So you think you can get into Forex trading in Uganda?

Outside Looking In
D E Wasake

If you are a Ugandan, you have probably heard all about the forex trading that seems to be the hottest business in Uganda. If not, read about it here.

I wanted to invest $10,000 togther with a cousin in a company that I understand is one of the leaders of forex trading. While recently in Uganda this May, I even visited their offices and saw a vast array of computers with lots of graphs and a TV on Bloomberg TV or other business channel (The analysts didnt however appear busy as I would have expected from watching alot of "Wall street" movies). Anyway I returned to the UK and was saving. I recently called a good friend in Uganda and casually mentioned the idea to him. He casually mentioned: "I just put $2,500 which Mrs told me not to put into that company. They have missed my monthly payments (supposed to be 20.4% interest and principle per month) for the second time." He indicated that this company is a ponzi scheme, commonly called a pyramid in Uganda.

So is forex trading the real deal? I set out my observations.

The cons (first of course).

1. Sector unregulated in Uganda

"....Mr Stephen Kaboyo, the director of financial markets at Bank of Uganda equally disregarded the business despite being in charge of currency markets in the country.

"It is not regulated business. It's really outside our regulatory provision as far as the forex market is concerned," he said in an interview on Friday. "It's just like any other business. If you are interested, you go in. If you go there and lose your money, you don't complain."

Source: All Africa.com

As an unregulated sector, this creates a risk especially for the cautious investor(as anyone should be!) especially when for example compared to Switzerland, which seems to be the hub of online trading and has a well regulated sector as per this link.

This of course may not be a major issue for a typical Ugandan as hardly anything is effectively regulated anyway! In Uganda, it would appear many regulations remain on paper and the Bank of Uganda (BOU) director was perhaps just being realistic, its a dog eat dog world.

2. Experience/reputation of traders
The sector has only been recently formed in Uganda and with a myriad of "traders" how does one verify who is "legit" and who is quack. How do you know who is well experienced and who is not. This is compared to the established players like say HSBC who will clearly tell you how the sector is performing. See an example of their investment profile for Exchange Traded Funds(ETFs) which are a financial investment products not too dissimilar to Forex trading.

3. High Starting capital A good forex trader or investment broker will usually ask you to have starting capital of $10,000. This is because forex trading relies on such tight margins (called "pips") such that to make you a decent return they need to invest a fair amount of money. At today's exchange rate, $10,000 is Shs. 28m!

And now the Pros

1. Liquidity. The market is huge. It is the largest type of market in the world and if you open yourself an account say with FX pro with oanda.com or similar other self traded or managed broker accounts, you will find you can easily buy and sell. Read a summary of the size of the market here.

2.Good returns In the Investment and securities market, I am not sure if there is any other business model giving better liquid returns especially at the moment. Of the website of investment managers I have researched it is not uncommon to find those that give returns typically of 6%. Compare this say to a high saving interest account with Barclays Uganda or Crane Bank which give returns of at most 5%.

An example of a website I see with proper disclosure of returns information is here. You can see that the return for 2010 on a $10k investment was 21.3% but compared to 2011 to date which is now only 3.44%. You should of course know that like any trade in securities, returns are not usually guaranteed and many a trader post losses particularly those who trade for themselves on trading platforms being promoted by so many companies such as this one.

3. Can be easy to deal with
Like many investment products such as stocks and other securities, if you have a managed account, then you have a broker handling this for you. Yes they charge fees(check out their fees and compare with others) but this means you don't have to constantly monitor the position as the brokers do this and will usually send you portfolio statements or even you can view these online and as such can choose to liquidate should you wish.

Final Word

In today's world of unpredictability in the securities markets, this appears to be one doing okay irregardless of how the market performs but do your research well and unless you are willing to teach yourself how to be a forex trader (for example at this site) you should seriously consider putting your investment in forex trading through a reputable investment broker/bank who will manage the account for you.

If necessary,open a foreign currency account in one of the Ugandan banks to handle this aspect and deal with a foreign player who is regulated. For example this company and this company are both regulated in the UK by the Financial Services Authority(FSA).There are several scams out there and I dont think its worth investing a significant amount of money in someone who is not tested and tried and doesn't have quality control mechanisms to protect your money from for example rogue traders or simply inexperienced people.


P.S
If you would like to work with me on this business series or would like me to feature your article in the same format above, please dont hesitate to email me at: dewasake@gmail.com.


And now the disclaimer: While I have taken steps to research this information as well as based on my experience, you should not rely on the information given here to base your investment decisions. You should seek business advice from a professional knowledgeable of your specific circumstances. I shall therefore not be held responsible for any loss you may incur when acting on this information.