I was once almost a victim of a forex trading scam from a person I had considered a friend. I would have fallen into their trap because forex is often marketed as a very glamorous investment opportunity with great returns.
Key Takeaways
- Forex trading is mostly based on speculation (over 90% of trades are speculative).
- The idea of high returns also means high risks for traders.
- You can lose money when trading with unregulated brokers or via online scams.
- Consider using forex brokers certified by the Capital Markets Authority (CMA).
The scams and losses surrounding forex trading are almost poetic at this point. They are everywhere and they seem like a never-ending vortex.
‘A 29-year-old Kenyan who lost Kshs. 50,000 within 10 minutes of trading via an online platform’
‘A group of Kenyan politicians, government officials, and diaspora investors lost Kshs. 590 million via Maalin, a forex trading company’
‘A Mr. Mugunda and Mr. Musyoka who lost Kshs. 2.2 million and Kshs 9 million respectively via a lone forex trader promising 10% monthly interest’
‘A Miss Wanjiru who doubled her Kshs. 200,000 and they lost all of it within one night’
‘A teenager in the U.S. who invest Kshs. 1.6 million and saw a possible loss of Kshs. 73 million leading to his suicide.’
The list is endless.
You will however not see a lot of these stories when you search online for forex trading because they are hidden under the thousands of positive reviews and adverts promoted by rogue brokers and trainers looking for their next prey.
The concept behind forex trading is simple, at least based on how it is marketed, you just deposit funds with a broker and then grow it by frequently trading currencies.
An example is buying a U.S. dollar when it is worth less against the Japanese Yen and selling it when it is worth more against the same currency hence cashing the difference as profit.
There is a thrill that comes with trading forex that has led countless people in Kenya into losses amounting to millions of shillings. The potential of doubling or tripling the initial investment within a few days or weeks of trading is almost irresistible.
Also, the fact that you just need initial capital, a laptop, and good Wi-Fi makes it endearing to young Kenyans looking for alternatives to self-employment. But beneath this charade is a very high-risk and high-return business.
First, while a lot could be said about the process of forex trading, there never seems to be an easy way of learning and becoming an expert. It is like wading in murky waters where the majority lose their way before they even get started.
There are thousands of companies and individuals promising to teach you how to trade, provide brokerage services, or trade for you at a commission but these create so much confusion that the real lessons and brokers remain buried in the mountains of misinformation on the internet.
Many investors get lost in the flashy (but scammy) platforms, too-good-to-be-true marketing messages, and promises of unbelievably high-interest rates.
Newbies learning their way almost certainly lose their investment. In fact, a popular quote in forex is that 95% of first-time traders lose their investment regardless of its size within the first few trades.
A common way people lose money is by assuming that the Demo account offered by a broker represents the actual trading account. (Brokers give you a platform to trade once you open an account with them).
They first introduce you to their system with a demonstration (demo) account with a fake balance that you trade with for learning purposes. Demo accounts however are just a way to paint the most positive picture about the broker’s forex platform.
They are a marketing tool meant to boost your confidence and loop you into the real platform where you trade actual money that you invested.
Demo accounts certainly make profits (surprise!) but losses ensue as soon as you venture into trading with actual money.
In addition, there are so many unregulated brokers who run with investors’ money after a short while of gathering enough funds worth stealing.
It is particularly hard to identify rogue brokers because they have very appealing websites and systems and positive but fake reviews across online forums.
They register companies somewhere in the Cayman Islands where laws on banking, tax, and privacy are almost non-existent. This allows them to just scam people and resurface later with a new name or just plainly refuse to allow withdrawals from their system with no legal consequences.
Then there are losses just out of sheer incompetence.
Like other skills, trading is learned over a long time and there is no promise of mastery. However, most Kenyans (and people globally in general) jump in with just a few weeks’ worths of lessons and nothing else but overconfidence in how they will work the market to riches.
Those who are not willing to learn also risk falling prey to lone traders claiming to be experts and who promise constant monthly interest on your money once you allow them to trade with it. This is how most of the cases at the start of this article went down.
A story floating around the Buyer Beware Facebook group popular for exposing conmen showed how easily these lone traders scam people.
The story is of a young Kenyan who promised above 20% monthly returns, ran away with millions from friends and family, and run the con game for surprisingly far too long.
Their major trick is to give you back portions of your money intermittently over a long period of time thus allowing them to use you to recommend others and gather enough to run away with before the whole pyramid comes crashing down.
If you really want to trade forex safely in Kenya, consider using forex brokers that are regulated by the Capital Markets Authority (CMA).
Overall, investing in forex should be for people willing to lose their entire investment without flinching.
This is why honest brokers and traders will tell you to write off your money the moment it lands in a forex account so that you will be okay whether the money comes back or not. Evidently, when investing, forex trading should not be your first option.
