Avoid These 4 Trading Scams
The easiest, fastest and most efficient way of losing your trading capital is to get scammed. It is also quite easily avoided, provided you take some care and apply some common sense. Still, not everyone will be familiar with the common trading scams that experienced traders avoid like the plague.
All four of these ‘scams’ are not, by their nature, a scam. Rather they are the tools that some unscrupulous people in the industry use to part you and your money. In general, most things in trading are relatively safe, if you keep your wits about you.
1) Unregulated brokers
When you sign up to a broker you are extremely unlikely to have your money stolen if you have made sure to sign up with a properly regulated company. Any broker regulated in a major financial jurisdiction like the FCA in the UK or CySec in Cyprus is extremely unlikely to just flat-out steal your cash.
It can obviously be a bit intimidating the first time you are required to get your bank card out and transfer some trading funds, but despite the heavy-sales approach and questionable business practices of some brokers, they aren’t going to brazenly steal your money!
However, if you trade with a totally unregulated broker, then you have no recourse whatsoever if they just make off with your deposit as soon as it hits their account. There really is no excuse for trading with an unregulated broker! Do your homework and make sure you double check their details on the FCA or CySec registers.
Of course, a recommendation always helps! We use and recommend two FCA regulated brokers, depending on whether you want to spread bet or trade CFDs.
2) Binary Options
Binary Options is the classic modern day scammers playground. The new kid on the block when it hit the trading scene a few years back, plenty of brokers and punters alike thought that jumping into the binary options game was a quick cash win. The brokers were right and the punters…not so much.
Binary options as a financial product are not themselves a scam exactly. Many (including us) would argue that since they are mathematically weighted against you, designing an ‘Edge’ is next to impossible, so it should be avoided on principle. However, we have interviewed people who profess to make good money using Binaries.
It is mostly the nature of the companies that this sector has attracted that should make you pause for thought. Regularly employing aggressive sales tactics to get customer deposits, some of these brokers have then been proven to immediately whisk your money offshore and make it virtually impossible to get back. They use an elaborate network of ‘bonuses’ to ensure that you sign the small print that makes it virtually impossible to hit the trade volumes necessary to qualify to withdraw any winnings you may ever actually get!
For more on binary options, check out the crusading journalism of our friend Andrew Saks-Mcleod at Finance Feeds.
3) Managed Accounts
If you are new to trading there is a high probability that you don’t know many other traders. If that is the case it is also likely that you will go looking for community and trading friends online, in particular in some of the big forums and on Facebook groups. If you do so then you may well come across ‘people’ who offer their services to trade your money for you in a ‘managed account’.
Now, like the above, having someone manage your money for you is not necessarily a bad idea. In fact it is a practice as old as banking itself. But let me ask you – do you really think that you should hand it over to a ‘person’ you met on an internet forum?
If you want to explore managed accounts services then you would be better off finding a regulated company, incorporated in a good jurisdiction, that has a website and an office etc!
You have been warned!
4) Expert Advisors and trading algorithms
Again – not necessarily a bad thing! Trading algorithms / trading robots / automated trading / Expert Advisors – a million names for essentially the same thing. Programmes that plug into your broker and trade automatically based around predefined criteria are a very, very good way to make money. They are also one of the best possible ways to lose money!
If you buy a rubbish algo you are losing twice – once for the cost of the thing, but secondly (and more importantly) you could lose your whole account when it implodes! Plenty of algos have been known to go bonkers and trade accounts to zero in minutes.
So, again, do your homework. Is this £0.99 EA you found online that promises 100% return a month really likely to be the dog’s bollocks, or is it more likely a crock of shite?
If the provider of the algo has a presence in the industry, hopefully is a real identifiable person, and preferably has a proven track record with that specific algo through a service like myfxbook then you may be onto a winner! There are people out there with great algos and many happy customers, just make sure you pick the right one!
Caveat Emptor – Buyer Beware!
Do your own research. It is a phrase you will hear a million times in your trading career. It usually refers to trading ideas or tips, and is a legitimate arse-covering phrase for Twitter traders, bloggers etc. But it applies equally to the trading products and services you are going to buy. You should be rightly cautious every time anyone asks you to part with your cash in this game.
Don’t become so cynical that you won’t give your broker a real phone number or deposit any money with them because they might nick it – if you pick a regulated one then they are as tightly controlled as your bank. But do be wary of unregulated people that want your cash and anyone selling anything that sounds too good to be true!
The Two Blokes