Consumers who are considering embarking on forex trading and other forms of online day trading must ask themselves whether they have the expertise required and are prepared to accept the risk of losing all their money, the FAIS Ombud says.
Online trading is generally regarded as a high-risk investment and should be undertaken only after giving serious consideration the risks involved, the Ombud said in a statement this week.
In a recent case dealt with by the Office, the complainant received a call from the representative of an online trading platform inviting him to subscribe to the platform. The complainant believed he could make substantial profits from forex trading. He invested about R725 000 over several months. At the end of the period, he had lost most of his capital, having received only one withdrawal of R3 959.35. When the complainant requested a second withdrawal, it was automatically rejected by the platform because his balance was insufficient to process the amount due to the open positions of the complainant at that time.
His family lodged a complaint with the Office of the FAIS Ombud asking for all his capital to be refunded.
The financial services provider responded to the complaint and provided all the signed documents. Based on the evidence provided, the losses were purely because of the complainant’s online trading transactions. The complainant subscribed to the site directly, and there was no evidence of any financial advice involved.
Furthermore, in terms of Rule 4(f) of the Rules on Proceedings of the Office of the Ombud for Financial Services Providers, the Office cannot investigate a complaint that relates to the investment performance of a financial product, unless such performance was guaranteed expressly or implicitly.
The Office was unable to assist the complainant.
“Consumers are advised to be wary of representatives who contact them in respect of such investments and encourage them to complete an online application without conducting a needs analysis and completing a record of advice, which details all the material disclosures made in respect of the risks involved,” the Office said.
Besides the serious risk involved, consumers must they are dealing with a regulated forex broker who has a licence issued by the Financial Services Conduct Authority.
The Office has received several complaints where complainants are lured by the promise of extravagant returns from individuals and entities that promote themselves solely on social media platforms but are not licensed to provide financial services by the FSCA. The Office is generally unable to assist if it is not a licensed and regulated entity.
Be very wary of anyone who promises a forex or day-trading investment with astronomical investment returns and an undertaking of zero risk of losing your capital. If it’s too good to be true, it normally is.
