How to Avoid Online Trading & Forex Scams

PARTNER SUPPLIED CONTENT – The Covid-19 pandemic has seen a lot of South Africans entering online trading & investing for the first time. Some of these new traders don’t bother to read about the dangers of online trading before venturing into it. This has led to sharp increase in online trading & investing scams targeting South African consumers.

Many of these scammers find their victims on social media, where many scammers are masquerading as Finfluencers.

These fraudsters promise high returns & huge guaranteed profits from forex trading by trading on their behalf, or by asking general public to invest money in their managed forex account for guaranteed returns.

These fraudsters usually go for soft targets like the inexperienced investors who want to invest their money in the markets but don’t know how to.

Here are some points that you should follow to help you not be just another statistic.

Tip One – Check if the Broker is Licensed in South Africa

Any broker and Financial Service Provider (FSP) operating in South Africa must be licensed by The Financial Sector Conduct Authority (FSCA). It doesn’t matter if you’re dealing with a forex broker or a stock broker. They are all brokers.

One major difference between them is their client base.

A stockbroker’s client base mostly consists of Investors & traders who trade in the stock markets while a Forex Brokers client base mainly consists of Traders trading CFDs.

If you deposit your hard-earned money with an unlicensed broker, there is a high risk that you would lose it all & will never be able to recover that money. There are so many scams brokers that target South Africans in the name of forex, and the best way to avoid such brokers is verify that they are authorized by FSCA.

According to Safe Forex Brokers South Africa (a broker comparison portal in South Africa), all investors & traders should go to the FSCA’s website and check for a list of licensed brokers from their public search for regulated FSPs and check the products for which the broker is authorized, the broker’s FSP No.

Investors must also check the website, compare phone numbers and email address associated with the broker. If in doubt, contact the regulator FSCA to ensure that the broker that you are dealing with is actually authorized. This is necessary to avoid dealing with an unlicensed Broker & also a fake broker who could have cloned an actual licensed broker.

Dealing with an unlicensed broker & clones means if you lose your funds, then you will not be compensated for your loss. Also, you will probably not be able to recover the funds deposited with that scam broker.

Tip Two – Read Online Reviews

If your broker has an online trading platform you should check app store (Google Play store if you use an Android phone, iOS App store if you use an Apple device) and search for the Broker’s App, then read user reviews about the Broker.

If the Broker is fraudulent, their victims will definitely leave bad reviews there. If the majority of the reviews are negative it means the Broker is not trustworthy.

Tip Three – Don’t go chasing Bonuses

Many scam brokers will make mouthwatering offers like a promise of 100% guaranteed returns, or 100% bonus, promises of near zero charges and even risk-free trading.

These are red herrings meant to distract you from carrying out due diligence.

Be wary of Brokers who downplay risk. There is always an element of risk while trading, and this risk is very high with derivatives & similar instruments.

This is why in South Africa; every broker is mandated to display a risk statement on his website. This statement informs traders about the potential risks they face including loss of funds.

Tip Four – Don’t be Fooled by Celebrity Endorsements

A recent tactic used by investment scammers is to recruit a known celebrity or a Social Media Influencer as a Brand Ambassador. This celebrity in most cases is not aware that the Broker is not licensed. They go ahead and help market the scam to their fans on Instagram, Facebook, Twitter etc.

These Star struck fans, don’t bother to carry out due diligence to ascertain if the Broker is even licensed to operate in the location. They rely on the endorsement of the product by their Idol and end up losing their money to the scammers.

Just because you see a financial product by your favorite celebrity, don’t forget to carry out proper due diligence of the risks involved.

Tip Five – Beware of Social Engineering

Social engineers try to extract information from you through building trust and showing empathy. An online scammer will sometimes infiltrate your circle and become a friend. This may happen in religious gatherings or even social clubs.

The scammer becomes a member of your circle, builds trust and then begins to advertise his product to you and other members.

This kind of plot also attempts to manipulate your psyche. If other members of your circle buy into the idea and you refuse to participate, you risk being labeled a spoilsport.

Tip Six – Beware of Time Limited offers on Investment

Most online scammers when advertising their products will give the impression that the offer is limited.

For example, they may claim to offer a discount or higher returns to the first fifty customers. They then urge you to take advantage of the offer before it elapses.

These are all techniques to make you buy into the scam without thinking about it properly. It is better to be safe than sorry. If you are not sure about a proposal, let the offer slide.

The capital market is full of different products that follow everyone’s risk threshold. You can always find a safe product depending on your risk appetite to invest in when you are ready.

Tip Seven – Be careful on social media

A lot of people turned to social media & online communication apps during the Covid-19 pandemic to connect with friends and family. Online scammers also used this as a watering hole to wait for victims.

According to a report by the Federal Trade Commission in the US, online scam victims mentioned Facebook or Instagram in 94% reports that identified a specific platform.

Scammers would usually create groups on Facebook and Whatsapp, invite members and then entice them with their phony products. Anyone who engages them is immediately contacted by the scammer and encouraged to invest in the fund. The elderly usually take this bait because most of them are not aware of the dangers of social media.

Online scammers have gone a step further to clone social media pages of major licensed Brokers. These social media pages look legitimate with logos and mission statements and can fool investors. If you are not sure of a social media account, please do not engage.

South Africa’s capital market regulator, the FSCA has provided a toll free number for members of the public to contact them and report any scams.

Tip Eight – Find out if you can withdraw funds easily

The ease of withdrawal of funds is another question you need to ask your broker before investing.

In most cases, the Scam Broker will always affirm you can withdraw your funds anytime but when it is time for actual withdrawal, this always turns out to be false. Once they get hold of your funds, they begin to stonewall.

There have been cases where the victim’s funds were used by the scammer to buy Cryptocurrency for himself from different exchanges. This made tracing and recovery of the fund more complicated.

If you find out that withdrawing funds from your brokerage account is always difficult then that is a red flag and you should be put on alert. That broker may not be trustworthy.

It is risky to do business with Brokers licensed under Offshore regulations. Brokers holding licenses from the FSCA are more trustworthy.

Tip Nine – Keep Vigil

If you have been the victim of an online scam, chances are your information is still floating around out there. Scammers usually sell out personally identifiable information (PII) to other scammers. If your brokerage account is linked to your debit cards, you might want to block and re-issue the card.

You should watch for a possible repeat attack.

Tip Ten – Don’t Trade or Invest for FOMO

A group of social media scammers could choose to tag team and spread rumors about their product. They don’t mind investing money into this propaganda. This is how Ponzi schemes and illegal multi-Level marketing (MLM) schemes woo their victims.

The rumor mill keeps turning out false information about guaranteed returns on investment and before long many people jump on the band wagon out of fear of missing out (FOMO).

Some even know that the investment is a scam but intend to make a profit and exit before the scammers decide to close the shop and disappear.

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