SIMON BROWN: Beware the pitfalls of forex trading

Trading forex is hard — very hard. The wildly insane gearing that can be as high as 1,000 times kills any wannabe forex trader, and pretty much everybody — and I mean everybody — ends up losing money.

You very likely know this and have either stayed well away or got taught some nasty lessons and lost money in the process.

But the reality is that in some way we are all forex traders in that we move money out of rand into other foreign currencies, mostly moving to the dollar or maybe sterling or euro. Now, this is not really trading and it has no gearing. But, oddly, we most often treat it like trading.

What I mean is we try to time the currency. As the rand weakens, we decide we don’t like the current level so we wait, wanting a better price. When a better price comes thanks to some occasional rand strength, we again pause, asking: “But could it get even stronger?”

Suddenly we’re trading forex — or, rather, trying to. But we shouldn’t, for a bunch of reasons.

First, with the rand at about R18.70/$ as I write, only one of my moves into dollars is underwater in that I got a worse level. Now, let’s be clear, I have moved money at some wild times, such as when then finance minister Nhlanhla Nene was subject to a midnight firing by then president Jacob Zuma. The rand collapsed, but I had a strategy and I stuck with it, taking rand offshore at about R16/$, only to watch it go below R12/$ as Cyril Ramaphosa was sworn in as president.

It was painful, but today at R18.70/$, who wouldn’t love to be able to take money offshore at R16/$?

The point is I have a clear strategy for moving money offshore. I bulk it up and every quarter I move rand into dollar. I don’t stress the price I am getting. Sometimes it is better, other times it is worse, but over time it will be just fine.

Now, sure, if we see significant rand strength — say more than 20% — I will try to move more rand offshore. I do this with my monthly ETF purchases as well. A price 20% below recent highs and I try to double my investment amount. “Try” is the important point here; we likely don’t have piles of cash just sitting around waiting to be invested or moved offshore.

Last, by waiting and trying to time the rand we miss opportunities. I remember somebody wanting to buy Nvidia when it was about $450, but they wanted to wait for a stronger rand. Nvidia is now almost $1,100.

So, stop being an accidental forex trader — set yourself a plan and stick with it. Over the fullness of time the levels we get today don’t really matter.