By Micheal Legesse

In the grand theatre of global finance, forex trading takes centre stage as a colossal and tempestuous sea. It’s a realm where the world’s currencies ebb and flow like capricious tides, and every rise and fall can spell fortune or ruin for those daring enough to navigate its waters. In the hands of skilled traders, currencies become their playing cards, and they perform astonishing feats of profit-making, seemingly out of thin air. It’s a world where immense profits and devastating losses coexist, where financial dreams are born and, at times, shattered.

The allure of forex trading casts a powerful spell, and it has not spared the young and ambitious souls of Ethiopia. They are drawn to the promise of financial freedom and the allure of quick wealth, believing they can turn the tide of their financial destinies with a few clicks of the mouse.

A Quick Glimpse into Forex Trading

Forex trading, also known as currency trading, is the buying and selling of currencies on the foreign exchange market. It is the largest financial market in the world, with a daily trading volume of over $5 trillion. Picture this: a marketplace where currencies, the lifeblood of the global economy, engage in a perpetual dance of gains and losses. Forex trading is where astute traders take centre stage to predict the future of these currency pairs. They’re the navigators, trying to steer a ship in a storm, betting on currencies either gaining momentum (going long) or plunging into a downward spiral (going short).

The Magnetic Allure of Forex Trading

Now, why on earth would young Ethiopians, or anyone else for that matter, be drawn to this financial frenzy? Well, it turns out there are a few siren songs leading them astray.

In a world where cat videos and epic fails are just a scroll away, it’s no surprise that forex trading has become a spectator sport. Platforms like YouTube and TikTok have opened the doors to forex education

like never before. Influencers don the hats of modern-day wizards, promising easy riches, and leaving young Ethiopians starry-eyed with dreams of financial freedom.

Ever dreamed of partaking in a high-stakes game with nothing but pocket change? Forex trading grants that wish. With as little as $100 dollars deposit, anyone can jump into the ring and try their luck. Barrier to entry to forex trading is almost nonexistence and hence the reason for its popularity.

Peer Pressure is also another factor. Just as schoolmates might nudge you into trying the latest trend, friends and family oGen set sail together in the world of forex. The allure of joining the crew is strong, as it offers a sense of belonging and shared excitement. Forex trading also carries an air of prestige. It symbolizes success and wealth. Who wouldn’t want a slice of that pie?

And of course, the bliss of the digital age has bestowed a great giG upon aspiring traders – accessibility. With an internet connection and a fraction of sum, anyone, from Addis Ababa to the far corners of Ethiopia, can enter this global financial arena.

The Perils of Forex Trading – Are You Ready for the Ride?

Alas, the rocky shores of the forex market await those who dare to venture. This ocean is not for the faint-hearted, and as many experienced traders will tell you, most voyages end in a shipwreck. But what is it that makes forex trading so perilous particularly in the context of Ethiopian traders.

The Brokerage Abyss

One of the glaring challenges Ethiopian traders face in the world of forex is the absence of local forex brokers. Unlike more established financial markets, where traders can turn to domestic brokerage firms regulated by their government, Ethiopian traders have to set sail into uncharted waters.

In the absence of local brokerage firms, they must rely on brokers operating in the parallel market, oGen of uncertain repute. It’s akin to embarking on a perilous voyage without a reliable compass. These unverified brokers might not adhere to the same standards and regulations as their established counterparts. As a result, traders entrust their funds to entities with uncertain backgrounds and practices, putting their financial fate in precarious hands.

The Unprotected Deposit

In the forex trading world, the safety of your investment oGen hinges on the broker’s commitment to segregating client funds. Reputable brokers typically create separate accounts for their clients’ money, ensuring that even in the stormiest of financial waters, your investment remains safe. However, this safeguard is not universal, and some brokers disregard this practice.

So, imagine you’ve entrusted your hard-earned money to a broker who lacks the integrity to protect your funds in a dedicated account. If the broker encounters financial turbulence or declares bankruptcy, your money is gone forever.

Market Maker Brokers – The Casino of Currency

A specific type of broker, known as a market maker, operates on a model where they essentially place bets against their clients. In essence, they are your gambling partner at a casino, and the house, or in this case, the broker, has the upper hand.

These market maker brokers don’t operate with the sole intention of scamming you. Instead, they make their profits from the spread, which is the difference between the buying and selling prices of

currency pairs. The wider the spread, the more money the broker pockets. So, it’s like stepping into a casino where the house always wins, and it’s only a matter of time before the odds tip against you.

The essential point to understand here is that while market maker brokers are not inherently dishonest, their business model introduces a natural conflict of interest. They are trading against their clients, which means if you profit, they lose, and vice versa. It’s a setup where the broker’s interests and your own are inherently at odds.

Placing Your Trust in False Prophets – The Dark Side of Forex Trading

The most perilous twist in the forex trading journey is when aspiring traders, oGen out of desperation for quick wealth, put their trust in individuals who claim to be successful traders on platforms like  YouTube and TikTok. These charismatic characters, with promises of abundant riches, can lure in unsuspecting investors, creating a false sense of security.

In the hopes of seeing their investments multiply rapidly, investors surrender their hard-earned money to these self-proclaimed trading gurus, only to realize later that they’ve entrusted their financial fate to a mirage. It’s like following the advice of a street magician who promises to turn your pennies into dollars, only to see your money vanish into thin air.

The risks of this approach are manifold. First and foremost, the promised returns oGen prove elusive, with many investors experiencing financial losses. In some cases, these so-called traders might simply take the money and disappear, leaving investors with empty pockets and dashed dreams. It’s a bit like falling for a grand illusion in a magician’s show, only to find that the rabbit never returns from the hat.

But there’s an even darker twist to this tale – the Ponzi scheme. Imagine a scenario where a seemingly successful trader promises you astronomical returns on your investment. They boast about their prowess in the forex world, showing off impressive numbers and flashy lifestyle on social media. It’s as if they have a magical touch, turning every dollar into a golden goose.

At first, you might be sceptical, just as you’d question whether a magician can truly saw a person in half. But then the promised returns start rolling in. You see others around you reaping the benefits and receiving their initial investments back with generous profits. The word spreads, and more and more people eagerly pour their hard-earned money into the scheme.

The success of a Ponzi scheme relies on the cash flows from new investors. The early investors receive their returns, but those profits are essentially funded by the contributions of newcomers. It’s like a pyramid scheme, where those at the top reap the rewards from those below.

But here’s the catch – this can’t go on forever. Just like a magician’s trick, it’s all smoke and mirrors. The scheme inevitably collapses, and when it does, it leaves a trail of financial devastation. Those who joined later are leG with empty pockets, their dreams of quick wealth shattered. It’s the classic tale of an illusionist’s final act, where the curtain falls, and the audience is leG in shock.

In conclusion, the temptation of trusting self-proclaimed forex trading gurus, whether they operate a Ponzi scheme or not, is fraught with danger. The allure of quick riches can lead to impulsive financial decisions, oGen resulting in significant losses. It’s imperative for aspiring traders to approach such individuals with extreme caution and scepticism. In the world of forex trading, as in the world of magic, what seems too good to be true usually is, and falling for an illusion can have dire consequences.

So, here we are, having journeyed through the world of forex trading. It’s an enticing, high-octane journey, but the risks are as real as the rewards. The allure may be powerful, but for every triumphant trader, there’s a tale of countless others who’ve been leG shipwrecked.

In an upcoming article, we’ll chart a course for minimizing these risks if you’re determined to sail these waters. But it’s important to remember that there’s no magic potion for financial success. Diversification, value investing, and a mix of long term and short-term trading in equities and forex may be the safest course to navigate the turbulent sea of financial markets. If it were smooth sailing, all the big money managers would be joining the journey, but they’re not. In the end, forex trading is not for the faint-hearted, and it’s crucial to tread these waters with caution.

Micheal Legesse, ACCA MBA

Active Investor, Consultant and Dad