Therefore, it is important to learn how to defend yourself and this post is intended to provide important pieces of information on this.
Summary:
What is a financial scam?
The different types of scams/fraud and their countermeasures
Conclusions and suggestions
What is a financial scam?
Sometimes it’s only the promise to give you the information (something like the “secret formula” or the “secret method used by institutional traders”) to obtain a lot of money, with minimal effort, in a few days.
Usually, the scammers disappear after they have received your payment, leaving you with nothing or, at best, with a lot of useless material.
The different types of scams/fraud and their countermeasures
Unfortunately, scammers have developed many kinds of fraud. Let’s see the most common.
Teaching scam
It’s a rather difficult type of fraud to unmask if you do not have a minimum of experience in the financial world. Someone promises to offer a paid course with which you will learn to become a profitable investor. The course is held and you diligently follow all the lessons but, in the end, you realize that your skills as an investor/trader have not improved at all; on the contrary, you have only lost time and money.
Countermeasures to be taken. First of all, it is necessary to investigate the teacher; let's start by checking if he/she is a famous investor and if he/she has been teaching his courses for some time. We can check if he/she is a member of an association of technical analysts because, in this case, it is likely that his skills have been officially verified (here you can find a list of the most important associations worldwide: IFTA - Member Societies). We can also check if he/she has written books or if he/she has published articles in industry magazines.
Signal seller scam
Signal sellers are traders or companies that offer paid ideas about the trading of financial instruments, based on their (secret) market analysis. They usually promise that their ideas will guarantee several profits, but you only lose money.
Countermeasures to be taken. Use your market analysis to trade, ever! Of course, you will make many mistakes, but you will learn a lot from them. "The greatest teacher, failure is" (this is a real Master Yoda quote!).
Managed trading account scam
Some supposed investment companies offer managed trading accounts, where a supposed expert trader invests money on your behalf. Usually, you have to pay a fee to participate in this type of account. In the end, there are no profits or, simply, they don’t give you back your money!
Countermeasures to be taken. Exactly like I said above: use your market analysis to trade, ever! Take responsibility for managing your money yourself.
Robot/magic indicator scams
A forex robot (or automated trading system) is simply a software program that can automatically buy and sell financial instruments using a (secret) algorithm.
A magic indicator is a tool, based on some mathematical computation, that is plotted on a financial chart and gives you magical signals about buying or selling, for example drawing some red or green arrows or something similar.
Very often, the backtests of these instruments are false and they make trades at random, so you lose money, again!
Countermeasures to be taken. Never buy a “black box”. Try to learn to program your trading platform. This is my way: I am an algorithmic trader and I produce all the automated trading systems that I use on markets. It requires a lot of time and considerable effort, but I have total control over my automated trading.
Pyramid scheme fraud
This is a very famous financial fraud. Forex pyramid schemes recruit new members into investment groups, or something similar, that claim to offer assistance and instructions that help them make successful trades.
Members are charged a subscription fee and encouraged to recruit more people to join, so they can earn their commissions, and so on.
Countermeasures to be taken. Very simple: don’t be a fool and stay away from every group that asks you to pay money for financial assistance.
Forex Ponzi scheme
Scammers advertise non-existent monetary funds that guarantee a high level of return in a short space of time.
Usually, they only ask for a small investment upfront and pay initial investors the promised returns to give a false impression that the scheme is successful, so investors/traders are encouraged to invest more money.
Once the scammers have raised enough money, they vanish with the loot.
Countermeasures to be taken. Very simple, again: don’t be a fool, again. If something is too good to be true, it’s not true! Stay away from easy money!
Broker scams
Finding a reliable Forex broker is not an easy task and some criminals lure new traders to ambiguous brokers in exchange for very favorable conditions such as very low or no costs, bonuses, rewards on other traders who are invited into the broker, etc.
Sometimes they offer also signals that guarantee profits.
In the end, this broker vanishes with your money.
Countermeasures to be taken. First of all, check if the broker is regulated and how trustworthy is the regulatory body.
To help you, this is a list of serious regulatory authorities:
- FCA – Financial Conduct Authority (United Kingdom);
- FINMA – Swiss Financial Market Supervisory Authority (Switzerland);
- FINRA – Financial Industry Regulatory Authority (U.S.A.);
- IIROC – Investment Industry Regulatory Organization of Canada (Canada);
- ASIC – Australian Securities & Investment Commission (Australia);
- FMA – Financial Markets Authority (New Zealand);
- FSA – Financial Services Agency (Japan).
If you suspect that a broker is lying about its regulatory status, you can contact the regulatory authority. A serious broker can give you every possible information about its background.
You can also check the company history (how many years has it been on the market?), where the headquarters is located, etc.
Conclusions and suggestions
Takeaways:
- Where is money, there is fraud, so be cautious before investing even a single dollar/euro, also for education.
Suggestions:
- Every type of fraud has its countermeasures (reported upside): apply them!
- Start your trading activity with a risk-free demo account.
A sincere wish of good work to all!
Written by F. GRAMOLA (*).
(*) Member of S.I.A.T., the Italian Society of Technical Analysis (member society of I.F.T.A. – International Federation of Technical Analysts).
Warning
We merely cite our personal opinions for educational purposes only.
All trademarks are the property of their respective owners.
Investing and trading are risky. Don't invest or trade money that you cannot afford to lose.
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