So You Think You Can Get Into Forex Trading in Uganda?
If you are a Ugandan, you have probably heard all about the Forex trading and how it seems to be the hottest “new” business in Uganda.
I wanted to invest $10,000 together with a cousin in a company that I understand is one of the leaders of Forex trading. While recently in Uganda (May) I already visited their offices and saw a great range of computers with lots of graphs and a TV turned to Bloomberg TV or other business channel. (The analysts didn’t however appear busy as I would have expected from watching a lot of “Wall street” movies).
Anyway I returned to the UK and started saving so as to invest the required minimum. I recently(November) called a good friend in Uganda and casually mentioned the idea to him. He casually replied: “I just invested $2,500 which the Mrs warned me not to put into that company. They have for the second time missed my monthly payments, which are supposed to be 20.4% interest and rule per month!.” He indicated that this company is a ponzi scheme, commonly called a “pyramid” in Uganda.
So is Forex trading the real deal? I set out my observations.
The cons (first of course).
1. Sector unregulated in Uganda
As per an article appearing in the New Vision newspaper:
“….Mr Stephen Kaboyo, the director of financial markets at Bank of Uganda equally overlooked the business despite being responsible for money markets in the country.
“It is not regulated business. It’s really outside our regulatory provision as far as the Forex market is concerned,” he said in an interview on Friday. “It’s just like any other business. If you are interested, you go in. If you go there and lose your money, you don’t complain.” Source: All Africa.com
As an unregulated sector, this creates a risk especially for the careful investor(as anyone should be!) especially when for example compared to Switzerland, which seems to be the center of online trading and has a well regulated sector.
This of course may not be a major issue for a typical Ugandan as hardly anything seems to be effectively regulated anyway! In Uganda, it would appear many regulations keep on paper and the Bank of Uganda (BOU) director was perhaps just being realistic because in Uganda, its a “dog eat dog” world.
2. Experience/reputation of traders
The sector has only been recently taken off in Uganda and with a myriad of “traders” how does one verify who is “legit” and who is quack? How do you know who is well experienced and who is not? This is compared to the established players like say HSBC who will clearly tell you how the sector is performing. In HSBC if you for example wanted to invest in Exchange Traded Funds(ETFs) which are a financial investment products not too dissimilar to Forex trading, you would get an investment profile, a comparison with similar other funds in addition as the history of that particular investment by that particular fund manager.
3. High Starting capital. A good Forex trader or investment broker will usually ask you to have starting capital of $10,000. This is because Forex trading relies on tight margins (called “pips”) such that to make you a decent return they need to invest a fair amount of money. At today’s(November 2011) exchange rate, $10,000 is about Shs 28m!
And now the Pros
1. Liquidity. The market is huge. Forex trading is the largest kind of market in the world and if you open yourself an account say an FX pro account with oanda.com or similar other self traded or managed broker accounts, you will find you can easily buy and sell.
2.Good returns In the Investment and securities market. I am not sure if there is any other business form giving better liquid returns especially at the moment with challenging global markets. Of the various websites of investment managers I have researched, it is not uncommon to find those that give returns typically of 6%. Compare this say to a high saving interest account with Barclays Uganda or Crane Bank which give returns of at most 5%.
You should of course know that like any trade in securities, returns are not usually guaranteed and many a trader post losses particularly those who trade for themselves on trading platforms being promoted by so many online Forex trading companies.
3. It can be an easy sector to deal with Like many investment products such as stocks and other securities, if you have a managed account, then you have a broker handling the business for you. Yes they charge fees(check out their fees and compare with others) but this method you don’t have to regularly monitor the position as the brokers do this and will usually send you portfolio statements or already you can view these online and as such can choose to liquidate should you wish.
SUMMARISING AND THE FINAL information
First the numbers
On the basis of my examination:
* Capital investment(A): Shs 28,000,000
* Revenue per year:(assuming 3.44% interest per month): Shs 11,558,400
* Profit per year (Assuming investment manager fees of 1% of initial capital) (B) is Shs 11,278,400
* Return on capital(years to get capital back or A/B) is 2.48 years
Now the basics you must get right before investing.
* A regulated investment manager/broker is a must.
* A foreign money account to protect yourself from Forex fluctuations.
* Returns on investment cannot be guaranteed especially with the current economic climate. Prepare yourself for either a profit or loss.
FINAL information, YES OR NO?
In today’s world of unpredictability in the securities markets, this appears to be one doing okay irregardless of how the market performs but do your research well and unless you are willing to teach yourself how to be a Forex trader (for example at this site) you should seriously consider putting your investment in Forex trading by a reputable investment broker/bank who will manage the explain you.
If necessary,open a foreign money account in one of the Ugandan edges to manager this aspect and deal with a foreign player who is regulated. For example choose companies that are regulated in the UK by the Financial sets Authority(FSA). There are several scams out there and I don’t think its worth investing a meaningful amount of money in someone who is not tested and tried and doesn’t have quality control mechanisms to protect your money from for example rogue traders or simply inexperienced people.