Cape Town - The foreign exchange market is set to be even more volatile in 2017 than before, according to Richard Beddow, CEO of ForexPeople.
Just like the rest of the banking world, foreign exchange services are being shaken up thanks to the rise of financial technology (fintech) players. Fintech is disrupting and disintermediating traditional financial institutions such as banks, in the same way that Uber overhauled the taxi industry, in his view.
"New lean and agile forex intermediaries can help businesses and individuals mitigate their foreign exchange risk by doing things differently, harnessing the power of technology and using new business models," said Beddow.
"In the past customers have used banks for all their finance needs, but they are quickly realising the benefit of using new, specialist financial services companies."
In South Africa, a legitimate compliance and regulatory framework, set up by the SA Reserve Bank (SARB) in 2012, stipulates the conditions that an intermediary has to adhere to. In addition to SARB, the Financial Services Board (FSB) and the Financial Intelligence Centre (FIC) also regulate the forex intermediary industry.
Beddow explains that a forex intermediary - somewhat like a bond originator - "are highly focused on one financial service, and so can offer more specialised advice, products and a better and more transparent overall customer experience".
The exchange rate that an intermediary offers should be better than that of a bank, in his view. This is due to the aggregation-effect gained through the volumes intermediaries deal in.
For example, a large intermediary can combine the forex requirements of 600 to 700 clients to leverage better deals from the banks compared to if each client approached the bank independently.
In his view, intermediaries really understand small businesses and so can help them actively manage their forex risk through simple hedging practices.
"South African Importers and exporters are exposed to massive currency risks and need as much help as possible to protect themselves in an unstable currency environment," said Beddow.He added that forex intermediaries are very different to forex traders and unfortunately the two are often confused.
"Forex trading is a risky, speculative game where investors try to buy and sell currencies for personal gain. Forex intermediaries are brokers or aggregators that help importers and exporters make cross border transfers and protect themselves from exchange rate fluctuations. They also help individuals with their personal allowance transfers. It is vital that this distinction between intermediaries and traders is made," said Beddow.
On the other hand, Tabz Qadir, acting CEO at Uprise Markets and former co-chair of low-cost airline Skywise, sees becoming a forex trader as a way to embark on a new career path.
She recommends four critical steps for persons considering entering the forex market: Identify your financial needs; choose a trading strategy; trade on a demo account; then trade on a live account.
"Naturally, in-depth research into the forex market should be done prior to embarking on this journey in order to avoid unexpected surprises. Detailed analysis about currencies, technical and fundamental analysis as well as finance and economic concepts must be covered," cautioned Qadir.
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