How to Avoid Major Risk in Forex Trading
The spot forex market is not new in the world. On the market, transactions are carried out on the spot. We also have online forex trading, which is now growing by leaps and bounds in the country.
Online retail Forex trading is a business activity that involves speculating on currency movements with the sole aim of making a profit. You pair two different currencies, and then speculate on whether a particular currency will rise or fall in value against the other currency you are pairing. The major purpose of online retail traders is to make profits while trading in currency pairs; however, you should keep in mind that it also involves significant risks due to the high volatility of the global market, which easily affects the values of currencies worldwide.
Forex trading is not regulated in many countries, yet many people all over the world are now engaging in forex trading. Some have even taken it as a major source of income, a practice known as day trading. It is estimated that over 6 trillion dollars worth of trades are being carried out globally in retail forex trading. The number keeps growing as people become more aware of the trade.
It should be noted that lack of regulation is a major risk involved in forex trading in many parts of the world. Note that forex trading is legal in most countries, but the major albatross is the lack of government regulation, which is essential for effective supervision.
Lack of regulation can easily expose you to fraudulent local and foreign brokers who may take advantage of a lack of official supervision to dupe you. Many Nigerians have fallen victim to fraudulent brokers.
For instance, two years ago, MBA Capital and Trading Limited, duped its clients out of about $518.3 million and absconded. Also, there was this story of Headway Trade Patterns Limited, whose directors defrauded its traders of millions of dollars and absconded without leaving any trace.
However, the good news is that you can deal with a broker that is regulated by overseas regulatory bodies. For example, HF Market, which is a top international broker in the country, is regulated by the UK's Financial Conduct Authority (FCA), the FSCA of South Africa, and the Cyprus Security Exchange Commission. There are other brokers like that in the country.
While dealing with foreign brokers, ensure that they are regulated by regulatory bodies like the Financial Conduct Authority (FCA) (UK), the Australian Securities and Investments Commission (ASIC), the Financial Sector Conduct Authority (FSCA) (South Africa), and the Commodities Futures Trading Commission (CFTC) (US). You can check any of the websites to see if your broker is regulated.
Have it in mind that even if you are using foreign brokers, you may fall victim to a fraudulent one if it is not regulated, just like in the case of a local one. Also, if you are using foreign-regulated brokers, That's why you should check very carefully to ensure that the brokers you are using are well regulated.
It is against this backdrop that the Federal Government of Nigeria, through the Security and Exchange Commission (SEC), warned Nigerian forex traders that engaging in the trade is at their own risk.
The warning issued by the SEC in 2018 reads: "The public is hereby advised that online retail forex trading is currently unregulated and consequently may be subject to fraud. Until a framework for regulation of online retail forex trading is developed by the SEC, any person participating in or engaging in such investment activity does so at his or her own risk."
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