12 November 20
Reading time: 4 minutes
In this low-interest rate environment it’s natural to look for ways to make your money work harder or search out a side hustle. You may come across teaser ads linked to foreign exchange trading – courses, seminars or software to help you convert one country’s currency to another and turn a profit.
Forex can look like another form of share investing or cryptocurrency, but it's quite different. There are a million get-rich-quick ads out there promoting it – but beware. This is where scammers hide, pulling us in with promises of easy riches.
In the spirit of Fraud Awareness Week, there’s no harm in asking if something is legit. As we know, online there’s a lot that’s not.
Online, things look rosy – all those successful, wealthy people, and forex ‘experts’ on Youtube with slick training seminars and shiny software that promise to give you a trading edge over others. Even on New Zealand news sites that we typically trust, adverts sneak in that are forex-related scams.
Many FX trading platforms are unregistered and overseas, which is always a red flag. To sign up, you supply your driver’s licence, a utility bill and even a copy of your credit card. Be careful – even if you hide some of the numbers, your identity could still be stolen.
If you do lose money, be wary of emails that suddenly arrive from outfits offering to get your money back – they’re called ‘recovery room’ scams and will have you throwing good money after bad.
‘Sadly there appear to be just as many fake recovery agents as there are fake FX traders,’ says fraud expert Bronwyn Groot. ‘Make sure you research, research and research.’
The very existence of those recovery rooms points to a lot of money evaporating. ‘If you can’t afford to lose money, don’t even go there,’ she advises.
Foreign currency markets are some of the largest in the world. This sort of thing used to be only for large corporations, hedge funds or rich folks, but these days – due to the internet – there are many retail platforms for everyday people, too.
But have you ever met anyone who consistently makes money at this?
Individual traders typically take a punt on whether one currency will become worth more or less and try to profit from the change in value. This is more akin to speculating than investing.
There are also a variety of contracts linked to the exchange rates that can be bought and sold, with names like ‘forwards’, ‘swaps’ and ‘options’. Depending on what the currency does in the future, these contracts will pay out either more or less than what you put in.
Sound complicated? Too right. It’s no wonder scammers see an opportunity to ‘educate’ you on how to play the market.
Forex trading is like a maze surrounded by a shark-infested moat. There are all sorts of ‘helpful’ people offering to help you cross over. Arm yourself with research before dipping your toes in the water.
For more on foreign exchange trading and the risks it brings, see the FMA’s guide here.