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How to identify and protect yourself against forex scams

The retail forex industry has boomed in recent years and is now a multi-billion-dollar industry – with hundreds of regulated brokers and daily trading volumes of almost $200 billion dollars.  The volume of trading in forex has grown even more during the prevailing coronavirus pandemic as reported by industry analysts & leading brokerages in their…

Some pointers on how to not fall prey to scams in the forex industry

The retail forex industry has boomed in
recent years and is now a multi-billion-dollar industry – with hundreds of
regulated brokers and daily trading volumes of almost $200 billion dollars. 

The
volume of trading in forex has grown even more during the prevailing
coronavirus pandemic as reported by industry analysts & leading brokerages in their Q1 2020 earnings.

Retail traders are attracted more to
markets during higher volatility & falling stock, commodity prices during
Coronavirus.

While Forex is a legitimate instrument,
but some industry malpractice participants and con artists are taking advantage
of its complexity & lack of knowledge among general public & new
investors to scam & fool them.

Though, many common scams related to forex
have been reduced by efforts from regulators around the world but still there
are some scams that still find victims. Sometimes from lack of proper
information on scams & sometimes due to lack of local regulations. 

While many of the scams in the forex
market are no longer as pervasive as they used to be – mostly due to more
regulated environment, but some problems still exist.

South African broker comparison website Forex Brokers SA
looked at some of the common types of forex scams that you need to know about
and how you can protect yourself against them.

4 Common Forex Industry Scams

1) Unregulated and Dishonest Brokers

An unregulated broker is a broker that is
not regulated under any recognized jurisdiction or with country’s financial
market regulator, so it can’t be held accountable by a governing government
authority in your country.

These brokers are often offshore brokers
and most of these brokers are registered in a jurisdiction like some island
nation that is leaner to their business models. While some brokers may not even
be regulated anywhere & just provide fake license.

While there are also cases of some
regulated brokers that may sign up some of their clients in offshore
jurisdictions to offer high leverage or to evade their regulatory
responsibilities.

If an unregulated broker commits fraud or
scams you or indulges in malpractices in any manner, you have little or no recourse
against them. This is because there is an absence of laws that protect you from
such malpractices. 

There are several ways in which such
brokers can scam you. They can take your money using software “glitches” or
“bugs” as an excuse, or they can fail to process your withdrawal which means
your money might get stuck with them, or they can fail to process your trades
in the market.

Here are some of the malpractices that
you must look out for in your broker:

Malpractices are not limited to those
listed above only. So, you must be very careful while choosing a broker.

B2

2) Fake Forex Signal Seller Scams

A forex signal seller is an institution
or an individual that offers advice on when to buy or sell particular currency
pairs.

A signal seller typically claims to rely
on market analysis and news to judge the right time to trade in currency pairs.
They may offer trading advice through automatic messages or may manually send
you messages.

Signal sellers are known to be often
wrong and they may give advice that could lead to large losses for you.

Do not trust signal sellers who promise
advice that can regularly outperform the market. Only listen to signal sellers
that are approved financial advisors & that suit your own analysis.

3) Forex Robot & Trading System Scams

In these scams, you may be approached by
someone asking you to buy a robot or an automatic trader that can trade for
you. They will say that this robot allows you to earn money while you sleep.

The robot is supposed to be able to
conduct trade in your stead that generate a profitable yield.

However, most of these robots never
actually deliver as promised and you may end up with significant losses. These
trading systems are never reviewed or tested by independent agencies.

4) Untrustworthy Investment Schemes &
Funds

There are several entities &
individuals that promise to offer get-rich-quick investment schemes through
forex and cryptocurrency – that are not credible.

You should be wary of any investment
schemes that promise guaranteed returns or outsize profits.

Returns or profits in the forex market
can never be guaranteed and you should always remember that your investments
are subject to market risk. Never trust any company or individual that claims
otherwise.

For example,
you may be told about a ‘forex management fund’ that promises 50% annual
returns. You just have to send them your money and it will be managed by an
investment expert with a stellar record.

These offers are always scam and you
should never trust them. The “stellar record” of the investment expert is
usually fake and unverifiable and you will likely lose all your money.

Spot these early signs of
scams


1. Promises of guaranteed returns

There are several scammers who claim to
offer trading systems or investment education & advice with guaranteed
results – some even offer services to invest for you. You need to be wary of all
of them.

You should never invest in what you don’t
know – only based on an advice or through others.

Regardless of what you are being sold in
the forex industry (investment scheme or course or system) or whatever success
rate, backing the seller claims – always ask for proof of the credibility of
the seller.

When you ask them, most won’t answer or
show you proof.

These sellers or scammers are known as
“snake oil” merchants because there is no proof of the usefulness of what they
sell or their trading background.

2. Asking for Personal Information

Only give your personal information to
vendors who you completely trust and who are established in the market. Your
personal information is valuable and can be misused.

Before providing your personal
information, you should ask for risk disclosure document. Always read the
entire document before ascertaining whether to provide your personal
information or not.

3. Advise out of Nowhere on the Internet

If you are asked to participate in a free
webinar, or are offered free courses or investment advice, then it is probably
a scam. Do not trust messages or emails that approach you from out of nowhere.

While no reliable industry source or
company will contact you in such way, but even if you get contacted, you should
only trust communication from credible sources that at least have a proper
online presence and long business standing, reputation & creditability.

Additionally, you should check their
history, management, regulation, office address, contact information, and
reviews.

Do not trust information that is given to
you for free and be sure to verify it from 3rd party reliable
industry sources and do not provide your personal details in return.

4. Brokers that Limit Withdrawals

Do not work with a broker or an entity or
individual who tries to limit your withdrawals from your own account held with
them.

This is very common in investment scams
& with fake brokers; most people get to know about this when they request
their withdrawals – many would experience issues in their first big withdrawal,
and they will give all kinds of reasons for delays.

You should always read the reviews about
the entity online before depositing.

If a forex broker is using any reason to
place restrictions on the amount you can withdraw, you should take it as a red
signal. The forex broker may be financially unstable or indulging in
malpractice.

Once you start working with a new broker,
try and make a test withdrawal to see if it is processed smoothly.

General rules to follow to Avoid
Falling for Such Forex Scams

1. Educate Yourself 

The first step to becoming a forex trader
is to educate
yourself
on the practical know-how and nitty-gritty
of the industry.

You need to familiarise yourself on how
the industry works and how experienced traders conduct their activities.

Start by learning the basics of
Forex Trading
including technical
analysis, fundamentals & the risks of forex trading, and the market players
like regulators, brokers.

You may want to consult a professional
investment adviser on how to best approach the forex industry.

2. Start with a Demo Account

The best way to learn how to trade is to
use a demo account that several notable brokers offer. A demo account gives you
the practical experience of trading in a near real market environment without
the risk of losing your money.

With demo trade, you can practice – when
and how to enter your orders, how to use risk protection, and what kind of
research, strategy & market analysis to implement.

It’s important to note that demo trading
environment may greatly differ from real market conditions. Choosing a reliable
& genuine broker will ensure that there is lower discrepancy in demo &
live conditions.

Once you are practiced in demo for few
months, you should go live with only little capital that you feel comfortable
with.

3. Do Not Trust Opportunities that seem too
good to be true

The forex industry is full of scammers
that make promises that sound too good to be true.

As a rule of thumb, you should never
trust anyone that is making such a promise.

To be successful in the forex industry
you need to have years of experience and volumes of knowledge. Remember that
there is no shortcut in the forex industry.

4. Only Trade with Regulated Entities
& Brokers

As already mentioned, it is essential
that you should only trade with brokers who are regulated by a government
authority.

Different regulators operate in different
countries and are known by different names. And some regions have their
collective financial agencies & policies like: ESMA & MiFID in case of EU.

Major forex market regulators include: TheFCA of UK,
CySEC of Cyprus, BaFin in
Germany, ASIC in Australia, NFA of the US, FSCA in South Africa, CMA in Kenya.

Check for regulator in your region and
search their policies and signup with a regulated entity licensed by them.

5. Read Reviews and Compare Fees

Before settling on a forex broker, you must
read their reviews and check trustworthy information websites, forums for user
reviews & other trader experiences.

No forex broker will have overwhelmingly
positive reviews, but you can always find trustworthy brokers with a good
history, near flawless track record.

Further, you should compare the brokerage
fees and other hidden fees that are charged by each broker.

6. Conduct Proper Risk Management and
Assessment

Even if you are sure about
all aspects of your broker, you still need to know all the risks, assess and manage them properly.

It is essential for all traders to do
research on proper risk management techniques such as stop-loss orders and
negative balance protection.

Practising
risk management techniques will ensure that you keep trading for a long time
without sustaining any heavy losses. Every good trader has inculcated a habit
of risk management and you should too.
See here for global coronavirus case data

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Don’t Count On JPY Correction; Staying Long GBP/JPY

The path of the potential pace of the JPY decline may still be underestimated by markets, which continue trading the JPY long.

While the 10% USDJPY advance from September lows looks impressive from a momentum point of view, it may no thave been driven by Japan’s institutional investors reducing their hedging ratios or Japan’s household sector reestablishing carry trades.

Instead, investors seemed to have been caught on the wrong foot, concerned about a sudden decline of risk appetite or the incoming US administration being focused on trade issues and not on spending. Spending requires funding and indeed the President-elect Trump’s team appears to be focused on funding. Here are a few examples: Reducing corporate taxation may pave the way for US corporates repatriating some of their USD2.6trn accumulated foreign profits. Cutting bank regulation could increase the risk-absorbing capacity within bank balance sheets. Hence, funding conditions – including for the sovereign – might generally ease. De-regulating the oil sector would help the trade balance, slowing the anticipated increase in the US current account deficit. The US current account deficit presently runs at 2.6% of GDP, which is below worrisome levels. Should the incoming government push for early trade restrictions, reaction (including Asian sovereigns reducing their holdings) could increase US funding costs, which runs against the interest of the Trump team.

Instead of counting on risk aversion to stop the JPY depreciation, we expect nominal yield differentials and the Fed moderately hiking rates to unleash capital outflows from Japan.The yield differential argumenthas become more compelling with the BoJ turning into yield curve managers. Via this policy move, rising inflation rates push JPY real rates and yields lower, which will weaken the JPY. Exhibit 12 shows how much Japan’s labor market conditions have tightened. A minor surge in corporate profitability may now be sufficient, pushing Japan wages up and implicity real yields lower.

JPY dynamics are diametrical to last year . Last year, the JGB’s “exhausted”yield curve left the BoJ without a tool to push real yields low enough to adequately address the weakened nominal GDP outlook. JPY remained artificially high at a time when the US opted for sharply lower real yields. USDJPY had to decline, triggering JPY bullish secondround effects via JPY-based financial institutions increasing their FX hedge ratios and Japan’s retail sector cutting its carry trade exposures. Now the opposite seems to be happening. The managed JGB curve suggests rising inflation expectations are driving Japan’s real yield lower. The Fed reluctantly hiking rates may keep risk appetite supported but increase USD hedging costs.Financial institutions reducinghedge ratios and Japan’s household sector piling back into the carry trade could provide secondround JPY weakening effects

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Mexico raises interest rates, cites Trump as risk

The head of Mexico’s central bank says U.S. Republican candidate Donald Trump represents a “hurricane” sized threat to Mexico.

Banco de Mexico Gov. Agustin Carstens told the Radio Formula network Friday that a Trump presidency “would be a hurricane and a particularly intense one if he fulfills what he has been saying in his campaign.”

Trump has proposed building a wall along the border and re-negotiating the North American Free Trade Agreement.

Mexico’s central bank raised its prime lending rate by half a percent to 4.75 percent Thursday, citing “nervousness surrounding the possible consequences of the U.S. elections, whose implications for Mexico could be particularly significant.”

Mexico’s peso had lost about 6 percent in value against the dollar since mid-August. It recovered slightly after the rate hike

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Africa’s first Fairtrade certified gold co-operative offers hope to gold miners living in poverty

Syanyonja Artisan Miners’ Alliance (SAMA) has become the first artisanal small scale mining co-operative in Africa to become Fairtrade certified, bringing much needed hope to impoverished communities who risk their lives to mine the rich gold seam that runs around Lake Victoria.

SAMA is one of nine previously informal groups from Uganda, Kenya and Tanzania which has benefitted from a pilot project launched by Fairtrade in 2013. This innovative program aims to extend the benefits of Fairtrade gold to artisanal miners across East Africa.

In that short time, SAMA has undergone training in business and entrepreneurship, as well as safe use of mercury, internal control systems, labour rights and better working conditions, health and safety and more. Previously, daily contact with toxic chemicals used to process gold meant members risked disease, premature births and even death.  Fairtrade gold was first launched in 2011, and SAMA now joins Fairtrade certified gold mines MACDESA, AURELSA and SOTRAMI in Peru.

The co-operative produces just 5 kg gold per year, but nevertheless has the potential to significantly benefit many people in the local community through better conditions through certification. It is expected that Fairtrade and organizations like Cred Jewellery will support the miners, ensuring their gold can be refined and made available to jewellers in the UK and other markets.

Gonzaga Mungai, Gold Manager at Fairtrade Africa said: “This is a truly momentous and historical achievement and the realisation of a dream that is many years in the making. Gold production is an important source of income for people in rural economies. Congratulations to SAMA, it sets a precedent which shows that if groups like this can achieve certification, then it can work for others right across the African continent.”

The Fairtrade Gold Standard encourages better practice and changes to come in line with international regulation around the production and trade of so-called ‘conflict minerals’. Under the Standard, miners are required to:

  • Uphold a human rights policy preventing war crimes, bribery, money laundering and child labour
  • Clearly represent where the minerals were mined
  • Minimise the risks of conflict minerals through robust risk assessments and collaboration across supply chains
  • Report to buyers and trading partners regarding the risks of conflict minerals

Now in its second phase, the programme will focus on supporting other mining groups in the region to access affordable loans and explore a phased approach to accessing the Fairtrade market, allowing more mining co-operatives across Africa to participate in the programme.

Gonzaga added: “Sourcing African metals from smallscale miners in the Great Lakes Region is the responsible thing to do. For a long time companies have avoided buying gold from this region, with devastating consequences for impoverished communities who were already struggling. It has driven trade deeper underground, as unscrupulous buyers pay lower prices and launder illegal gold into legitimate supply chains. That’s why we have chosen to work with these groups to help them earn more from their gold within a robust compliance system that offers social, environmental, and economic protections.”

The Fairtrade gold programme offers a small but scalable solution to sustainable sourcing of gold from the region in line with Section 1502 of the Dodd-Frank Act in the US, OECD Due Diligence Guidance and recent EU Supply-Chain Due Diligence proposals which could come into effect in 2016. This means that up to 880,000 EU firms that use tin, tungsten, tantalum and gold in manufacturing consumer products could be obliged to provide information on steps they have taken to identify and address risks in their supply chains for so-called ‘conflict minerals’.

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