MOSSEL BAY NEWS - Trading and investments in any of the financial markets involve third-party risk. If you are choosing a broker to trade or invest, the safety of your deposited funds relies greatly on the broker.
With the phenomenal rise in involvement of retail traders and investors in South Africa, the number of trading & investing scams have also reached an all-time high.
If the transaction of trades is processed by a third party, there will always be a third-party risk. However, the third-party risk can be mitigated to lower levels if you thoroughly check the authenticity of the broker.
You can check for yourself if the chosen broker is legit or scam in multiple ways. Here is a checklist of some points that you must consider before you deposit any funds with any brokerage or investment.
Make Sure Your Broker is Regulated
Almost every Financial market in South Africa is regulated. However, it is not essential that your broker has been regulated by the concerned authorities. Hence, it becomes the duty of the traders and investors to comprehend the regulatory licenses held by the broker.
Brokers offering stock and its derivatives require a member license from Johannesburg Stock Exchange (JSE). None of the brokers can legitimately offer stockbroking services in South Africa without JSE’s authorization. Financial Sector Conduct Authority (FSCA) regulates forex and CFD brokers in South Africa and it also oversees the conduct of JSE and the Capital Markets.
JSE and FSCA cover the major regulations of capital markets in SA. Some brokers or financial services providers may also have additional licenses depending on services they offer like Banks and insurance providers have to be licensed by South African Reserve Bank (SARB).
Brokers without JSE or FSCA license in South Africa are very likely to be scams or fake. Brokers with offshore regulation and no local regulation in SA should be avoided by South Africans.
As per Safe Forex Brokers South Africa, “A regulated broker must have a FSP number or license number mentioned in the documents or footnote of their website. These numbers can be cross-checked for authenticity on Financial Regulators’ websites. Fake brokers often use fake FSP no. or forged documents of some genuine brokers, so it is always advised to cross-check this”.
For ex. you can verify a broker’s FSP No. from FSCA’s public search, and see the products for which it has been authorized.
Ask Questions from the Broker, Have a Conversation
Having a small conversation with the customer support executives can give you a glance at their service and quality. Fake brokers or scammers generally do not allow clients to contact them or raise queries directly related to their regulation, trading fees, withdrawals.
Have a live chat or verbal conversation with the broker before opening the account to check their transparency and speed of response. This can also allow you to know more about the broker.
You can ask them about their regulation, commission, spread, leverage offered, deposit, withdrawals etc. A legitimate and resourceful broker must answer each query raised by the client.
Unsolicited/Cold Contracts
Traders and investors must not risk their hard-earned money on unsolicited advisory.
If a broker is contacting you often asking for deposits, it is a serious red flag. Any broker that approaches you first or tries to convince you to deposit or open an account with them may not be legit.
Scammers in the capital market often try to convince the traders and investors to fall into their prey. They may lure clients by promising unreal returns, illogical risks, excessive bonuses, or anything that can attract them.
Traders and Investors must avoid such unsolicited advertisements or advisory.
Read Forums and Online Reviews
Just a simple online search about the broker can provide many important and useful details about a broker.
Several forums online have discussions on the services offered by the broker. It can provide details of user experience and common issues faced by existing clients.
South African investors can also search for online reviews by experts and professionals. The reviews comprehensively cover experience with every feature but some reviews can also be biased.
Do Your Research
A small investment of time in research and education can greatly supplement your investment decisions. Before making a deposit or opening an account, one must do thorough research on the internet to search for red and green flags. A simple web search would help you spot a scam.
Any reported complaints against the broker in the past can be checked through the regulatory authority. FSCA, JSE, or any concerned regulatory authority publicly publishes press releases for complaints or warnings against brokers.
Clients must also check the details of ownership and financial statements of the broker. You can find information like how long broker has been in business/industry, its experience, complaints or wrongdoings of the company or owners online. Reputed brokers are transparent and you can find their audited financial statements and ownership structure online.
Legitimate brokers provide every detail of their licenses, financial statements, documents, user agreements, and other details. This information must be cross checked on regulator’s website and 3rd party sources. Make a deposit only after you are satisfied with your own research.
Avoid any brokerage or investment platform that promises you high returns from the financial markets.
Check Your Trading Statements Regularly
Churning is an illegal practice in which a broker engages in excessive buying and selling of securities to generate revenues through commission.
Many fake or unregulated brokers may frequently transact or force you to buy or sell securities. This deceit can rob traders and investors and increase brokers’ earnings.
Traders and investors must regularly check their transaction statements with details of all the charges incurred. Those who use automated trading through algorithms, software, or strategy should check their statements more frequently.
Never Share Personal Details and Don’t Rush to Pay
Fake brokers or conmen force the clients to make an investment decision quickly. They may try to sell their products by statements like “limited offer”, “only for first 1000 clients”, etc. Legitimate brokers will not force you to do anything haphazardly.
The account opening requires you to enter personal details and verify them. However, before opening the account, there is no need of providing personal contact or financial details. These details can be used by conmen and scammers for their personal benefit.
Traders and investors in South Africa must restrict themselves from making a deposit to fake brokers and scammers. One must be 100% sure of the broker’s legitimacy and choose only after research.
Check their Websites and Social Media
Fake brokers may or may not have their websites, legitimate brokers will always have a website providing all their important details like their Regulatory information and contact information. The websites of the regulated broker must be user-friendly, interactive, and provide all the required details.
Brokers also have social media handles to enhance customer service. These platforms can also depict the user experience and issues faced by the existing clients.
Fake brokers and scammers will have no social media handles that can highlight their flaws. Also, fake brokers likely use tactics of quick money, high returns etc. on their website & social media. So, you must avoid such brokers.
Another thing to notice is any misspelling in the name of the website, often fake brokers will try to impersonate an existing legitimate broker using a similar looking name, FSP number and a fake address. You can cross check this from FSCA’s website and by doing map search to check the address, to see who actually is on that location.
If the broker does not have a website or social media, clients must verify their documents/FSP no., address and contact details with the regulators before depositing any money.
False Promises and Bad Practices
Fake brokers and conmen will say anything to convince you. One must know the practical returns possible in the capital markets like stocks, bonds & other financial markets like Forex, Cryptos etc. and the risks involved with each of these markets. Fake promises of substantial returns are simply to get your deposit anyhow.
Some fake brokers can also fluctuate prices to trigger stop-loss or limit orders. This malpractice can benefit the broker and various reports of similar scams have been reported in South Africa.
Discouraging to sell or being forced to buy by changing holding prices are major red flags. Brokers can add hidden charges that were never mentioned before in the statements.
Holding or delaying withdrawals and asking for too many documents or making excuses are signs of a scam. All the trading and transacting conditions and changes are regularly notified by the legitimate broker.
When in Doubt, Withdraw Funds and Complain
If you witness any suspicious activity or malpractice by the broker, the first step should be to withdraw the amount.
The next step should be to file a complaint against the broker to the regulatory authority i.e.: FSCA or JSE. You must report any unregulated or non-licensed or fake brokers to the authorities so they can warn other investors & take relevant action. Any complaint against a regulated broker in South Africa can be filed with JSE or FSCA.
How to be safe – Pay attention to detail & be vigilant to all the red flags
Trading and investing in themselves carry lots of risk elements. By choosing a fake broker, they also add up the third-party risk. This risk can never be completely eliminated as conmen and scammers constantly search for better methods to scam investors & traders. New scamming techniques are evolving each day.
Staying vigilant and informed is always important & you must make informed decision in financial markets. One must always take all the precautionary measures possible to avoid scams and choose the broker wisely.
Be attentive to detail, look for discrepancies in the information provided to you. Things that are too good to be true or false information or promises are top most red flags to watch out for.
If you are in doubt or you have been scammed, report to the regulator - FSCA or JSE. You can also contact FAIS's ombudsman in case of complaint or dispute against broker.
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