Scamming the Scammers
Greetings from Acapulco! It's a beautiful Sunday afternoon; the birds are chirping as a tourist goes parasailing effortlessly above the beautiful blue bay. I'm enjoying the view from our terrace, sorting through email when I came across something that sounded a sour note on an otherwise perfect day…
Question of the Week
Q) Mr. Ponsi, I am very interested in the Forex market. I have some money that I would like to put into an active account but I can't get my demo account to make any money. I started with an automated trading company that shall remain nameless (E.P.) first. It was supposed to win more than lose. I didn't find that to be true. Then I read some stuff about financial calendars, they listed the times of the news conference but by the time I got to place my trade I had missed the spike. I really don't feel comfortable sinking my money in an account when I can't seem to make play money in the demo account. Can you help me?
Ed Ponsi) Yes, I can help you – don't do it! If you're not comfortable putting money into an account, then there is a good reason for that discomfort. In your case, the reason seems to be that you haven't learned how to trade yet – and that's the best reason imaginable to stay out of the currency market or any trading market. Don't rely on automated systems or signal services, they almost always promise more than they deliver. Instead, learn how to make the right trading decisions on your own, you'll find that it is much more rewarding.
Automated trading systems like the one you mentioned tend to be more hype than substance. Because Forex is relatively new to the retail trading public, scammers who make unrealistic promises are becoming a constant nuisance. Here's a good rule of thumb, and it doesn't matter if you're trading stocks, futures, options, or Forex – If anyone promises outlandish returns, don't believe it; it's probably a scam. For example, the website you mentioned claims returns of nearly 500% in 2005, nearly 700% in 2006, and nearly 1000% in 2007. Just based on these so-called returns, this website has scam written all over it.
A quick glance at the disclaimer page yields yet another huge red flag, waving in the breeze: "No independent party has audited the hypothetical performance contained at this website". The word "hypothetical" should set alarms ringing, because this means that those supposedly lofty returns from the years 2005, 2006, and 2007 never actually occurred – they are "hypothetical" returns. This means that the system currently in use would have yielded those results back during those years, if it had been used. But it wasn't used, because if it had been, the returns would be "actual" instead of "hypothetical". What the operators of the website are doing is predicting the past. Now, watch me predict the past with astonishing accuracy: I hereby predict that the New York Giants won last year's Super Bowl. I predict that it rained last Tuesday. I predict that the movie "Batman: The Dark Knight" will have a record breaking opening weekend. I can even give you last week's winning lottery number!
If you were to grade me on my predictions of things that have already happened, you'd have to say that I'm very accurate. You'd also have to admit that the information is useless, unless you have somehow acquired the use of a time machine. Hypothetical returns are the backbone of any trading scam, so search every page of the website, especially the disclaimer, for that word. The website's operators are hoping that you will be so excited by your desire to receive big money without effort that you will be negligent in the performance of your due diligence.
Here is another red flag, in the form of a quote from the website's homepage, "Also you can be absolute newbie to use our system - you don't have to know ANYTHING about trading and you don't have to have ANY experience." Two things stand out here; first, the promise of easy money with little or no effort. Ask any real trader and he or she will tell you that trading is not an easy job, but the public can be easily led to believe that it's all very simple, and that no real effort is required. Even though deep down we should know that this is a false promise, much like fictional FBI agent Fox Mulder of the X Files, we want to believe, and this is what makes the scam so effective. Scams of this nature are meant to appeal to the public's sense of greed. The promise of easy money is a hallmark of all scams, not just in the world of trading.
Another thing that caught my eye was the poor use of the English language in the phrase, "you can be absolute newbie". As a rule, I delete all spam without opening it, but sometimes I do read the email subject headline. I don't know about you, but I am inundated with spam that is written in poor English, and I assume that most of those who spam, scam. I am not saying that poor usage of the English language necessarily makes one a scam artist, but it does seem that many scam artists do not have a good handle on the language, so consider it a warning sign when combined with the other red flags mentioned above.
Summary
Ralph Kramden. Homer Simpson. George Costanza. One of the staples of television entertainment is the lovable loser, the person who always seems to be hatching some crazy get-rich-quick scheme. The result is always the same; every episode ends with the scheme blowing up in our protagonist's face. While we may find it entertaining to watch these fictional personalities in action, we don't want to BE that person. It has been said that when opportunity knocks, it is often disguised as hard work. Well, when a scam comes knocking, it is often disguised as easy money. Real trading is hard work, but it can be enormously rewarding if you are willing to do what it takes to learn the business.
Why do I find these scams so irritating? Because innocent people who have a legitimate interest in learning how to trade are being taken advantage of, and because it sullies the reputation of the good guys that are out there. I hope this exercise has been helpful. Let's be careful out there!
Have a question about Forex trading? Send an email to eponsi@tradingacademy.com and we may use your question in an upcoming newsletter. Until next time, best of luck to you in trading.
