succeed at making large amounts of money through their trading freely divulge their secrets and invite others to invest with them?

All information should be taken with a pinch of salt. Some countless technical reports and signals are posted on portals and by brokers, traders are at true risk of information overload.

As aforementioned, Forex is a zero-sum game, the high risk and volatility are very similar to that of poker and gambling. Meaning that it is easy to get addicted. It has very addictive properties; the large amounts of money on the line, the swift pace as well as an escape from daily rouTo tines. reduce the risk of addiction, traders should restrict the amount of time spent trading, limit the number of open positions they have and set realistic objectives instead of trading with a mindset of attaining great wealth.

The vast majority of brokers and traders in the country have used the same tactics to draw crowds to themselves. These include purchasing expensive vehicles, and clothing and dining at popular establishments. They also take ample photos holding large sums of money. These tactics entice people of different demographics and have led to most losing money and property.

There is significant malpractice occurring in the forex market at a regulated stance. The need for transparency persists amongst, even the most reputable and registered brokers have also struggled in this regard. The situation is much worse amongst unregistered and offshore brokers who oftentimes pretend to execute orders and do not do so or focus on stop levels to lock losses.

The advice that quickly comes to mind is to be vigilant to any deal that seems too good to be true and to ensure that you are trading with a registered broker and also that you monitor your broker to ensure that outputs are in line with what is currently transpiring in the market. Brokers should take the necessary steps to equip themselves with knowledge, and practice and keep from becoming addicted.

In responding to the persisting challenges, Botswana’s central bank responded, “activities that contravene the provisions of the Bank of Botswana Act, (CAP 55:01); Banking Act (CAP 46:04); Financial Intelligence Act, 2019 and other statuses and regulations administered by the Bank, the public would have no recourse to the Bank of Botswana for redress on fraud, misconduct, or financial losses emanating from or associated with participation in the crypto assets business.” This suggests that individuals participating in a crypto currency such as Bitcoin and other trading processes will be unable to receive assistance from the Bank.

*Batsalelwang is FirstCred Limited

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