A lot of people have been 'burnt' from scam operations
on the Internet. Their sites may look so perfectly legitimate that you
doubt whether they would have gone through all that trouble building a
trading platform just to steal your money. Beware.
The first thing I look for is the geographical location of the broker. If
I find that they are based in a country where the financial industry is,
in my opinion, relatively unregulated and under-developed, I quickly forgo
signing up. This is terrible news for honest brokers in those countries,
but your job as a trader is to protect your capital. If you lose that,
then you cannot trade. The onus is on them to convince you that they will
do the right thing by you as an investor.
I started out with an Australian broker. Currently I am using an American
one. I have not tried UK-based brokers but the British financial industry
is one of the best. Companies that are based in countries such as Japan ,
Germany and France are probably just as good too, if their website speaks
Notice any license numbers that they may have registered with regulatory
bodies that act like government watchdogs who oversee the finance and
investments industries. These are organisations that impose strict rules
to safeguard your investment. Some of these rules may include the
requirement that brokers segregate all customer funds from the operational
funds of the business. Your money is required to be put in
highly-reputable banks and the funds are only withdrawn from these
accounts upon specific withdrawal requests.
Take note that there are some fake regulatory bodies being thrown around
in cyber-space as well. Take a look at how long they have been operating
for. Try and search out any reviews or comments made about them. See if
you can find forums where traders have discussions about their brokers.
Below is a list of things to keep in mind to help you avoid being a victim
of a scam:
Stay Away From Opportunities That Sound Too Good To Be True
There are people who may have just acquired a large amount of money just
and recently are the same and are shopping around for safe investment
vehicles. These may include retirees who have access to their retirement
funds. It is understandable why retirees would be drawn to 'high-return,
low-risk investments'. This is also what makes them very vulnerable. If
you identify yourself to be one of these people, be careful. A lot of
deceitful characters are after your money. Furthermore, only allocate a
tiny amount of your money to trading until you can start growing it. Not
all people can trade successfully, so it is a venture you should take on
haphazardly. It is your life savings at risk.
Avoid Individuals Or Organizations Who Claim To Predict Or Guarantee
Any form of trading is hard. Trading currencies is no different. Be wary
of statements that make it sound easy. Statements like:
"Whether the market moves up or down, in the currency market you will make
"Make $1000 per week, every week";
"We are out-performing 90% of domestic investments";
"You'll make returns of 70% a year";
"Here is a no-risk strategy".
If they could make such returns, why would they even bother letting you
know about it.
Be Wary Of Companies Who Downplay Investment Risks
Hold your wallet tight and zip up your purse when companies say that
written risk disclosure agreements are routine formalities imposed by the
government. Watch out for statements like:
"With a $10,000 deposit, the maximum you can lose is $200 to $250 per
" We promise to recover any losses you have ".
Be Wary Of Companies That Claim To Trade In The 'Interbank Market'
Do not believe it when some people say that they have access to the 'Interbank
market' or that they can give you access to trade in that market because
that's where bargain prices can be obtained. This is not true. The 'interbank
market' is not a place, it is not a physical building. It is simply a
loose network of currency transactions that are negotiated between big
financial institutions and other large companies.
Ethnic Minorities Are Often Targeted
Ethnic newspapers and television 'infomercials' are sometimes used to
attract Russian, Chinese and Indian minorities. Sometimes these ads offer
so-called 'job opportunities for account executives to trade foreign
currencies', whereby the recruited 'account executive' is expected to use
his own money to trade currencies and would often times be encouraged to
recruit members like their friends and family to do the same.
Seek Out The Company's Background
Check any information you receive to be sure that the company is who they
claim to be. If at all possible, try and get the background of the people
operating the company. Do not rely solely on oral statements and promises
made by the company's employees.
If You Are In Doubt, It Is Not Worth Risking Your Money
If after trying to solicit information and at the end of it all, you are
still in doubt about the credentials of a particular company, my
suggestion is to start looking elsewhere.
You may find further information by contacting government 'watchdogs'
because they keep up to date with trends and reports regarding scams and
other fraudulent activities. Please check the resource section of this
site for the information of organizations that regulate the securities
industry, sorted by country