It’s a big scary internet world out there. Somewhere in the dark recesses of the internet, evil, lurking people are searching for ways to illegally defraud people out of their money. Ultimately, a few will look towards the Forex industry and try to pose as a brokerage.
Thankfully most of the scamming goes on in services peripheral to brokerages, in part because it is easy to lure people in with stories of “How I went from $50 to $346,213 in 28 days using this simple trading strategy”. However in a more pragmatic reality, operating as a fake brokerage takes a lot of time, money and effort.
But, they do exist, so you need to find ways to identify them.
The process of avoiding the potential to be scammed begins with trying to think like a scam artist. Reflect on how you would go about doing a scam. This mindset puts you in the position to understand to what extent a company will go and how they would present themselves to create a fraud. Let’s begin by looking at some of the things that you might assume would indicate if a broker is a scam.
- Googling “Is it a scam?”
Everyone does this, but it is not an excellent method. There are a lot of disgruntled traders out there who will sling abuse when they feel they are wronged and call it a scam, but the reality may not reflect the post at all. That doesn’t mean that this method doesn’t also expose scams, it’s just that the red herrings cover the real information. Best to use this as one aspect of the overall method of determining scams, but be careful not to give it too much credence.
- They have customer service
A good scammer knows that to be effective, they need to invest in their cover. A company with no customer support is a sign that it is a scam, but having customer support is not a sign of legitimacy. In all likelihood, they are very good at customer service, as customer service becomes a critical prerequisite when there is no actual trading going on.
An overseas location or a variety of foreign accents is not at all a sign of a scam. For a legitimate brokerage, it is necessary to have speakers of different languages available to communicate to a global client group.
- The website says that they are regulated
That doesn’t make it true. Check it out as described below.
Red flags
Here are some red flags to look out for
- A company that has not been around for very long
- A company that does not seem to have been active for a while.
- Not regulated (not so much a red flag as a company to avoid like the plague)
And the biggest red flag of all, withholding withdrawals. Whenever you see this online, take it very seriously. You will tend to find online complaints of this nature quickly and what’s more a company that does this, usually isn’t around long, so look out for this information online.
Doing due diligence
There are certain things that cannot be fabricated, like regulations, time in the industry, etc., so the best way to do your due diligence is by focusing on corroborating information that can’t be fabricated.
Some examples include:
- Confirm with the regulator that they are regulated
Always call or access the regulator website to confirm that a brokerage is regulated. Make sure that the regulations cover the activities and country. Make sure that the regulators are part of credible jurisdictions.
- Check supporting evidence of their services with independent parties
Try to make it more thorough than googling “is this a scam?” Talk to real, independent people who use their services. Contact traders to find which broker they use.
A few dont’s here – Do not accept reviews at face value, they may have been paid. Do not accept comments on other websites as independent people, because this can be done by the company themselves. Do not accept the advice of someone who wants to refer you. They are likely paid and not independent.
- Visit their facilities
This is a good way to pick out a scam, albeit not always feasible.
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