I’ve been talking and writing about transparency a lot over past months, but I slowly realise that this is a conversation that should and will never end. Transparency is something that needs be at the core of everything we do in the financial industry, and not just the content everyone glances over in the fine print.
Why? Because we need to be clear with people about what they’re getting themselves into when they start trading and investing. Of course, ultimately, everyone has to make their own decisions and choose their path in the financial world. But as facilitators of this, it’s our job to be forthright about the risks involved, the way our investment products are priced, and the way the system works.
Trading is not as simple as some make it to be. I’ve been in the industry for over 30 years now and I feel like there isn’t much that can surprise me any more. Throughout I’ve seen marketing campaigns that glamorise, oversimplify, and downplay the risks involved when trading and investing.
Some even consciously push newbie customers toward margin products, such as derivatives, and market them as an investing option. That makes me nervous – knowing that some people are reading these ads, listening to these radio stations, and not looking beyond the surface at the details.
It makes me anxious to think that some people choose to open an account and start trading a leveraged product that has a lot of gearing in it, which inevitably can and often does result in losses. Numbers vary, but industrywide about 70 per cent of traders lose money when trading leveraged or CFDs products.
In addition to complicated trading and investment products and the need to raise awareness about risks involved, we also need to be transparent about how financial companies work, how they make money, and how they price their products. For example, whenever you hear that you can trade commission-free, that doesn’t necessarily mean there are no fees involved.
What it does mean, however, is that the fees are already paid for from other sources. Been on the internet and seen an ad for ‘spreads as low as’? This is the industry version of the bait and switch. ‘As low as’ is a marketing gimmick.
It is not the price you will see most often, and sometimes it also will have commissions attached to it. It’s old school churn-and-burn marketing methods.
Pricing transparency helps traders make decisions. This is where price transparency is crucial. Ultimately, the most important benefit of transparency and disclosure is trust.
As a region that’s seeing a rise in novice and beginner traders, we have a once-in-a-lifetime opportunity to raise the bar and set benchmarks. For this, there needs to be a conscious effort to try and change the paradigm of the market ecosystem and to consciously encourage more customers to engage with the markets, explore the world equity markets, participate and invest in local and regional shares, seek true education and not ‘hot’ trading systems, and social media channels promising crazy returns.
Institutions can play a leading role in ensuring long-term success and increased engagement among investors. Encouraging and implementing greater transparency, education, and ethical marketing practices will boost customers, irrespective of their gender, income, or experience level to participate in the markets.
It is these engaged customers who will in turn drive the wider population into the world of trading and investing. Earning the customers’ trust and setting the standard for future players should be a key goal.
I wholeheartedly encourage the industry and its leaders to work towards creating a transparent environment for people in MENA to trade and invest. For the time has come and the MENA participation in markets matter, not just here, but globally.