Trading is a legal practice for buying and selling securities in the financial markets. Several regulators around the world are neglecting brokerages and allowing them as volumes increase exponentially.
The ease of access to internet trading platforms has bolstered the rise in global trade figures in recent years, and it has increased dramatically during the pandemic.
Daily Forex trading volume grew from $ 1.2 trillion in 2001 to over $ 6.6 trillion in 2019, according to BIS reports. The volume of trading in stocks, indices and cryptocurrencies is also growing dramatically.
The increase in demand has also led to an increase in scams associated with online commerce. Con artists and crooks often pose as brokers, advisers or agents; and take advantage of dishonest monetary advantages from inexperienced online traders, investors and the general public.
In Africa, it is quite common to hear about e-commerce scams every now and then. The Forex MBA scam was among the top Ponzi schemes and scams reported in May 2021. The Forex MBA company attracted investment by promising a guaranteed return each month on the amount deposited.
Previously, he accepted a capital of 350,000 naira to several hundred million. Eventually the scam crashed and investors ended up losing millions to the bogus scheme promising supernatural returns.
The counterparty risk is high if the selected broker is not regulated by any regulatory authority. You shouldn’t choose a broker or trading service provider because you have seen their advertisements or gotten recommendations from your friends and family.
Research should be done on regulations, safety and several other factors before choosing a broker. Traders can mitigate third party risk by considering several measures when trading online.
Here are some key signs you need to look at to find out if investing is a scam or legitimate.
5 warning signs that signal investment and trading scams
Traders and investors should remain cautious of scams and deception before and after opening their accounts and investing money.
There are certain signs that most trading scams describe, and you can check to judge the likelihood of possible scams in the online capital markets.
Here are the main factors that can detect possible business or investment scams in online commerce.
No regulatory license
Choosing an authorized broker or dealer is the most important step in online trading.
There are thousands of service providers and trading platforms available on the internet. However, many of them are not regulated or licensed by any financial authority. Therefore, they are considered dangerous for trade.
South African Forex Brokers explains – “Details of regulatory licenses held by the broker in the present or in the past should be requested by all individuals from their broker. Many regulated brokers mention their regulatory compliance details in the footnote of their website. “
“But you shouldn’t trust this information at face value. Some brokers may claim to be licensed, but in reality they are not. For example, a Bitcoin Xpress scam broker claimed to be a licensed provider in South Africa, but it was not.
“They used another broker’s license number as their own license number. They gave FXTM broker FSP number 46614 as an investor license number. So, they were deceiving investors and misleading them into believing that they were investing with a regulated broker in South Africa. “
“The validity of the license number should be checked on the regulator’s website. Most regulators have a page on their website where you can check the regulator’s authorized dealers.
Providers of equity and derivative trading services are generally regulated and licensed by the stock exchanges in the relevant jurisdiction. In Ghana, investors can negotiate 37 actions and the GSE Composite Index listed on the Ghana Stock Exchange. You can trade commodities through the Ghana Commodity Exchange (GCX).
Forex and CFD trading is regulated by capital market regulators and authorities like the FCA in UK, FSCA in South Africa, CMA in Kenya, ASIC in Australia, CySEC in the EU, etc. But it is not yet regulated in Ghana.
Crypto trading is relatively new and it is unregulated in most countries in Africa. Some countries have made it illegal. Although it is legal in many African countries, the market is still largely unregulated.
Selecting a well-regulated and trustworthy broker or broker is the first step in mitigating the risk of trade scams in any capital market. Traders can also consult the reviews of existing clients and experts online before choosing a broker.
Promise of substantial return with little risk
Among the most common methods of attracting the general public to a program is the promise of unrealistic and consistent returns with little or no risk at all.
Guaranteed high returns or substantially constant returns without adequate risk factors are impractical. Scammers and crooks will do anything to convince you to invest or trade with them.
Every capital market in the world carries some risk. And returns cannot be guaranteed. If someone promises exceptional returns that are above the average market returns for a period, risk free or at a very low level, you have to be smart enough to spot the scam. You must be wondering where your money is going and how it will increase / decrease after you invest.
Trading and investment decisions should not be affected by statements such as “Everyone is doing it”, “I did this for myself and my family too”, “This is exclusively available for you”, etc. Not everyone does this, of course, because every market is suitable for different types of traders and investors.
Brokers or regulated agents do not use such lucrative penalties to attract traders and investors. They are not authorized by financial market regulators. On the contrary, they would be more transparent with their finances, fees, commissions, trading conditions and risk factors with the relevant market.
Regulated brokers generally do not use tactics such as unsolicited marketing techniques to increase their customer base. Fake brokers or scammers try to get their offers through text, email, social media, etc.
Online social media trading scams are quite common. Profile of a trader on social networks, claiming to be rich in forex, crypto should never be trusted. You should never trust any advice or service related to trading and investing on social media.
Scammers may also try to offer you something for free. This makes traders and investors feel pressured into buying what they are selling out of guilt. Smart traders should avoid falling into the traps of these scammers and make their own efforts to seek out a trustworthy source.
Rinitiate the investment decision
If they can’t convince you, they will try to confuse you. Scammers or bogus brokers will offer unrealistic bonuses and might say “this is your last chance”. Hastily taken investment and trading decisions are dangerous because the client will spend less time in research and analysis.
Some trading and investment opportunities may be time limited, but most instruments are not. Trading and investing can be done whenever the client is comfortable doing so.
You don’t have to feel rushed to invest your money. Any investment you make should be made with proper due diligence.
Obstacles to withdrawal
Withdrawal is the part where the broker has to pay the clients. This is where online business scams are commonly spotted. Fake brokers will impose restrictions on withdrawals or reject withdrawal requests without justification.
Taking too long for withdrawal, hidden commission on withdrawals and limiting the withdrawal amount to a lower level are the red flags.
Scammers don’t want you to cash in and they may try to convince you to stay invested. They have no constraints on the method and amount of the deposit.
Regulated brokers have a convenient withdrawal mechanism which will be quite similar to deposit. They will also disclose the commission per withdrawal for each of the available transaction methods.
There are many warning signs to identify trading scams and deceptive brokers. Choosing a legitimate, trustworthy and licensed broker or service provider can lessen the likelihood of online business scams.
However, traders must remain smart and vigilant at every step of online trading. You must keep your login credentials secure and never leave your devices with an account connected.
Traders and investors cannot be completely safe from online scams, but taking precautionary measures will certainly reduce the likelihood.