Trading & Investment Companies - How to Recognize a Scam

There are thousands of investment and trading companies worldwide that support transactions in assets like foreign exchange,  cryptocurrencies, gold, oil and other volatile products. More and more private investors are trading online as interest rates drop for less risky financial products and keeping money in the bank becomes less attractive. As a result of the increased popularity amongst consumers, the number of trading & investment scammers has grown exponentially. 

Scamwatch Australia, for example, reported more than $61.6 million AUD in losses due to fraudulent investment schemes in 2019. This is nearly a 60% increase compared to 2018 when the Australians reported $38.8 million AUD lost. This amount is, of course, a fraction of the money lost globally as Australia only has 24 million inhabitants.

How to Recognize an Investment or Trading Scam

Apart from all the standard checks you can do (read our blog post How to Recognize a Scam), we have several additional tips for identifying possible trading and investment scammers:

• Are the expected returns realistic? The easiest way to spot a trading or investment scam is by the promised returns. If the profits which are advertised are unusually high, they are very likely to be empty promises in the end. As the saying goes, the only free cheese is in the mousetrap.
• What is the company trading/investing in? Take extreme caution with websites promising they can generate hefty profits thanks to their ‘secret formula’. If it is not clearly revealed what assets they are investing in, it is likely they will only use your money to pay-out earlier investors (to keep the Ponzi scheme running). 
  
  
• What is their track record? Do they have verified statistics on a third party website like Myfxbook. Experienced trading and investment companies know what the chances are that you will lose your investment. For CFDs, the estimates are that 70% to 80% of all private investors lose money. Do not trust their own screenshots or accounts as these can easily be manipulated. If there is no verification performed by a third-party source, use extreme caution. 
  
  
• Are they pressuring you? Did they approach via email, social media or a messaging app offering a magic solution to make money? Then please be careful. Legitimate traders and investors hardly ever approach you directly. They have other marketing tactics (mainly using happy clients to refer to other clients) and offer training courses and events. They should not be asking you to send money right away or act right away due to "limited offers". A professional company gives you time to think and makes sure you are aware of the risks as well. 
  
  
• Where are they based? This is an important question as it determines the level of protection and consumer rights you may or may not have. In general, it is strongly advised to only work together with a company based in your country. Try to visit their office to see how professional they are and meet the staff.
  
  
• Is the company certified? In most countries, investment and trading companies have to be certified or licensed in order to offer their services. Do not trust the "proof" provided on the company itself on its website. Use the list below to check if they are really known to the authorities. Non-licensed traders and investment companies are simply illegal.

If they are not transparent and honest through all these questions, they are probably a scam. One lie is a strong indicator that there are a lot more lies behind it.

Where to Check if the Company is Licensed or Certified

We recommend you to always work together with an investment and trading company based in your own country. There are two reasons for this:

1. In case of issues, you can get help and in some cases, the authorities also provide some form of insurance.
2. The standards of the different authorities differ. Those of Cyprus, Malta, and Vanuatu, for example, are less strict than those of Germany and the United States. As a result, your level of protection differs as well.

Below is a list of the financial regulators of various countries:

• Austria Financial Market Authority (FMA)
• Australia: Australian Securities and Investments Commission (ASIC)
• Cyprus: Cyprus Securities and Exchange Commission (CySec)
• Germany: The Bundesanstalt für Finanzdienstleistungsaufsicht (BAFIN)
• India: Securities and Exchange Board of India (SEBI) 
• Malta: Malta Financial Services Authority (MFSA)
• Mauritius: Financial Services Commission (FSC)
• Switzerland: Swiss Financial Market Supervisory Authority (FINMA)
• United Kingdom: Financial Conduct Authority (FCA UK)
• United States:
  • Securities & Exchange Commission (SEC)
  • Commodity Futures Trading Commission (CFTC)
  • Financial Industry Regulatory Authority (FINRA)
  • Consumer Financial Protection Bureau (CFPB)
  • National Futures Association (NFA)
• Vanuatu: Vanuatu Financial Services Commission (VFSC)

If you do not see your country listed above, Wikipedia and ForexBonuses provide additional information. 

Related Articles

What are High Yield Investment Programs (HYIPs)?

How to Identify Cryptocurrency Investment Scams

Sources:

• https://www.dailyfx.com/forex/education/trading_tips/daily_trading_lesson/2018/04/20/4-effective-trading-indicators-every-trader-should-know.html
• https://financialcommission.org/2020/01/14/losses-from-financial-scams-almost-double-in-australia-in-2019/ 
• https://admiralmarkets.com/education/articles/forex-indicators/most-important-forex-indicators-all-forex-traders-should-know 
• https://www.youtube.com/watch?v=9j8YujI1Uk8 
• https://www.lovemoney.com/news/78126/spot-forex-fx-trading-scam-real-fake-currency .
• http://www.forexbonuses.org/regulatory-bodies/