Monday, 19 July 2021

How to invest in Forex and identify Ponzi Investment Schemes

Written by
Tope Ijibadejo, Nigeria Region Manager for CMTrading

Tope Ijibadejo, Nigeria Region Manager for CMTrading, Africa’s largest online broker and a leader in the international markets, gives his thoughts on how to invest in Forex and how to potentially spot Ponzi investment schemes.

“When looking for a reputable broker, there are several signs one should look out for, as forex trading can be accessed by pretty much anyone. Firstly, ensure the broker is licensed and operating under a government license or regulation that covers your country. Licensed and regulated brokers are bound to operate under set rules and standards.

“Generally speaking, this should help protect your interests. Always ensure the license that covers you is the one that is from your country of citizenship or residence. However, if your country does not regulate the operation or broker, you can still get a layer of protection by ensuring the broker is working under a known government license.

“It is also important to research the company’s track record and reviews. Reviews can be helpful but sometimes competitors pay review websites to taint the image of other companies just to look better in the public eye. For a better picture, it is more effective to find unbiased information about a broker from its existing and former clients. Find somebody who knows somebody else that has experience using the broker’s services. This might be time consuming, but it could save you a lot of time and money in the bigger picture.

“The most common scams in Nigeria are investment scams. It is rampant because there is a prevalent trend where investors try to grow their money through legitimate means online – like forex – without going through the process of understanding the basics of online trading. Unfortunately, con artists capitalise on this trend and set up scam companies that promise juicy monthly returns with guaranteed capital protection. Ignorant investors fail to investigate the validity of these bold claims and get their fingers burned.

“In most situations, to build public confidence, these companies start ponzi schemes by using part of newer investors’ capital to pay interest/ROI to the older investors. Satisfied investors are used to draft in greater participation by giving mouth-watering benefits for referral. These companies are aggressive with advertising and publicity so they can maximise and expedite exposure. Some will even go as far as securing famous social media influencers and network marketers to encourage participation. From the outside, it appears to be working and can do so for over a year, until the perpetrators either disappear with the money or start to experience a decline in new investors, which leads to the scheme crashing.

“To protect yourself against forex scams, you must understand the principles of investing in forex. Like every other business, trading forex has underlying risks. That means, no risk – no reward. Stop looking for guarantees, as you will most likely buy into lies and fall victim to unfulfilled promises.

“Investors must educate themselves as it helps them manage risk better. Profit is made only when the trader outsmarts the risk, and investors who are well informed are more likely to do so.

“It is advisable to invest your money directly with a forex broker instead of putting it in the hands of a third party. Money invested with a forex broker is accessible and withdrawable at any point in time should you no longer be confident or happy with the outcome of the investment. However, when you invest using third parties, you put yourself at their mercy. It can become frustrating, much like watching TV without a remote control to adjust volume or change stations.

"Moreover, should you decide that you have not invested wisely, you may find yourself trapped in the investment and have no choice but to await your fate. If you must utilise the service of any third party, fund your account with a broker and share your trading account login details with them so they are able to make trades on your behalf, or better still, use a copy trading solution if it is available. If you are not happy with the outcome, you can either lock out the third party by changing your password or stop copying trades. This is the type of control every investor should have.

“There are regulatory bodies that you can refer to in order to verify brokers before you trade. Check the broker’s website to confirm which license or regulations they are operating under and visit the regulator’s website to verify this claim. Every regulator has a list of the brokers they oversee on their website.

“The reason scams are so prevalent is due to a lack of regulation in some countries. Citizens will never know it all, so it is up to the government to protect them from public financial scams. Should your country not regulate forex business, it is vital that you gather enough information and eliminate ignorance before investing. This can be achieved by attending seminars, webinars, workshops or conducting comprehensive online research before making an investment. Forex scams are more common in countries without any form of licensing or regulation. Within the last decade, Nigeria has experienced several high-profile forex scams because of this.

“Trading with an offshore broker is riskier because you will not be covered in the event of bankruptcy or any other unforeseen situation. It is safer to trade with a broker that is licensed and regulated by your own government. Your government is expected to offer protection through regulation.

“Regarding Nigeria specifically, there should be a move by government to understand and regulate the forex industry (like South Africa did some years ago), seeing that there is significant interest in the forex business. Regulation will help eliminate high profile forex scams, increase investor confidence and participation from corporate entities which will ultimately grow the economy”.

For more information on CMTrading, visit their official website at www.cmtrading.com or call +27 10 500 8026 and one of their friendly staff will assist you.

CMTrading is the brand name of Global Capital Markets Trading Ltd (A Seychelles company, company no. 104785)