Foreign exchange merchants in Ghana shouldn’t be swayed by its reputation and perceived earnings that its sellers discuss.
To start with, the Financial institution of Ghana, which is the federal government regulatory physique for such actions, doesn’t regulate on-line retail foreign currency trading in Ghana. What this implies is that there aren’t any on-line foreign exchange brokers which are regulated by regulators in Ghana.
The volatility within the foreign exchange market attributable to rate of interest hikes by the US Federal Reserve and the Financial institution of England requires warning amongst on-line foreign exchange merchants in Ghana.
It is usually price noting that foreign currency trading is an inherently dangerous enterprise. On common, most foreign exchange merchants expertise losses on their trades. These dangers require introspection amongst foreign exchange merchants earlier than opening their trades.
If you’re contemplating foreign currency trading, you must contemplate these necessary dangers concerned earlier than deciding to place up your cash.
In enterprise, a counterparty is the alternative facet of a monetary transaction. If you’re the client, the vendor is the counterparty.
Counterparty threat in foreign exchange refers back to the possibilities that one of many events fails to satisfy its obligation in a transaction. As a foreign exchange dealer, your counterparty is your dealer.
Within the overseas trade market, there’s at all times a threat that your dealer is not going to fulfill their contractual obligation and that’s the reason they should be correctly regulated by the federal government.
For a web-based foreign exchange dealer from Ghana whose authorities doesn’t approve of foreign currency trading, this risk turns into extra actual. You commerce with worldwide foreign exchange brokers the place there isn’t any native safety towards counterparty default dangers.
In international locations the place foreign currency trading is authorities regulated, their brokers are normally regulated by a mixture of a Tier 1 regulator, i.e. regulators from developed international locations corresponding to FCA (UK), ASIC (Australia), CFTC ( USA), and many others., and the host nation regulator. You can see this info on the dealer’s web site.
The investigation by Protected Foreign exchange Brokers UK on foreign exchange brokers within the area notes that there are greater than 20 tier 1 regulated foreign exchange brokers accepting purchasers from Ghana and neighboring international locations. Many of those brokers are additionally regulated by the FSCA in South Africa.
Nonetheless, these brokers usually are not regulated in Ghana and you will need to depend on brokers who’re accountable to overseas regulators. That is counterparty threat and recovering your funds will be tough in numerous eventualities, corresponding to when:
- Your dealer goes bankrupt because of mismanagement or different causes
- Your dealer had a pretend or cloned license
- Your dealer is concerned in arbitration and your accounts are frozen
To handle this threat, at all times be sure your dealer has a real license by visiting the regulators web site and doing a search to confirm its authenticity.
Leverage is the flexibility to commerce with borrowed funds. It’s common within the foreign exchange market, the place merchants use a small quantity of capital to put bigger orders utilizing CFD contracts. The factor about leverage is you could lose greater than the capital you invested.
In leveraged buying and selling, you will need to preserve a margin stage larger than 100% otherwise you threat a margin name. The upper the leverage you utilize, the harder will probably be to maintain your margin stage above 100%.
How does this work? A dealer might provide a leverage of 1:100 and which means that with a small beginning capital of $100, he can place an order of $10,000.
$100 fairness means 1% of $10,000 and is named the preliminary margin required to open a leveraged commerce (consider it as collateral). Notice that the preliminary margin proportion is (1/leverage) on this case 1/100 = 1%
A few of these overseas foreign exchange brokers go as far as to supply 1:1000 leverage, however they don’t achieve this in developed international locations the place Tier 1 regulators have restricted leverage utilization.
For instance, if the leverage is 1:1000 and you’ve got $100 fairness in your margin account and also you need to open an order price $100,000, you will need to make a required preliminary margin deposit as collateral of (1/1000) x $10,000 = $10
Margin Stage % = (Fairness/Used Margin) x 100 = ($100/$10) x 100 = 1000%
Nonetheless, if you happen to lose solely 0.1%, you’ll lose (0.1% x $100,000) = $100
Your new Margin stage turns into ($100/ $100) x 100 = 100%
Your margin stage has dropped from 1000% to 100% simply due to a 0.1% loss. A giant drawback of excessive leverage.
Now remember the fact that as soon as the margin stage reaches 100%, you won’t be able to open any extra new positions. In case you have extra losses and your margin stage drops to 50% (this stage varies between brokers), you obtain a margin name to deposit extra funds.
Nonetheless, in case your margin stage falls under 25%, all of your open positions might be closed, that means any cash you will have purchased might be offered and the cash used to repay your debt. You’ll document a loss as a result of your dealer might promote your coin at a lower cost than you got it for.
Hole threat is the chance that the worth of a foreign money pair will fall sharply away from the earlier closing worth. Instance EUR/USD closed at 1.07 yesterday and opened at 1.02 this morning, even when there was no buying and selling.
The hole is widespread in the course of the weekend break in buying and selling as foreign currency trading takes place 5 days per week and is extra widespread throughout excessive market volatility.
Throughout excessive volatility, gapping additionally impacts stop-loss orders. The worth of a foreign money pair can exceed the restrict worth you set and your cease loss is triggered at a unique worth.
Think about the present USD/EUR trade fee is 1.1545 and also you set your cease loss order at 1.1540. The order will solely be executed if the USD/EUR worth falls under 1.1540. Nonetheless, if the USD/EUR worth rises above 1.1540 and opens at 1.1200, your place might be closed at 1.1200 and can end in further losses for you.
Copy enterprise threat
Copy buying and selling is while you mimic the trades executed by different grasp merchants. Copy buying and selling will be handbook when alerts are despatched to you to execute, or automated while you hyperlink your account to the grasp dealer to present you full management.
Tier 1 regulators such because the UK FCA contemplate automated copy buying and selling as portfolio administration and require grasp merchants to adjust to regulatory obligations. The purpose is that duplicate buying and selling is difficult and copying anybody may end up in losses which are tough to recoup, particularly as retail foreign currency trading is unregulated in Ghana.
Most copy buying and selling platforms require some form of subscription and once they do not, the spreads and charges are normally greater than with common buying and selling.
Copy buying and selling doesn’t encourage diversification as a result of grasp merchants concentrate on particular foreign money pairs. While you make investments closely in a grasp dealer, you threat dropping all your capital when that foreign money pair underperforms.
Lastly, copy-trading can create a battle of curiosity between the follower and the principle dealer. Whereas the follower is instantly return or revenue, that may not be the grasp dealer’s plan. He would possibly resolve to carry long-term belongings no matter losses.
Some copy buying and selling platforms pay grasp merchants based on their win fee, so some masters might be manipulative. They may place cease orders effectively under the present worth to keep away from frequently dropping. That is good for them however unhealthy for you as a result of it means you are taking large losses in case your cease loss is triggered.
These are all dangers that stand in the way in which of a web-based foreign exchange dealer utilizing copy buying and selling as a technique. Subsequently, there’s a name for warning.
Publicity to false sign scams
Many individuals and organizations declare to have info that may give merchants perception to extend their buying and selling earnings.
These individuals normally cost weekly or month-to-month subscription for his or her companies. In essence, only a few are real and most of them simply ship you random alerts.
As a novice on-line foreign exchange dealer, you’ll probably fall for these scams as they appear real. Some go so far as posting screenshots or testimonials from others who’ve had success with their companies.
Publicity to kill-the-pig scams
The kill the pig rip-off is a rip-off that’s constructed on belief. Right here, the scammer first tries to construct belief normally by coming into right into a romantic relationship (by elevating pigs) after which telling you in regards to the earnings they produced from your funding or foreign currency trading platform.
In your first funding, the scammer permits you to withdraw a sum of the revenue. This drives you to additional make investments (fattening your account) massive quantities on the rip-off foreign currency trading platform.
By doing that, the scammer disables the buying and selling platform and takes your cash (slaughter). The US embassy in Ghana has issued a warning about romance scams. In keeping with the Embassy, the scammers declare to be US residents dwelling in Ghana and set up a relationship with you on-line.
Many Ghanaians really feel that on-line foreign currency trading is the elixir of poverty and the battle of 9 to five jobs. Nonetheless, on-line foreign currency trading is a giant ocean stuffed with sharks that disguise themselves in numerous guises. The chance in foreign currency trading is nice and requires understanding earlier than beginning the enterprise.