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Do you remember the commercials that used to
appear on television?
“It’s five o’clock. Do you know what your child is doing?”
An investor should be thinking, “Do I know what my money is
doing?” If you don’t, then you are far more likely to lose it.
This
does not mean that you are necessarily being cheated. Many
legitimate investing strategies can put you at greater risk, but
you must be aware of it and be ready to accept the chance of
greater losses. A perfect example is margin trading. Currency
traders may ask for money from investors to trade on “margin.”
As we explain else where in this book, margin allows a mere
$1,000 to $5,000 to control
vastly larger sums on the Forex markets. It increases the size
of the reward but also increases the size of the pain if the
market goes against you. Consequently, an investor may give a
relatively small amount to a trader and find himself or herself
facing far greater losses. This goes for any other trading
strategy or vocabulary. If your trader is using terminology that
you don’t fully grasp, then
you should not be risking your money.
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The Firm Claims To Trade in the “Interbank
Market”
Some firms or companies will say that they
have access to the “interbank market” and can therefore trade at
better prices on your behalf. This is a sign of possible fraud
and you should remember
our first warning sign—someone is offering you a free lunch. The
interbank market is dominated by large institutions—banks,
corporations, and financial powerhouses. Anyone who claims to
have that kind of access should be closely questioned.
The Firm is Using
the Hard Sell via the Internet
The Internet, as we have noted, has greatly increased the
individ-ual’s ability to access financial information and trade
relatively quickly and at low prices. The downside of this is
that it has also made it easier (and cheaper) to use fraudulent
and misleading pitches to reach investors and take their money
from them. Be careful of a hard sell that is followed with
pressure to transfer funds quickly over the Internet. In many
cases, sending money can be as easy as clicking a button, but
getting it back can be almost impossible.
Be especially aware of firms that do not conspicuously list
their addresses. If they are not located in the U.S., then your
money could be sent to a foreign firm, and it may be virtually
impossible to recover. |
