Hkyle Javelosa, sales director of global trading platform MultiBank, says government regulation of foreign exchange trading will protect Filipino investors from fraudulent players.
Javelosa, who is also the owner and moderator of Juan Entrepreneur, a Facebook page that actively promotes financial literacy to Filipinos, says that when the Philippine stock market weakened in 2018, investors flocked to find other lucrative investment vehicles to diversify their portfolio. Some put their capital in real estate, but the high prices made it inaccessible to smaller-scale investors. Others began dealing with cryptocurrency such as Bitcoin, but the overall uncertainty about the space meant it only appealed to the most adventurous investors.
Other investors instead turned to foreign exchange or forex trading, where they would invest their capital in various currency pairs and profit from the strengthening and weakening of different currencies. Many saw the value in participating in the largest trading market in the world in terms of volume—a study showed that in April 2019, forex trading was valued at $6.6 trillion each day—and its near-constant operation, being open 24 hours a day and five days a week.
Its growing popularity and potential for more lucrative returns has enticed both professional and beginning investors alike to look into forex trading. Unfortunately, this interest has given rise to fraudulent operations that take advantage of new investors’ inexperience and offer forex trading deals that ultimately lead to scams.
As a result, the Securities and Exchange Commission urged the public to stop participating in forex trading in an advisory dated Oct. 30, 2018. It added that any broker or company selling forex trading services does not have an official license from the SEC to offer these services.
Unfortunately, issuing warning advisories around the illegality of forex trading hasn’t proven effective in preventing illicit companies from continuing their operations, she says. The SEC has been warning against forex trading for several years and its website contains archives of such advisories against forex trading from 2013.
“With the demand for forex trading not dying down anytime soon, there’s an argument for establishing a set of regulations that encompasses forex brokers and companies operating in the country, instead of completely discouraging what could be a legitimate economic activity that creates value. In the same way that stock brokers, fund managers, and insurance agents follow a set of standards to ensure they offer high-quality services, forex brokers must merely be regulated to make sure that they have the investor’s best interest in mind,” Javelosa says.
“Regulating forex brokers isn’t entirely unheard of—in fact, some of the world’s largest forex markets benefit from a clear set of rules from their respective monetary authorities. From the US to Switzerland to Australia, the accommodating regulations in these countries have given rise to brokers and trading platforms that specialize in forex trading,” she says.
Javelosa says implementing a set of regulations aimed specifically at forex brokers would not only benefit investors, but it would also have tangible benefits for the brokers and regulators themselves. For investors, regulations would better protect them from abusive forex trading schemes and fraudulent forex brokers. Having a clear forex regulator would also give investors someone to turn to should they need to report any suspicious activity.
For brokers, the legitimate players would have a more even playing field, as they wouldn’t have to compete with unofficial brokers that offer unrealistic returns for low prices. Having a regulatory body would also give a sense of legitimacy to forex trading as a whole, allowing forex brokers to appeal to a much wider audience, says Javelosa.
“For the government, a solid set of regulations would allow them to impose taxes on forex transactions. Regulatory intervention also dissuades the blatant manipulation of foreign exchange rates and client accounts, giving the entire market fairer and more equal opportunities,” she says.
“While issuing advisories against engaging in forex trading would help in protecting investors from trading scams, it does not get to the root of the problem and only deprives investors of a favorable asset they can add to their portfolio. By creating a solid set of regulations for forex brokers, Filipino investors will be able to reap the benefits of forex trading while still being protected from fraudulent players,” says Javelosa.