In the retail forex market, traders aim for profits by speculating on exchange rate changes of various currency pairs by using various financial instruments like derivatives.
It is extremely risky because of it is a decentralized market, and because everything is done online, it exposes you to various scams if you are not careful.
These scams are a major problem because they take different forms. In an African Cyber Threat Assessment Report by INTERPOL, African member countries in the report fingered online scams as the most worrying threat in 2021. Other threats fingered included: digital extortion, business email compromise, and Botnets.
Forex scams are very common in Africa, and many scammers target young people online. This scam can take the form of all the threats African countries have complained about, as they also rely on the internet to reach a wider audience.
When you connect online to trade, you are instantly exposed to all these threats. But there are certain ways in which investors can be more careful & lower their risk.
#1 Only Trade through Regulated Brokers
When choosing a broker, ensure the safety of your money by trading only with those that are registered
Note that if you are scammed by an unregulated broker, you may never get your money back because part of the reason for regulation, is for governments to hold these brokers accountable.
Since forex trading is not regulated in Ghana, as per the regulation by SEC & BoG, so the traders trading currently use foreign brokers. The question now becomes: “How do I know if a broker is regulated?” When you go to the website of the broker, you can search for the registration status at the bottom.
If the “About Us” page or any other aspect does not talk about the regulation of the company, you are strongly advised to avoid such broker.
When studying the legal details at the bottom of a broker’s website, you must always look out for the word ‘regulated’. If a broker says they are ‘incorporated as a broker company in a country’, this is not the same thing as being regulated.
You can also check the registration status of your broker, by visiting the website of the regulator who licensed them.
A simple google search about the broker could also reveal some information you need to make a clear comparison of different forex brokers before you settle to trade with one.
As per research by Forex Brokers SA on the state of regulation of forex trading in Africa, only two countries regulate online forex trading and they are: South Africa, and Kenya. In South Africa the Financial Sector Conduct Authority (FSCA) licenses all forex brokers, and they also accept Ghanaian traders. In Kenya, CMA regulates forex trading, and has licensed 8 non-dealing forex brokers.
Some brokers also hold multiples licenses from regulators of various countries such as: the Financial Conduct Authority (FCA) of the UK which is regarded as a tier 1 regulator. Avoid trading with brokers only regulated by unpopular regulators like those from Island nations.
#2 Ensure the Broker Offers a Demo Account
As a new trader, a forex demo account is a system that enables you to learn more about forex trading, by simulating a real trading environment, without losing your real money.
Setting up demo accounts for traders can be capital intensive, so scam brokers don’t bother. Instead, they would tell you to enter the trade hurriedly.
If you come across any broker who doesn’t offer a demo account and is rushing you to open an account with them, they may be scammers.
But even some unregulated brokers offer demo accounts, so this rule should be given lower priority than the first point.
#3 Read Online Reviews About the Broker
When a forex broker offers their app online, users are free to review and offer star ratings. This is a good place to seek for the ‘wisdom of the crowd’.
From reading what others think about the broker’s app, you would know whether it is worth it to trade with a particular broker or not.
Reading reviews can also help you detect fake apps. If you find that the negative comments are too much, it is advisable not to use such an app.
Also, you should be careful about excessive positive reviews, because scam brokers may pay people to give them fake reviews, which usually sound unnatural.
#4 Avoid Promises of High Yields and Low Risk
You might have come across advertisements online like ‘Make $100 a day from a $300 investment’, or ‘Make 70% monthly returns profit from this investment’.
Some brokers may even give you the assurance of 90% success. Whenever you come across such brokers, just know that they are fake.
A real forex broker should not promise you any profits to make good money for you. Those promises are made by scammers. They usually come in two forms: forex pyramid schemes and forex Ponzi schemes.
In forex Pyramid Schemes, the operators make money through the fees paid by new members. The operators start by selling you a product which most time doesn’t work. This product could be forex books, robots, signals, etc.
The operators ask you to pay a registration fee, and also buy the products. Note that you buy these products at inflated prices. You are then required to start scouting for new members, in order to rank higher on the pyramid, and earn a share of their fees.
New recruits also register and buy products which they must sell to recoup their funds. Inability to sell these fake products and recruit new members, means you are stuck with fake products, and also waste the fees you paid.
In forex Ponzi schemes, you would be told to give money to the scammers to trade forex with, and give you returns. They usually pay early investors from the funds of later investors. When the new investors stop coming, the scheme operators can no longer pay older investors, so they close shop and disappear with all the funds.
In a Warning on Ponzi & Pyramid Schemes by the Ghana Economic & Organized Crime Office, it advised the public not to think the government doesn’t want them to make money, when it advises against high yield investment programs. The warning also highlighted several red flags that point to a Ponzi/pyramid scheme.
In 2022, the Bank of Ghana (BOG) cautioned the public about the existence of more Ponzi schemes. The statement signed by the Secretary of the BOG, Sandra Thompson, said:
‘This fraudulent scheme does not reward investors as promised’. ‘The general public is encouraged not to engage in such activities and to report such illegal operators to the Bank of Ghana’.
#5 Beware of Fake Forex Trading Bots or Automated Systems
A forex robot or ‘bot’, uses an algorithm or set of codes as a signal to execute exit trades. It is a computer program that trades for you.
While there are an array of forex robots, none of them can give you the guarantee of constant profits while using them.
You may come across scammers giving you the assurance that these bots win always and can be used in any market but this is often false.
The bots don’t do well in every market as they are tailor made for certain markets, and there is no guaranteed win rate if not, the sellers would have been using it instead. These sellers make their money by selling you the software, and they may not be well versed in actual trading at all.
Also, it is important to know that forex bots are technically offering you trading advice, and so those selling these bots should be registered and approved by regulatory bodies.
#6 Beware of Fake Signal Sellers Claiming ‘Secret Formulas’
Signal seller fraud occurs when a person or firm claims to have perfect knowledge or information, on how you can make a profitable trade.
Inexperienced traders usually fall victim, and the scammers may charge you monthly, weekly, or daily subscription fees.
The scammers usually back up their false claims by using unverifiable testimonials to catch your attention and lure you into it. In reality, there is no forecast that can give you a total guarantee of profits.
They would charge you subscription fees with the promise of fantastic results, that have no tangible proof. Before parting with your money, ask yourself why they are selling the forecasts if they are so profitable.
They can also connect you with a specific broker as a prerequisite to offering you signals. This is an arrangement because there is a high possibility of them getting kickbacks from the broker.
Be Cautious if you are Trading Forex in Ghana
Remember that forex trading is not yet regulated in Ghana, so you are trading at your own risk. Even if you lose money to a scam broker, there are high chances that you won’t get your money back, given the fact that there is no investor protection when you have funds with unlicensed dealers.
So, you must be extremely cautious if you do decide to trade via any foreign broker, and do your proper due diligence, ask questions, as this your money, at your own risk.
Remember that, no matter how sophisticated scammers are, you won’t fall into their hands with proper information.
