MY FIRST and only day as a FOREX trader began well.
The sun was shining, the commute was easy and I had a full morning to make my fortune on the markets. It wasn’t until about 20 seconds into my first trade that things started to go wrong.
I’d plumped for a 4,500,000 EUR/USD position at 1.42986 deal rate, from my leveraged account.
A gutsy move I thought: go big, shake up the market and watch my PiPs grow.
Never mind that I had no idea what this meant.
Making the trade was surprisingly easy: once logged in to my newly opened online currency trading account, it took just a handful of clicks to open the position and expose my money to the dizzying maelstrom of global foreign currency exchange – or FOREX for short.
I then sat back, flexed my imaginary red braces and waited for the numbers on my screen rise.
At first they flickered a promising green, but within a few moments they took on a menacing crimson hue. My practice FOREX account was haemorrhaging pseudo-dosh.
Away with the imaginary money went my fantastic visions of becoming a trading prodigy, something like a young Gordon Gekko in the 1987 film Wall Street, or Shia LaBoeuf for anyone who saw the 2010 sequel.
In just under 20 minutes I had lost €5000. I needed new strategy.
I dabbled a bit with some other currency pairs, consistently losing my cash until I got bored and gave up. In short, it didn’t seem like much fun.
Strange, then, that the number of companies and online trading platforms has mushroomed in recent years – and stranger still that so many are registered in Cyprus.
A search for all companies with the word “FOREX” at the Companies Registry yields 70 active and distinct organisations in Cyprus alone, and on the website of the Cyprus Securities and Exchanges commission (CYSEC), there are 101 registered investment firms.
However, this list excludes an estimated 20 more unregulated companies – which experts unanimously agree you should avoid.
So what is driving the trend? Could it be the insatiable Cypriot gambling spirit, or the spread betters’ desire for a legal loophole?
According to former FXGM Media Buyer Officer Jason Farley, currency trading is gaining in popularity among Cypriots.
“It’s a boom industry here…The interest (in FOREX) is huge, particularly among Cypriots, because they can’t go to poker rooms or casinos… Effectively it is spread-betting on where a commodity will be, and a bit like when you go on holiday and swap currencies,” Farley said.
With punters able to trade with as little as $2.50, and a login process that takes just minutes, FOREX trading is now much more accessible than it was 20 years ago, when you would need a broker.
However, it is not just Cypriot demand that has made the island a FOREX hub, Farley explains. Cyprus offers a number of advantages to investment firms, such as the low corporate tax rate, solid banking institutions and relatively easier licensing for FOREX firms.
The demand for FOREX is global, and according to another expert, more than USD$3 trillion is traded every day.
United World Capital (UWC)’s Kris Antoniewski, who estimates there are around 100 FOREX firms in the Eastern Mediterranean region said: “FOREX is the biggest market in the world, with direct trade between buyers and seller. UWC has tens of thousands of clients in more than 150 countries.”
While UWC happens to be one of the safest options, regulated by both CYSEC and the stricter Financial Services Authority (FSA) in the UK, and guaranteeing deposits €20,000, not all companies are so reliable.
A quick search for FOREX on CYSEC’s home page returns a list of the agency’s warnings about unregulated companies operating in Cyprus.
In some cases CYSEC issues notifications about rogue firms that are not permitted to provide investment and ancillary services in Cyprus, and in other cases they can issue penalties for violation under the Investment Services and Activities and Regulated Markets Law of 2007.
For example, in September 2010 CYSEC fined Easy FOREX trading limited €10,000 for inaccurate advertising.
Instead, CYSEC said: “It did not indicate a fair and prominent indication of any relevant risks but it appeared that it downgraded it as the risk warning, was written in small fonts that it was not prominent.”
My brief foray into the highly technical world of the FOREX markets was enough to show me the risks – especially if you are uninformed and trade randomly.
But the real appeal of FOREX trading is that there is money to be made if you know what you are doing – and get a bit lucky. A select few can even make a living from it, if you believe the websites.
For this reason most firms offer a range of extras, like free demo accounts like the one I tried, financial advice, seminars and e-books.
Most companies make their money by taking a commission on each trade, so they have a keen interest in converting investment rookies and everyday punters into shrewd traders.
One such trader told the Sunday Mail he has spent 6000 euros on FOREX since he began in November last year.
Aris, a science graduate from Nicosia, said: “Right now I’m not active. I lost 5000 euros between November and January, but since then I have only lost 1000. I am taking a break now but will try once again with 500 euros.”
So can this ever replace gambling?
Aris, who says he is not a gambler, thinks not: “It is not an issue of luck, otherwise 50 per cent would win or lose – In the first year 95 per cent of people lose, while five per cent break even or make a profit.”
In addition to possibly losing all your money quickly (if you don’t study) Aris says many of the elements that make gambling fun are stripped away in FOREX trading.
“All the fun things about gambling are not there. It’s just a line going up or down, and there is no environment to do it in – it’s done on a computer so there is no social effect.”
The appeal, he says, is about doing the right thing and learning about the markets.
“The experience is the reward.”
It is a sentiment echoed by other reputable FOREX firms, who pointedly market platform functionality and financial services ahead of any chance of profit. As FXGM’s Farley said: “We want people to walk away having had a good experience.”
The message seems clear – if you do want to get involved, don’t hold any realistic expectations of making much money without painstaking research, make sure your broker is regulated and try with a practice account first.
