Get-rich Quick Seminars
Enrichment classes: Gain a new skill, enjoy new riches? Think again!
"Over the past few years, I have achieved over 200% returns on capital” says one online trading trainer.
Three friends signed up for a preview seminar on foreign exchange (forex) options trading. Two of them paid up for the actual course after attending the preview seminar. After 3 years, one has finally given up trading forex options after suffering huge losses while the other is still struggling to make a profit. The third friend felt put off from attending the actual course because the trainers at the preview seminar seemed overly positive, focusing mainly on: the potential to make large gains with little upfront cash; the potential for limiting loss and unlimited gains; and finally, the potential to make profits under all market conditions.
Forex trading is about betting on the future movement of exchange rates. Forex trading is generally considered a high-risk activity as it is usually leveraged. These days, forex trading seminars are often marketed online and through marketing collaterals which feature attractive success stories: a chance to retire early, earn extra income or make some money after years as a home-maker are appealing.
But there have been reports where the participants shared personal experiences about losing money on top of paying out hefty course fees to attend the seminars. Others have ended up seeking refunds from the seminar organisers, approaching CASE and the Small Claims Tribunal when unsuccessful.
So remember, if someone offers to help you make amazing and consistent returns by teaching you all about forex trading: be cautious! The tactics are similar: pay a few thousand dollars for a high-powered seminar or invest in some clever trading software or sign up to receive SMS updates on an FX guru's next trade and all your financial worries could vanish. Sounds too good to be true? That's because it probably is.
Unregulated online trading platforms
Apart from get-rich-quick forex trading seminars, there are also unregulated online trading platforms that purport to help investors make quick profits. Such online trading platforms typically attract the attention of investors through web-based advertisements or social media. Investors may then be led to trade financial products electronically, either through a web-based platform, or through software provided by the operator of the platform.
While MAS has regulatory safeguards in place for investors who deal with regulated online brokers, trading on an unregulated online trading platform means that the investor will lose the protection offered under our laws and regulations. This leaves the investor vulnerable to possible scams or difficulties in contacting, or resolving any grievances with such unregulated online trading platforms. On the other hand, regulated financial institutions that operate online trading platforms are subject to regulations aimed at safeguarding investors’ monies and assets. These measures include requirements for the operator to be fit and proper, and maintain segregated customer accounts, controls and records. Investors are strongly encouraged to deal only with financial institutions or entities that are regulated by MAS. You can check the Financial Institutions Directory on the MAS website to check if the financial institution is regulated or not.
Apart from forex trading, it is also common for unregulated online trading platforms to offer another form of investment instrument, known as binary options.
What are Binary Options?
A binary option is a type of option contract that references an underlying instrument. The underlying instrument can be from asset classes such as stocks, commodities, currencies and interest rates. The returns on binary options are dependent on whether the asset underlying the binary option rises above or falls below a certain amount. For a binary option, there can only be two outcomes: payment (if the threshold amount is exceeded), or no payment at all (if the threshold is not met).
Unregulated platform providers often entice investors to invest in binary options using marketing catchphrases such as “trading with zero risk”, “trading amounts of as little as $1”, and “profit payout of 500% per trade”. Although binary options may provide the potential for high profits, they also carry significant risk of loss. Investors should fully understand how the payoff structure of the product works, and be familiar with the underlying assets against which the option is based on. You should also take note that there is a high chance of you losing your entire investment amount, whether you deal with a regulated or unregulated entity. Further, you are always exposed to investment risk, whether a product is regulated or not.
Moreover, many of these unregulated binary options trading platforms are fraudulent and based outside Singapore. Investors who choose to trade with these platforms are unlikely to recover any monies lost. Also, if you choose to deal with unregulated entities, you will not have access to avenues for dispute resolution should a dispute later arise. To find out if an entity is regulated, you can check the MAS Financial Institutions Directory.
In addition, you may also wish to read the police advisory on online scams involving binary options trading and MAS' media release on risks of trading binary options with unregulated platforms.
What is forex trading?
Forex trading is about betting on the future movement of exchange rates. Forex trading is generally considered a high-risk activity. Professional forex traders have jobs in which 100% of their time is devoted to making profits by trading. These traders have market experience and real-time market information at their fingertips. They may also have huge amounts of capital to bet. As retail investors, most of us will not have much, if any, of these.
Here are a few key things to think about before parting with your money to trade on unregulated online platforms and/or engage in forex trading enrichment classes.
- Take a reality check: If the individual or company claims to have a fool-proof method of ensuring high and consistent profits, why is he spending time trying to sell you software or a training programme when he could be making millions instead?
- Am I suited to fast-paced trading? Online trading, which includes forex trading, is fast-paced. Forex trading in particular requires round-the-clock attention to the markets and rapid decision-making. Not everyone will be suited for such demands, or is able to devote the required time and attention. Ask yourself if you are suited to this sort of trading style.
- Do I understand binary options? Binary options are susceptible to market risk. Like other options products, investors’ losses can be magnified by using binary options to speculate. However, in a way, binary options can represent an even higher risk, as they are usually an ‘all-or-nothing’ product. Trading in binary options without an understanding of the underlying asset is as good as gambling.
- Do I understand what makes forex markets tick? Forex markets are complex. Identifying and making sense of economic indicators, trade data and monetary policy statements that are relied on by forex market professionals requires fairly complex analysis and judgement.
- Am I suited to high risk investments? Trading on unregulated online platforms and forex trading can be very risky. The risks are further increased when you trade using leverage or on margin. With leverage, the gains and losses can be magnified many times. For example, if the leverage is 100 times, with $100 on hand, you can place a $10,000 investment that a certain currency will appreciate. If the currency depreciates 20% in one day, you would lose $2000 (20% of the $10,000 investment). Even after writing off the $100 you started with, you will still need to pay out another $1900 to make up the loss. Are you able to tolerate this level of risk?
- What is the downside? Marketing testimonials may tempt you to think that everyone who has traded online bought into the recommended trading software or strategy or placed the same trades as the forex guru, has made significant profits. Have you considered that perhaps there may be many more individuals who have not done as well, or failed miserably, suffering heavy losses? Always ask yourself what is the worst that can happen and whether you can withstand the risks.
- Are the returns realistic? The offers look attractive because the potential returns touted are huge. Look beyond the headline rates and consider how realistic the returns are. The risks could be equally massive too: the potential of wiping out your capital (or more if you use margin) on a bad trade may not justify the potential returns promised.
Before you go into a high risk activity like forex trading or trading on unregulated online platforms, do take the time to research other investment products too. Find out about likely returns and how much risk each of these products exposes you to. By comparison, does the expected return from online trading/ forex trading justify the amount of risk you are taking on?
- What experience does the individual or company or unregulated online trading platform making the offer really have? Offers may appear credible if the person or company or online trading platform claims to be an expert, with vast trading experience, and/or regulated by the authorities. Do your homework and conduct independent checks to establish the credibility of such claims. For instance, you can check:
- The Financial Institutions Directory on the MAS website to see if a company or financial institution operating an online unregulated platform is regulated by the MAS and whether the investment activity that is marketed is a regulated activity.
- The Investor Alert List for a list of unregulated persons who, based on information received by MAS, may have been wrongly perceived as being licensed or authorised by MAS.
- The Enforcement Actions page on the MAS website to see if MAS has taken regulatory actions against this person or entity.
There is no free lunch in investing. An instrument or investment strategy offering a higher potential return carries with it a higher risk of you losing some or all of the money you invested. Even years of market experience do not guarantee consistent or high returns for a market professional. If you are a retail investor starting from scratch, think again. Be extra vigilant and cautious when you come across offers of exceptionally high or consistent profits. Always ask yourself what the catch is.
Investors should also consider that if they deal with entities that are not regulated by MAS, they forgo the protection afforded under the laws administered by MAS. Investors seeking investments from unregulated entities should exercise caution and consider the additional risks of dealing with entities that are not regulated by MAS.
This article is prepared in collaboration with the Securities Investors Association (Singapore) and the Consumers Association of Singapore (CASE).