Forex Trading Scams & How to Avoid Them

The very size and geographically diverse nature of the Forex market  unfortunately means that it attracts more than its fair share of scams, tricksters and con artists.

What’s more many of these scams are very plausible with glossy marketing and slick salesmen, who persuade unwary investors to part with their cash. Which sadly is unlikely to ever be seen again.

However don’t despair there are some straightforward steps we can all take to protect ourselves from these unsavoury characters and schemes.

Firstly apply a common sense test :

If someone offers you a return that’s significantly above what’s available on the street –

Ask yourself (and them) how are they achieving that and why are they offering it to you ? rather than keeping it a secret and investing in it for themselves.

After all if you could achieve a return of 15%, compounded for 10 years, you will quadruple your initial investment.

So if something sounds too good to be true then it probably is !

Always choose a regulated broker to trade through:

When opening a brokerage account always choose a regulated broker, based in a reputable jurisdiction. In the UK, the Financial Conduct Authority authorises and licenses brokerage businesses and holds them to account. FCA regulated brokers must adhere to an extensive rulebook and uphold the highest standards of behaviour, in terms of the way they treat clients, handle their funds and sensitive data. Regulated brokers will display details of their authorisation on their company website.

In the UK they will list their FRN or Financial Services Register Number, which is a specific reference code issued by the FCA to the firm.

This number can used to verify the firm and its credentials on the FCA website via the FCA Register.  

Blackwell Global Investments (UK) Limiteds’ FRN is 687576.

Details of our regulation and client money policy can be found here

KYC  Know Your Client

As part of of its obligations a regulated broker or investment firm needs to identify its customers and clients, in order to help prevent criminal activity such as money laundering. This means that the firm will require its prospective customers to provide documentary proof of their identity and their address, which the firm will then endeavour to verify before opening an account.

So if an investment firm or brokerage is asking you for your credit card number or bank details before they have run any KYC checks. Then once again you should smell a rat and discontinue your conversation.

Security of Funds

It’s always worth checking how and where client funds are handled and held. Retail clients will want to assure themselves that client funds are held in segregated accounts. Which are kept completely separate from the broker’s own operational monies. Furthermore that those client funds are held at a reputable banking institution. We are pleased to say that this is the case in both instances here at Blackwell Global.

Note that your broker should be happy to discuss these arrangements with you if they are not – then something is wrong.

Furthermore UK authorised and regulated brokerages are by default members of and contribute to the UK Financial Services Compensation Scheme. Which protects up to £50,000 of client money, held by an individual in a investment account,against the default of the firm.

Full details of the FSCS can be found here.

Other things too look for

When considering opening a brokerage account you should look for or request additional  documentation from the broker. Such as their terms of business and or terms and conditions. These are formal legal documents which set out the terms of the agreement between a firm and its customers. And they explain how the firm will treat its customers, handle complaints and potential conflicts of interest, amongst other things.

Once again a bonafide firm will happily share these documents with you. If the firm you are are considering are unable or unwilling to provide you with these documents or their equivalents, then you should smell a rat.

Our terms of business can be found here and our terms and conditions here for example.

Digging deeper

Sad to say that there are scammers who will go to great lengths to impersonate regulated businesses by creating “look alike” websites and using names that are very similar to those of genuine firms. It’s harder to screen out these kind of highly committed fraudsters, however the tests above will certainly help. Added to which you should ask for a telephone number you can call the firm back on if contacted by telephone.

This should be a UK landline number if you are speaking to UK broker. You can ask the salesman to confirm their firm’s office and registered addresses. Which should tally with the information on the company’s website and the FCA register.

As well as this you can check popular industry websites such as Leaprate and Finance Magnates which both regularly post news items about scams and frauds and publicise warnings from the regulatory authorities about the same.

Summary

• When considering opening a brokerage account or making an investment always do your homework. Make sure you find about the regulation of the company and the jurisdiction in which it operates.
• Confirm the firm’s address and telephone numbers and make sure these tally with the information listed on the company’s website (and in the case of the UK on the FCA register) .
• Ask for specific information / documents such as their terms of business. As unregulated or fraudulent businesses may not have this information.
• Check where and how client monies are held. Are they segregated ? Are they held at a reputable banking institution ?  Don’t be afraid to ask for the  bank details.
• Search online – do your own background research there are plenty of forums,communities, trading and investing websites out there. Where you can check out a firm’s credentials and keep up to date with warnings about scams and frauds.
• Finally don’t part with any money or sensitive information unless you are 100% certain you are dealing with a legitimate and regulated businesses