Today, forex trading is firmly established as a major asset
class.
Unfortunately, there are a number of bogus companies
profiting from forex-related frauds and
scams.
Although this is troubling, most frauds and scams are easy
to avoid when investors do a little bit
of due diligence.
Here’s two simple checks to carry out:
•
Who are you dealing with?
It’s important to deal with a reputable firm.
These days it’s easy for a company to give the appearance
that they are legitimate. For example,
it’s not difficult to build a flashy website, buy a UK
domain name (ending in .co.uk) or redirect a
local phone number to an untraceable offshore location.
But a serious company will be authorised and regulated by
their local financial authority. In the
UK, that’s the Financial Services Authority (FSA).
Every regulated firm will be granted a licence number. This
licence number can be entered into
the FSA Register, which is available for free online. It
allows you to cross-check that a firm are
who they claim to be.
To become authorised in the first place, a firm must have an
approved product and sufficient
capital. Also background checks are run on the people and
their qualifications – which is a key
control.
Once regulated, a firm needs to submit regular information
to the FSA and comply with a wide
range of rules covering their dealings with customers,
information systems, promotional material
and financial position.
Frauds and scams won’t want to go down the regulated path
for obvious reasons.
•
Is the product credible?
Over the last few years there’s been an explosion in the
number of automated trading systems –
known as ‘forex robots’.
You know the ones - you download the software onto your
computer and after a few blinks and
flashes it spits out a trade signal. Most are useless, many
are scams.
Don’t get me wrong – the companies that promote these
products are masters of seduction. The
marketing message is powerful and cleverly appeals to the
masses.
But if you know what to look out for, you can spot them a
mile off.
Faraday
Research
12
The first giveaway is their website is typically full of
flashy graphics and outrageous claims. Look
out for the pictures of bags or bundles of cash.
The second giveaway is that scams usually focus on customer
desires rather than the product
itself. The most commonly used image is a relaxed looking
guy sat somewhere with a laptop. In
the background there’s usually a water shot of some sort
(pool, river, ocean). For some reason, he
often has a glass of orange juice nearby. I assume this is a
subliminal message about being alert
and healthy.
The third giveaway is they go on and on about how once you
buy this product you will be able
to tell your boss to stick it. No more Monday morning blues.
Leaving the rat race behind. Having
all the things you’ve ever wanted: round the world cruises,
exclusive golf memberships, the big
yacht. There’s nothing wrong with having dreams. But a
shoddy product won’t make them come
true.
The fact is most of these mechanical models end up falling
apart in the future. You not only lose
the money you paid for the system, you lose your capital too
– often enough to wipe novice
traders out.
Beneath the surface these automated systems are effectively
blind, meaning their ‘static code’
can’t adjust to changing market conditions (and markets
always change).
So how can their track record be so good?
Some computer programmer has just back-tested a period in
the forex markets and ‘optimised’
the results. For a half-decent programmer, it’s not even
hard to do.
After gathering the raw data from the forex markets, a
programmer finds the best combination
of indicators and parameters until the system performs its
best. It’s just hindsight trading.
That’s why these automated systems have no place in real
world trading.
You can’t expect to make the same profitable trade tomorrow
as you did today, because each
day in the market is different. These systems don’t and
won’t adapt.
0 comments :
Post a Comment