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The past few years have seen investment solutions available to the public at large go digital. Around the world, stockbrokers, mutual funds, cryptocurrency exchanges and other investment avenues have introduced a plethora of mobile applications and web portals to make trading even easier for the masses.
Customers these days have the option of investing in a diverse array of financial instruments through a click or a tap from the comfort of their own homes. But the advantages of technology are not amiss on predators and parallel to well regulated online services exists a world of shady digital investment portals.
Proliferating in huge numbers, such applications and services take advantage of misleading and deceptive marketing to target the financially illiterate or not sufficiently literate. By seemingly offering lucrative opportunities to invest in global stocks, cryptocurrency, foreign exchange, binary options, gold, metals and other commodities, and promising unbelievable returns, such apps have been conning naïve consumers out of huge sums of money.
They also offer simplified tutorials in local languages of different countries that encourage financial laymen to open an account and begin trading. In addition, they offer demo accounts with virtual non-redeemable money to seemingly help the user understand trading and entice them to invest their savings on the platform.
As we delve deep into the different kinds of frauds being carried out using online options, we look at a major scam being shilled hard on the unsuspecting masses that concerns forex and binary trading.
The world of forex, fraught with risk
According to the US Securities and Exchange Commission (SEC), forex trading can be very risky and is not appropriate for all investors.
“It is common in most forex trading strategies to employ leverage. Leverage entails using a relatively small amount of capital to buy currency worth many times the value of that capital,” it warns. “Leverage magnifies minor fluctuations in currency markets in order to increase potential gains and losses. By using leverage to trade forex, an individual can risk losing all of their initial capital and may lose even more money than the amount of the initial capital.”
The SEC advises potential investors to first carefully consider their own financial situation, consult a financial adviser knowledgeable in forex trading and investigate any firms offering to trade forex before making any investment decisions.
“The only funds that you should put at risk when speculating in foreign currency are those that you can afford to lose entirely, and you should always be aware that certain strategies may result in your losing even more money than initial investment,” it cautions.
Detailing the risks further, the US financial watchdog stated that in forex trading, quoting conventions are not uniform. While many currencies are typically quoted against the US dollar (that is, one dollar purchases a specified amount of a foreign currency), there are no required uniform quoting conventions in the forex market. Both the Euro and the British pound, for example, may be quoted in the reverse, meaning that one British pound purchases a specified amount of US dollars (GBP/USD) and one euro purchases a specified amount of US dollars (EUR/USD).
Therefore, special attention needs to be paid to currency’s quoting convention and what an increase or decrease in a quote may mean for your trades.
In addition, the SEC directs investors to check with different firms and compare their charges as well as their services prior to investing in the forex market. At times, transaction costs can turn profitable trades into losing transactions hence investors need to be aware all the time while trading this instrument.
Moving over to frauds, it urges investors to be aware of get-rich-quick investment schemes that promise significant returns with minimal risk through forex trading.
It added that the lack of a central marketplace poses grave risks for forex investors.
Individual investors trade forex through individual financial institutions who take the opposite side of any transaction and because individual investors often do not have access to pricing information, it can be difficult for them to determine whether an offered price is fair or not.
The SEC states that a binary option is a type of options contract in which the payout will depend entirely on the outcome of a yes/no proposition. The yes/no proposition typically relates to whether the price of a particular asset that underlies the binary option will rise above or fall below a specified amount.
For a layman, an individual bets on whether a security would rise or fall above a certain level at a specified time. Therefore, binary trading is more similar to gambling than an investment. Due to this reason, many first world countries have banned binary trading prompting platforms from offering their services in developing countries where financial literacy is lower.
The SEC admitted to have received numerous complaints of frauds associated with websites that offer an opportunity to buy or trade binary options through Internet-based trading platforms.
It added that a major complaint from consumers was that companies refused to credit customer accounts or reimburse funds to them. When customers attempt to withdraw their original deposit or the return they have been promised, the trading platforms allegedly cancel customers’ withdrawal requests, refuse to credit their accounts or ignore their telephone calls and emails.
In addition, identity theft is also a huge problem associated to binary trading. Certain platforms collect customer information and use them for criminal purposes. Finally, companies offering binary options also manipulate softwares to generate losing trades.