Beware of internet trading brokerage fraud

In order to guarantee the security of client money, the Financial Sector Conduct Authority (FSCA) and Johannesburg Stock Exchange (JSE) play significant responsibilities in the regulation and supervision of the capital market.

Online trading has become quite popular in South Africa, but it also has a variety of hazards that a sizable percentage of traders might not be aware of. One of these threats involves brokerage frauds, which are becoming widespread. Some traders are unable to distinguish between phony and questionable brokers and trustworthy brokers. Because of this, it is crucial to understand how brokers operate and be aware of the crucial inquiries to make before selecting a broker.

Scams involving internet trading brokerages raise a number of serious problems, including:

Unauthorized brokers

Whether or not the broker is regulated is one of the key indicators you should watch out for to avoid falling for scams. As already mentioned, the South African internet trading sector is overseen by the FSCA. Online brokers who are judged “fit and appropriate” to hold trader money and offer financial services are granted licenses by this organization.

You should keep in mind that getting a license differs from applying for one when selecting a brokerage business. This is important for you to know since some brokers would only present you the paperwork related to their application.

One case involving the FSCA and a Forex brokerage company named JP Markets, which existed from 2016 and had more than 300,000 clients before being liquidated in 2020, is an illustration of this.

Because JP Markets lacked a license to run an OTC derivatives business, the FSCA moved to liquidate the company and froze its bank accounts, which held about R2.5 billion. However, the Supreme Court later overturned this decision, stating that even though the brokerage lacked the ODP license, it had applied for one. JP Markets was given its first license by the FSCA in 2016 to provide advisory services and non-discretionary intermediary services in relation to derivative products. Operating an OTC requires a

But in October 2021, the Supreme Court of Appeal (SCA) eventually exonerated JP Markets following a long legal battle. The SCA said that JP Markets had genuinely filed for a license, but that the FSCA had not accepted nor rejected their application, implying that the application was left pending or untreated. This was the basis for the acquittal.

The most important lesson from this is that you should check a broker's licensing with the FSCA before doing business with them to avoid having to wait for arbitration to get your money back. To do a search using your broker's name, go to the regulated entities page on the FSCA website at www.fsca.co.za. If your broker has filed for a license, this search will show whether the application is pending, being reviewed, or has already been authorized.

fake websites for reputable brokers

You should be careful of certain fake websites while looking for a trustworthy broker to trade with. These websites try to con naïve traders by utilizing similar names to those of trustworthy brokers' websites.

The con artists accomplish this nefarious goal by stealing the name and other important information from the websites of the legitimate brokers and posting it on their dubious websites with the intention of sending new traders to the clone websites. Accessing customer login credentials and confidential information is presumably the goal.

For instance, all forex brokers in South Africa are required to obtain an FSP number, which they will list on their website. Usually, this is visible on the footnote, about page, etc. A fraudster might take a legitimate broker's “FSP number” and exactly duplicate the broker's website to pretend to be regulated.

Make sure you thoroughly research the broker's website URL and other information in order to avoid falling victim to this tactic. The FSCA website has all of this information. Additionally, if the website contains typos, spelling mistakes, or other flaws, it can be a copy.

not keeping customer money separate

If a brokerage business stores customer deposits in a separate account from other money is one of the factors you need to look into to determine the legitimacy of the company.

For instance, a brokerage should retain a separate account for such expenses and should not pay employee wages out of consumer deposits. This is required to ensure that your money is secure and may be recovered to you in the event that the broker fails.

Client money for forex brokers must be kept in segregated accounts, and these monies must be kept in a South African bank. HotForex, a licensed forex broker, asserts that its money are segregated. This is crucial to do in order to protect your money since otherwise, the broker could utilize it for their personal gain.

If the broker groups the two accounts together, you should be wary since it might be a ruse to mislead you. Checking the broker's website will reveal whether they separate customer funds because it is always indicated there. You should enquire further if you can't find the statement on their website.

Unrealistic or guaranteed profit promises

Remember that nothing in internet trading activities is “guaranteed.” Professional capital market operators shouldn't use the phrase “guaranteed” since recording earnings or returns isn't always definite.

It is advised to use cautious if you come across a broker offering promotional deals that guarantee clients enormous profits with little to no risk. Such a broker would attempt to entice you by putting a time restriction on the “special offer,” by claiming that early investors will receive free gifts or some other kind of exclusive incentive.

Because there are dangers involved in online trading, you should constantly be aware that the system's qualities include the ability to record losses. Consider the fact that a broker who understands how to generate assured returns for himself wouldn't be looking for your small investment and he wouldn't be disclosing the trader's trade secrets to anybody.

requesting your referrals

One method to identify fake brokers is by how aggressively they pitch to potential customers. If you recommend others to enjoy the exclusive packages they provide, they would inform you that you will receive a commission.

You should also be careful because brokers offering you commissions referrals, may be pyramid schemes masquerading as reputable brokerage firms.

A sense of urgency and complicated jargon

Scam brokers could try to use some coercive languages to get you to part with cash. Through persuasive and well selected statements, they would tell you that the special offer has a limited time frame. They make you feel you are missing out on the next big thing.

The use of complex terminology and protracted sentences in the context of “terms of usage” agreements and other specifics can be used to identify suspect brokers. The complicated claims are a red herring used to obscure the risks associated with the trader's engagement. Never invest in anything you don't understand, as Warren Buffet is renowned for saying.

Having trouble withdrawing money

A risky indicator is when you can't access your money at a specific time. It should be as simple to withdraw money as it is to deposit money. If your broker requests further deposits before allowing you to receive your profits, they can be a fraud.

If you were unable to access your accounts, please be aware that the capitalization statement provided by your broker is untrue. Second, he could have shadily mixed up your money. Money withdrawals shouldn't take more than two business days.

Unwanted phone calls and messages

One method to identify a scammer is by the unsolicited emails they frequently send and the “cold calling” telephone sales calls they frequently conduct.

You should exercise caution since con artists frequently employ courteous and alluring language to swiftly grab your attention. They could claim to be trading specialists and to be representing a reputable broker when they offer you to make a small investment in exchange for a high rate of return. Keep an eye out since this is merely name-calling.

Important questions to ask a broker before you invest your money with them are:

How long has this brokerage company been around？

Has the FSCA granted it a license to sell the goods it says it regulates？

Are the firm's financial statements sufficiently capitalized to manage a large number of accounts？

Has the broker participated in any arbitration proceedings？

How does the broker generate revenue？ (Is it due to spread or commissions, etc.)

Who acts as my trading activity' counterparty？ (Is it your broker or another source of liquidity？)

What kind of individuals run the brokerage firm？ (Search for them on LinkedIn.)

Use caution and common sense.

Some brokerage houses are deceptive in some ways. The results of a quick Google search on