16 July 2019, MyChargeBack - Investing was once an exclusive profession limited to a closed circle of highly trained experts whose arcane knowledge and skills made them seem more like wizards than, say, lawyers or engineers. Not any more.
What a trading scam looks like
The rise of the internet led to the development and growth of online trading platforms that allow literally anyone to join the world of investing, whether as a hobby, a career, or an addiction. Much money has been made, but even more has been lost by this new crop of online investors. But the human species is nothing if not optimistic; we all believe that we can be the ones to beat the odds and make some serious profits. The problem is that aside from the inherent risks involved with online trading, the industry is infested with a seemingly bottomless pile of scam brokers. They’re doing a great job of giving honest brokers a bad name.
Regulated and unregulated online broker scams
Online broker scams can, in principle, be divided into two general categories: regulated and unregulated. If you’ve been involved in the world of finance for any length of time, you already get it, but if you’re new to this, it’s not necessarily the most obvious concept to grasp.
Briefly, financial regulation is an approach taken by many governments to make the economic system work in a way that is predictable, consistent, and fair for everyone. Various financial activities may be subject to regulation. Some nations appoint a single regulator to oversee all of them, such as the Central Bank of Ireland for example. Other countries may divide responsibility for overseeing different financial sectors among two or three regulators. The United States has taken this idea to the extreme, with an alphabet soup of separate agencies to oversee commodities (CFTC, the Commodities Futures Trading Commission), securities (SEC, the Securities Exchange Commission), the money supply (The Federal Reserve System, aka the “Fed”) and at least half a dozen others. To achieve their goals, financial regulators make rules and enforce them.
Does this mean that every regulated investment broker is totally trustworthy, honest, and reliable, and that every unregulated broker is a scam? If only life were so simple.
Not surprisingly, some countries’ regulators are better at enforcement than others’, and some (I’m thinking of certain tiny tropical island nations) are notorious for nearly nonexistent enforcement. A broker who’s not troubled by ethical concerns but still wants to have access to regulated markets will typically pick one of these. Totally unregulated brokers, on the other hand, can very often (though not always) be total scams, just pocketing the victim’s deposits while pretending to execute trades on a platform not connected to any real-world markets.
Therefore, the biggest red flag for an investor shopping around for a broker is if they have a reputation for making withdrawals as difficult as possible. A quick online search will uncover all you need to know about what previous customers think of them. That, along with which country — if any — is responsible for regulating and licencing them, should help you decide if you are comfortable risking your hard-earned money with them.
Tune in next week for Part 2!
MyChargeBack is a fund recovery service headquartered in New York. In the past three years we have worked with more than 750 banks around the world to recover over $11 million for clients on every continent. If you believe you have been a victim of an investment scam, contact us for a free fund recovery consultation.