Forex trading is on the rise in Kenya, but this growing interest in forex trading among Kenyans is also attracting a growing number of fraudsters to the scene who are eager to use the popularity of forex trading as a lure to find suitable victims for their frauds.
Below, we will take a look at a few points that are good to know if you want to decrease your risk of falling victim to a forex scam. A lot of the information below is not only pertinent for traders in Kenya, as this article includes a lot of intel regarding international scams and advice that can be useful for traders around the globe.
Use regulated and reputable forex brokers
A good starting point is to only use brokers that are properly regulated and have a good reputation within the trading community. In Kenya, the applicable authority is the Capital Markets Authority of Kenya (CMA), a governmental financial regulatory entity responsible for supervising, licensing and monitoring the activities of the capital markets and market intermediaries in Kenya. Examples of licenses issued by the CMA are the Non-Dealing Online Forex Exchange Broker Licence, the Dealing Online Forex Exchange Broker Licence, and the Online Forex Exchange Money Manager License. Find the best licensed brokers.
The CMA has been active since 1990 and is a governmental agency under the Ministry of the National Treasury & Planning. Among other things, the CMA can grant compensation to an investor who suffers pecuniary loss due to the failure of a licensed broker or dealer to meet its contractual obligations.
If a brokerage company or other entity claims to be licensed by the CMA, always verify that claim directly with the CMA instead of trusting it blindly. Some scammers simply claim to be licensed by the CMA or by some other financial authority, hoping that no one will bother to look it up.
Do your own due-diligence
Picking a regulated forex broker is not enough; you should also carry out your own investigation into the company and be on high alert for warning signs if you want to decrease the risk of ending up in the clutches of a fraudster.
- How long has the broker been active, and does it have a good track record when it comes to fairness and transparency?
- Does the broker currently have a good reputation within the trading community? Some brokers have a long history of fair dealings, but then they fall under new ownership/management and the standards begin to slip.
- Be suspicious of brokers and other actors within the world of forex who downplay the risks and make amazingly high returns sound like something a majority of all novice forex traders will achieve in no time.
- Stay away from brokers with opaque fee and cost structures.
- Brokers regulated by financial authorities with strict trader protection rules will typically not offer welcome bonuses to retail clients.
Examples of common scams
Fraudulent brokers and those who pretend to be brokers
Some brokers seem to work well (you can trade, make a profit, withdraw money) etcetera, but they do engage in fraudulent practises to increase their own earning. This type of broker can for instance use incorrect price information on the trading platform, or create a false slippage, to ensure that a winning trade turns into a loss for you. This type of fraud can very easily be carried out in situations where the broker is also your counterparty in the trade. You will probably not lose every trade – because that would make you give up on trading with this broker. Instead, there will be losses here and there that should actually have been profitable for you.
Another type of false broker is the one who don´t even go through the trouble of providing any trading. A fraudsters can put up a site, claiming to be a broker, and start collecting first deposits. After a while, when defrauded traders begin to complain in trader forums, file police reports and contact financial authorities, the fraudster will vanish with all the first deposits.
In the space between these two extremes, we find the brokers who will provide a functional trading platform, but makes it incredibly difficult – or impossible – to withdraw any money from your trading account. They request an endless stream of documentation, they claim the paper work is somehow wrong, you will experience technical glitches, etcetera. This can keep a trader busy for a long time before they realise they have been scammed.
Signal service scams
It is easy for a fraudster to claim to sell a valuable signal service subscription and then deliver signals that result in losses for the trader. In this case, the scammer benefits from the money paid for the signal service and does not care if the trader profit or loses from the trades.
It can be very difficult to prove that the seller is actually a fraudster in the eyes of the law, and not just a vendor of a product that turned out to be of fairly low quality.
Predicting the movements of the forex market is notoriously difficult, and anyone promising amazing profits or downplaying the risks involved should be treated with suspicion.
Forex robots and other automated trading systems
Today, a lot of the trading on the forex market is algorithmic trading (“forex robots”). Naturally, eagle-eyed fraudsters have jumped on this trend and is now offering their own forex robots and other type of automated trading to retail traders. When you realize that the product is shitty, the scammer has already vanished with the money you paid for it.
There are also fraudsters, in Kenya and elsewhere, who will use this type of scam to gain access to your trading account. They will tell you that in order for their product to work, you must install it on your device, give it access and permissions, or even hand over the account log-in credentials to the seller. When they get their hands on your account, they transfer the money and vanish.
Investing in forex on your behalf
Some scammers are not targeting me as an active trader but as an investor. They want me to invest in their forex project and they promise me amazing returns. Often, the information they give me about how the forex profits will be generated are complex and vague at the same time, and it often involves techniques that are quite difficult for me to grasp even though I have quite a bit of experience from forex trading. They often have some new fantastic device (artificial intelligence, a trading robot, etc) that will ensure huge profits as long as I am willing to fork up the cash.
Learn more about forex fraud and malpractice
It is a good idea to learn about known scams and how they worked, since this can make it easier to develop safeguards and spot warning signs early on. Below, we will take a look at two well-known cases: the FXCM case and the 2013 Forex Scandal.
- The FXCM case unveiled how malpractice had been going on for a substantial amount of time at the retail forex broker FXCM. This broker was colluding with market makers and secretly involved itself in betting against the client´s trades. FXCM is still operating, but is now owned by Jefferies Financial Group, as the former parent company Global Brokerage, Inc., filed for bankruptcy in 2017. Before the bankruptcy, Jefferies held a 49.9% equity stake in the operating company for FXCM.
- Regrettably, a corporation having all the appropriate licenses and permissions does not eliminate the risk of fraudulent behaviour. You may for instance have heard about the 2013 Forex Scandal, which unveiled that major actors on the forex market – including Barclays PLC, JPMorgan & Chase & Co., UBS Group AG (UBS), and Citi Group (C) – had colluded for at least a decade to manipulate exchange rates on the forest market for their own financial gain. This shows that even big companies regulated in seemingly strict jurisdiction can break the rules, and they may also be very skilled when it comes to getting away with it for years and years without detection. The 2013 Forex Scandal resulted in heavy fines for several corporations, but only one individual was arrested.
General security advice for forex traders in Kenya
Do what you can to prevent unauthorized access to your trading account.
- Use strong passwords.
- Change passwords regularly, since passwords are sometimes leaking after hacking attacks.
- Turn on two-factor authentication.
- Read up about VPNs and make an informed decision.
- Use up-to-date high-quality antivirus software.
- Do not share log in credentials with anyone.
- A reputable broker will not cold-call you or contact you on social media to ask for your log in credentials. Learn about phishing to avoid getting scammed.
- Communication with your broker should ideally take place after you have logged in to your account and are sure you are actually communicating with your broker – not someone posing as your broker. Alternatively, you can initiate contact through the official channels (e.g callin the official phone number), instead of answering to someone who is contacting you, claiming to be your broker.
- Be extremely cautious when it comes to installing third-party trading software that is not authorized by your broker.