Online investment platforms provide a convenient way for consumers to invest directly in various financial products. The emphasis in this instance would be on medium and long-term investment. However, online day trading presents a significantly different scenario entirely and poses a much higher risk for the average consumer.
The Office of the FAIS Ombud (“the Office”) has noted a steady increase in the number of complaints stemming from consumers who are day trading on online trading platforms. In essence, online day trading involves the buying and selling of financial instruments, such as stocks, currencies, commodities, indices and contracts for difference through internet-based platforms. Here, one speculates on the short-term fluctuations of these assets, based on the expectation of generating substantial returns not typically provided by traditional investment vehicles.
Whether the platform provides AI-generated information, technical data from an in-house broker or consultant, or utilises a trading bot, the information is based purely on speculation regarding the potential fluctuation value of the assets. Then there are concepts such as leverage, margin calls, and stop losses that can potentially magnify losses. Numerous reports and articles available on the internet reflect that for the overwhelming majority of average consumers, the experience is a negative one, resulting in severe losses that have a significant impact on their financial well-being.
From the complaints the Office receives, consumers who utilise these trading platforms open a trading account on their own accord, providing the entity with all the necessary information, which includes due diligence details and an onboarding questionnaire. The consumer is also required to confirm that they have read, understood, and accepted the terms and conditions of the entity. These risk disclosure documents are also publicly available on the websites of these entities. While being registered as Financial Services Providers by the Financial Sector Conduct Authority, the majority are not registered to provide advice and are limited to rendering intermediary services. This aspect is also well-documented by these entities. Even those entities licensed to provide advice go to great lengths to document and record that no advice is being provided.
When the Office receives these complaints, the investigation often finds that the consumer signed and accepted all the terms and conditions, as well as the significant risks involved. The consumer often alleges that trading advice was provided on an ongoing basis; however, it is common for them not to have any documentary or other evidence to support this claim. As the consumer executed and approved their trades personally, there is no basis for holding the trading platform liable for the losses suffered. Further, the Office is generally unable to investigate the investment performance of a financial product unless the performance was guaranteed expressly.
An example of just such a complaint involved a complainant who opened a trading account with a registered trading platform after responding to a YouTube advert. The complainant lost over R1.3 million over a period of five months trading in various high-risk products. He submitted that he had been pressured into ongoing trading and depositing successive large sums on the advice of the platform’s representatives. The platform denied liability, citing the complainant’s acceptance of its terms and conditions and risk disclosure statement during the onboarding process. The Terms and Conditions specifically exclude the provision of advice. The complainant could not provide any documentary or recorded evidence that financial advice had been provided by the platform or a representative. The complainant executed all his trades directly and personally. The Office was unable to make any finding that the platform was liable for the loss.
To any prospective consumers who wish to utilise these online trading platforms, we recommend the following:
- Do your homework and empower yourself with information that will allow you to make an informed decision. A simple internet search on whether online day trading is a viable profit-making strategy for average consumers will reveal the reality of the extreme risk involved.
- Ensure you have extensive experience and expertise with the concepts of leveraging, utilising stop-loss and margin calls. • Be very cautious and suspicious of unsolicited messages, emails, or phone calls that promise unrealistic returns or profit from day trading.
- Only deal with entities that are registered with the Financial Sector Conduct Authority.
- Only utilise discretionary or surplus funds for day trading. Market risk is unavoidable, especially in high-risk products. One must be prepared to accept severe losses and the potential impact on one’s financial well-being.
- Be wary and suspicious of aggressive or pressure selling where you are constantly contacted by a broker consultant to keep investing more funds. Ask yourself: if the consultant is able to successfully profit from online day trading, why would they provide you with advice and not trade themselves?
- Record all your interactions with any representative of the entity telephonically or in writing.
Should you believe that you have been financially prejudiced because of the financial service rendered to you with respect to a regulated financial product, please lodge a written complaint directly with the service provider. If the complaint remains unresolved after six weeks, you can visit our Complaints Portal at www.faisombud.co.za and select ‘Lodge Complaint’. Alternatively, you may submit a complaint in writing to info@faisombud.co.za. You can also call our Client Care Centre at (012) 762 5000 or Sharecall at 086 066 3274 for assistance in submitting a complaint.