The forex market
boasts the highest trading volume in the financial market. At $5 trillion
daily, it is much larger than the NYSE – the largest stock exchange in the
world. The potential for making huge profits attracts investors worldwide, and
with the introduction of online trading, the number of brokers has burgeoned
proportionately.
And with the
proliferation of brokers, the risk of fraud has also risen in a sector that is
highly unregulated and often technologically obscure.
The story of Darlene
is a good example of how fraudulent brokers operate:
“My husband had just found a job after being unemployed for 3 years, and with my salary, we suddenly had some money to spare. I figured we could be making even more money and opened an account with about $800. I did my homework (I used to work for an accountant), invested cautiously, and soon I’d accumulated $400 profit. The only problem was that when I tried to withdraw my money, I got locked out of the system. I suddenly started getting phone calls telling me that it would be a shame and we should be investing more… in short, the run-around. They were good, too. Instead of taking my money, I invested another $400. And then the company went broke and our money went down the drain with it. Apparently the owners had been using investor money for their own expenses and we were down a considerable sum.”
“My husband had just found a job after being unemployed for 3 years, and with my salary, we suddenly had some money to spare. I figured we could be making even more money and opened an account with about $800. I did my homework (I used to work for an accountant), invested cautiously, and soon I’d accumulated $400 profit. The only problem was that when I tried to withdraw my money, I got locked out of the system. I suddenly started getting phone calls telling me that it would be a shame and we should be investing more… in short, the run-around. They were good, too. Instead of taking my money, I invested another $400. And then the company went broke and our money went down the drain with it. Apparently the owners had been using investor money for their own expenses and we were down a considerable sum.”
Fortunately, much of
the forex market is regulated, and scams are not difficult to
spot.
Here are some warning
signs that should alert the potential investor when seeking a quality broker
with whom to invest:
Too good to be
true:
The classic swindle
leverages the victim’s greed by offering more than what reality can promise. In
finances, a solid investment will usually return a single figure yearly
percentage on one’s investment; a riskier one will return anything up to 20%.
Forex sites that promise double figure monthly ROIs will usually have a very
hard time delivering on that promise, and usually have no intention of doing
so.
Too safe for
comfort:
Financial trading is
risky. It always has been and always will be – as investors realize every so
often when markets go into a tail-spin and global economies plunge. Forex
brokers who hide unfathomable risk disclosures in the netherworlds of their
site – claiming that these are mere regulatory requirements, investment
advisers who assure you that a specific position is a certainty… these are
usually salespeople whose primary intention is to lull you into a false sense
of security, from which it will be easier to part you from your life’s savings.
Too slippery to
grasp:
Check the broker’s
address on Google Maps. See if it exists. Check the name of the bank. Ensure
that client accounts are held separately from the company’s running expenses
accounts. Are overseas addresses, phone numbers and operations aligned?
All gloss, no
substance:
Behind a reputable
company lies a reputable name. Investigate your broker – look up the names of
its officers and read about the regulatory agency behind the company. Most
reputable forex companies are regulated by an established regulatory body –
CFTC or NFA in North America, FSA in the UK and CySEC in Europe (amongst
others) – and they will be the first to publicize the name of their regulatory
body. You should also be able to request the broker’s performance track record
to check claims against numbers.
Incentives,
incentives, incentives:
A sober investor has
already decided to set aside a portion of his/her savings in order to invest
for profit. Brokers who inundate potential and ongoing clients with incentives,
bonuses, offers of inordinate leverage, etc. are ostensibly trying to motivate
the motivated. This should be a waste of resources, and interred agendas are
probably at play. Beware! There is no such thing as a free meal; the idea of
“free money” is a contradiction in terms; and chances are bonuses can never be
collected, and high leverage is a means of swindling you out of your savings as
quickly as possible.
Luckily, Darlene and
her husband did not lose much. In fact, they soon discovered that they were
hooked. “I missed the excitement of watching the charts and seeing if my
homework was paying off,” she says. Three months later, they opened an account
with NetoTrade. “This time, I realized that it was just as important to
investigate your broker as it is to learn your assets. The first thing I did
was open an account and then immediately withdraw my entire balance… to zero!
It felt great to breathe that sigh of relief when the correct amount showed
up in my account the next day – the same amount as I’d invested the previous
day. This time, the call came later, but it was a young man asking me if
everything was alright. No sales – just honest concern. I told him yes and
opened a second account – a demo one, this time – for my husband. The people at
NetoTrade are devoting so much of their time training him, it’s like
taking a university course, which would cost money in itself. I can’t begin to
describe what it’s like to find an honest broker in the financial jungle.”
