Is forex trading a safe investment for South African Traders?

By: Chime Amara

What are the factors that determine the security of investors' funds in the forex market？

Forex trading is classified as a high-risk investment. This is because there is no guarantee for profits. Investment in forex is quite different from other forms of investment involving lower risks such as investing in real estate, buying government bonds, and purchase of physical assets, etc. Hence, investors are advised to carefully study the risks involved in forex trading before venturing into investing.

On the other hand, when it comes to claiming back one's capital and profits after deposits, there are two factors that determine the security of the invested funds. These factors are explained below:

« Regulation: To ensure that brokers can pay back all invested in the forex market, various countries have created their financial market regulators to foresee the activities of all brokers operating in the country. Various regulatory bodies such as FCA, FSA, ASIC, FSCA, SEC, etc probe the activities of all the brokers operating in their regions and hold them accountable to pay all profits and available capital when requested by the trader. Similarly, WIKIFX renders independent regulatory services as a backup to the various country regulators. The onus, therefore, lies on traders to select the brokers registered with their country's regulators and approved by Wikifx too. This offers them more confidence in the security of the invested funds.

« Type of broker: Very often,ECN brokers are preferable over any other type of broker. This is because this category of brokers is known to place the traders' orders directly at the market and are therefore able to deliver all the returns without hindrance. Other brokers do not have this advantage. Hence, ECN brokers remain the best type of broker for investors today.

Nevertheless, all South African traders should ensure that their chosen broker is registered with FSCA which is the body regulating brokers in South Africa today.