If you are a Ugandan, you have probably heard all about the Forex market and how it seems to be the hottest “new” business in Uganda.
I wanted to invest $10,000 along with a cousin in a company that I understand that it is one of the leaders in the market of Forex. While recently in Uganda (May) visit to their offices and saw a wide range of computers with large amount of graphics and TV returned to Bloomberg TV or other business channel. (Analysts, however, appear busy as I would have expected to see a lot of “Wall street” movies).
Anyway, In returned to the uk and started saving to invest the minimum required. In the recently(November) called a good friend in Uganda and casually mentioned the idea of him. Casually in miniature: “I only invested $2,500, which the Lady warned me not to put into the company. For the second time lost my monthly payments, which are supposed to be 20.4% interest and principle per month!.” He said that this company is a ponzi scheme, which is commonly called a “pyramid” in Uganda.
So is the trade of Currencies, the real deal? I put my observations.
The cons (first course).
1. Non-regulated Sector in Uganda
According to an article published in the New Vision newspaper:
“….Mr Stephen Kaboyo the director of financial markets that the Bank of Uganda equally disregarded the business despite being in charge of the foreign exchange markets in the country.
“It is not regulated business. It is really outside of our regulatory commissions in terms of the foreign Exchange market concerned,” he said in an interview Friday. “It’s like any other business. If you are interested, you should go. If you go there and lose your money, you don’t complain.” Source: All Africa.com
As an informal sector, this creates a risk, especially for the caution of the investors(as anyone should be!) especially when, for example, in comparison with Switzerland, which seems to be the centre of trade online and is a regulated sector.
Of course, this may not be a big problem for a typical Ugandan as hardly anything seems to be effectively regulated anyway! In Uganda, it would appear that many regulations remain on paper and the Bank of Uganda (BOU director was perhaps just being realistic because in Uganda, it is a “dog eat dog” world.
2. Experience/reputation of traders
The sector has been only recently in Uganda and with a myriad of “traders” how does one verify who is “legit” and who is quack? How do you know who has experience and who is not? This is in comparison to the established players like say HSBC who will clearly tell how the sector is performing. At HSBC, for example, if I wanted to invest in exchange-traded Funds(ETFs) are a financial investment products not too dissimilar of two of Forex trading, you could get an investment profile, a comparison with other similar funds, as well as the history of that investment by that particular fund manager.
3. High initial capital. A good forex trader or investment broker will ask you to have an initial capital of $10,000. This is because the Forex market is based on tight margins (called “pips”) in such a way that to make a decent return you need to invest a good amount of money. From today(November 2011) exchange rate, $10,000 is about Shs 28m!
And now the Pros
1. Liquidity. The market is huge. The Forex market is the largest market in the world and if you open an account, to say that it is a FX pro account with oanda.com or similar other self traded or managed broker accounts, you will find that you can buy and sell.
2.A good return Of the Investment and the securities market. I’m not sure if there is any other business model giving better liquid returns especially at the moment demanding world markets. Of the various websites of the investment managers that 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 laps of more than 5%.
You should, of course, know that as with any trade of securities, the returns are not usually guaranteed and an operator position of discharge, in particular, those who trade for themselves on trading platform promoted by many companies of online Forex trading.
3. It can be easy to slice to try As many investment products, such as shares and other securities, if you have a managed account, then you have a managing agent of the company for you. Yes they charge fees(check out their rates and compare with others), but this does not mean that you do not have to constantly monitor the position of the runners of this and will usually send you portfolio statements or even you can view these online and as such, you can choose to settle if you you want to.
SUMMARISING AND THE FINAL WORD
On the basis of my analysis:
* The investment of Capital(A): Shs 28,000,000
* Revenue per year:(assuming 3.44% interest per month): Shs 11,558,400
* Profit per year (Assuming investment manager fees of 1% of the initial capital) (B) is Shs 11,278,400
* Return on capital(years to get capital or A/B) is 2.48 years
Now the basics you must get right before investing.
* A regulated investment manager/broker is a necessity.
* A foreign currency account to protect yourself from the fluctuations of Currencies.
* The returns of the investment can not be guaranteed, especially with the current economic climate. Get ready for a gain or loss.
END OF THE WORD, YES OR NO?
In today’s world of unpredictability in the securities markets, this appears to be a good, regardless of how the market performs but do your research well and unless you are willing to teach you how to be a forex trader (for example, on this site), you should seriously consider the possibility of putting your investment in the Forex market through a good reputation as a 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. Choose, for example, firms that are regulated in the uk by the Financial Services Authority(FSA). There are several scams out there and I think that it is not worthwhile to invest a significant amount of money on someone who is not tried and tested and has no quality control mechanisms to protect their money from, for example, rogue traders or simply people without experience.