Online trading

How to Avoid Online and Forex Trading Scams

CONTENT PROVIDED BY PARTNER – The Covid-19 pandemic has seen many South Africans enter commerce and invest online for the first time. Some of these new traders don’t bother to learn about the dangers of online trading before venturing into it. This has led to a surge in online trade and investment scams targeting South African consumers.

Many of these scammers find their victims on social media, where many scammers pose as influencers.

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

These scammers usually target easy targets like inexperienced investors who want to invest their money in the markets but don’t know how to go about it.

Here are some points 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 Services Provider (FSP) operating in South Africa must be licensed by the Financial Sector Conduct Authority (FSCA). It doesn’t matter if you are dealing with a forex broker or a stockbroker. They are all brokers.

A major difference between them is their clientele.

A stockbroker’s customer base consists mainly of investors and traders who trade in stock markets, while a Forex broker’s customer base consists mainly of traders who trade CFDs.

If you deposit your hard-earned money with an unlicensed broker, there is a high risk that you will lose everything and never be able to get that money back. There are so many scam brokers out there targeting South Africans in the name of forex, and the best way to avoid such brokers is to check that they are licensed by the FSCA.

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

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

Dealing with an unlicensed broker and clones means that if you lose your funds, you will not be compensated for your loss. Moreover, you will probably not be able to recover the funds deposited with this fraudulent broker.

Tip 2 – Read online reviews

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

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

Tip 3 – Don’t look for bonuses

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

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

Beware of brokers who minimize risk. There is always an element of risk when trading, and this risk is very high with derivatives and similar instruments.

This is why in South Africa; each broker is required to post a risk statement on its website. This statement informs traders of the potential risks they face, including loss of funds.

Tip 4 – Don’t be fooled by celebrity endorsements

A recent tactic used by investment scammers is to recruit a well-known celebrity or social media influencer as a brand ambassador. This celebrity, in most cases, does not know that the broker is not licensed. They go ahead and help market the scam to their fans on Instagram, Facebook, Twitter, etc.

Those Star smitten fans, don’t bother doing your due diligence to check if the broker is even licensed to operate locally. They rely on the endorsement of the product by their idol and end up losing their money to scammers.

Just because you see a financial product from your favorite celebrity, remember to do proper due diligence on the risks involved.

Tip 5 – Beware of social engineering

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

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

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

Tip Six – Beware of Limited Time Offers on Investment

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

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

These are all techniques to trick you into believing the scam without thinking about it properly. Prevention is better than cure. If you are unsure of a proposition, let the offer slip.

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

Seventh tip – Be careful on social networks

Many people have turned to social media and online communication apps during the Covid-19 pandemic to connect with friends and family. Online scammers have also used it as a watering hole to wait for victims.

According to a report by the Federal Trade Commission in the United States, victims of online scams mentioned Facebook or Instagram in 94% of reports identifying a specific platform.

Scammers usually create groups on Facebook and Whatsapp, invite members, and then lure them in with their fake products. Anyone who hires them is immediately contacted by the scammer and encouraged to invest in the fund. Older people usually take this bait because most of them are unaware of the dangers of social media.

Online scammers have gone further to clone the social media pages of major licensed brokers. These social media pages look legit with logos and mission statements and can mislead investors. If you are unsure 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 withdrawing funds is another question you should ask your broker before investing.

In most cases, the Scam Broker will always claim that you can withdraw your funds at any time, but at the time of the actual withdrawal, this always turns out to be false. Once they get their hands on your funds, they start obstructing.

There have been instances where the victim’s funds were used by the scammer to buy cryptocurrency for himself from different exchanges. This made finding and recovering the fund more complicated.

If you discover that it is still difficult to withdraw funds from your brokerage account, this is a red flag and you should be put on alert. This broker may not be trustworthy.

It is risky to do business with licensed brokers under offshore regulations. FSCA-licensed brokers are more trustworthy.

Tip Nine – Keep Vigil

If you’ve been the victim of an online scam, chances are your information is still circulating. Scammers usually sell personally identifiable information (PII) to other scammers. If your brokerage account is linked to your debit cards, you may want to block and reissue the card.

You should watch for a possible repeat attack.

Tip 10 – Don’t trade and invest for FOMO

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

The rumor mill keeps churning out false information about guaranteed returns and before long many people are jumping on the bandwagon for fear of missing out (FOMO).

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