Why that online forex player may not secure your millions

No one can save you. Even Superman had a day job. But dreams of making it trading online forex are keeping some hoping against hope. But who’s aiding this? Recently, the Capital Markets Authority (CMA) granted Kenya’s first money manager license to operate online foreign exchange trading space.

From the surface, the permit seems to be a great idea. Most investors are new to currency trading. Besides, a managed forex account allows the licensed manager (or someone who claims to be so) to trade client funds on their behalf for a salary or a fixed share of the profits.

But is there any real advantage to be gained? Will money managers make a real difference to client portfolios? Do they come with extraordinary powers? I think not. Here’s why I think so.

One, in the case of the recent licensee, there are no past forex trading records to be evaluated. This makes it impossible to assess its ability due to the lack of background information.

In other words, the new manager is left to make trading decisions with unpredictable and potentially dangerous results. Claims of tested individual account managers or past professional experience is of little value here.

Statistics don’t lie; the percent of traders (including institutional ones) losing money trading forex for all providers combined is near 80 percent. Ultimately, it’s your call.

You’re free to trust a stranger to turn each shilling into millions of shillings but you’re also exposed to turn your millions of shillings into a shilling or nothing, if that’s your desire.

Two, market-rigging is now a big risk. Scandals that erupted circa 2013, which led to several banks being fined top dollars and many traders around the world suspended or fired continue to cast a long, dark shadow over the industry.

Long considered to be too big to be manipulated; global volumes average about Sh500 trillion-a-day according to the Bank for International Settlement’s global survey, the rigging scandal added a new layer of risks.

Can such scandals be prevented? Well, yes. Despite regulatory protection, there’ll be always room for malpractice and more losses for traders.

Three, the FX industry has been through some structural changes over the last few years that have affected liquidity. Stringent capital requirements have constrained banks from taking risks.

Consequently, prices are not as firm as they used to be. In other words, market makers cannot be relied upon to make good on their quotes (forget about what your good Non-Dealing Desk told you). This exposes traders to sharp volatility that could lead to excessive losses and execution quality issues.

Look, whether the new licensee will spark enthusiasm in currency trading is an open question. As for me, either direction is not attractive. Too bad, no one can save you. They built this market to suck your blood.