How to Avoid Being Scammed By FX Capital Managers/ Account Managers

Putting your money in the hand of professionals and allowing them to trade on your behalf could be the best trading-related decision you’ve ever made… unless they are scammers. A good and lucrative decision can turn into a nightmare in a second if your FX account manager is actually hunting your money instead of trying to multiply it. The Internet is a haven for scammers because they can easily hide their identity; it’s not like they will admit “I’m a scammer and I want your money” and that’s why you must learn how to spot one and of course, avoid them. Keep reading to learn how.

 

Spotting a Potential FX Account Manager Scam

Above you will find a diagram which will help you identify a potential scam at a glance, but I think some extra explanations come in handy so let’s go over it.

Bank Transfer

First of all, what bank is handling the transfer? Is it a big bank, known all over the world or is your account manager asking you to transfer some money through a shady offshore account? If the latter is true, it would be a red flag. Why would the guy want to work through an offshore account? To hide his tracks? Hmm let’s not get paranoid just yet, but it’s something that would raise some questions.

Your FX Capital Manager Broker

Next you need to focus on the brokers he is dealing with. As you know there are a few big names out there and to be honest, I wouldn’t give my money to an account manager who says he will work with a broker I never heard of. I mean, as long as top-tier brokers like LMAX, Nadex, FXCM, FXpro still exist and accept new customers, why would I want to do business with unknowns? Remember, withdrawals depend on your broker, slippage as well, order execution and a lot more, so make sure you are comfortable with the broker choice.

Management Fees

Management fees are the next issue: a potential scammer will ask you for a monthly fee (no matter what the profits are) and a part of the profits made. It is perfectly normal to ask for a share of the profits – after all he is trading for you and hopefully making you money – but the fund/account manager shouldn’t ask for a fixed monthly fee on top of that. If he gets paid a fee whether he makes you money or not, what is his interest to make profits? Win or lose, he gets paid. No dude, sorry but I’m not going to pay you to lose money for me! Also, asking for a monthly fee says something about his confidence in his trading: “I’m not such a good trader so I don’t make money every month, but I still want to get paid… I know, I’ll ask for a monthly fee.”

Total Managed Funds

Ask your FX account/capital manager how much money he is managing. If we are talking about sums that exceed $15-20 millions, it means that a lot of people (wealthy people) trust him with their money and you are probably dealing with a professional. If the amount is below $1 million, I wouldn’t call him a scam, but I would rather go for the other guy.

Profit Sharing

Before investing any money, ask about profit sharing: is it going to happen according to a schedule like weekly, monthly or quarterly? If the answer is Yes, that’s a good thing, but if it’s on a yearly basis, that’s too long. A lot can happen during a year and I wouldn’t want my money to be controlled by another person for an entire year. Also, if the profits are traded, it means they are at risk. If you take the profit off the table at the end of each month, it means you cannot lose it anymore… well, unless you go buy a car or something else, but I wouldn’t actually call that losing the profits. If the account manager wants to trade the profits, I wouldn’t scream “SCAM” immediately, but it would be an alert signal. After all, he should be a good risk manager and trading with the profits means risking them.

Who’s in Control of your Account?

Even if you allow an account manager to trade your account, you should always remain in control of your money so the account owner should be you and not the company or person who manages the account. They should only have trading rights for that account and the only person who can withdraw should be the investor – you. Also, you should be able to deny access to anyone to your account within seconds, with just a few mouse clicks. If your account manager says something along the lines “Sure, you can contact me by phone/email, we’ll talk about it…” bla, bla, that means you don’t have complete control of the account and that’s very suspicious in my book.

Statistic Experience

The next one is very important: statistic performance. A professional FX fund manager will be able to present you 5 years of his track record (detailed record of his trades and performance), while a potential scammer (or simply a poor performer) wouldn’t be able to reach a span of 2 years of detailed data.

Drawdown

Let’s speak a bit about drawdown: when a strategy goes through rough periods, the losses start to pile up. The biggest combined loss (multiple trades) accumulated during these periods is called drawdown. If you were to trade a $1K account and lose $500 before finally starting to recover, it means you had a drawdown of 50%. Also, the drawdown for professional FX account managers shouldn’t exceed 15% but a less experienced account manager will enter drawdown of more than 20%.

Profits Expected

A scammer would probably flash big numbers in your face, saying that you will make 5 to 10% per month, while a guy who knows what he’s talking about will project a monthly gain which varies between 0.5% and 4.5%.
There is another type of FX account/capital managers: the ones who claim 100% profits per month. If you come in contact with any of them, please run. The second the account manager mentions 100% profits per month, hang up the phone, close the Skype chat or turn around and start walking. The biggest banks/hedge funds/companies in the world don’t get that type of returns so why would you think this guy does? And if he did, why would he need you?

How do you know the Manager?

Last but not least, you should pay close attention to the way you got to meet the company/account manager. Usually scammers will reach out to potential clients through email advertising, pop-up ads or sell pages, while professionals will be recommended by someone you trust and who already invested money. Keep in mind that some of the things I mentioned above do not indicate a scammer exclusively. Sometimes the account manager could be well intentioned but his skills are not sharp enough and this results in poor trading performance and consequently a loss for you.

How to Search the Internet for Possible Scams?

One of the main advantages of using the Internet is that you can hear other people’s opinions. People can speak freely so make sure you listen to them. Go to trading forums (a great resource is www.forexpeacearmy.com) and read about the account manager/hedge fund you want to invest with. You can also try other sources like ripoffreport.com and Complaints.com. It’s possible that you won’t find any information, especially if the guys want to fly under the radar, but that doesn’t make them a scam. Think about this: if you would get scammed you would want to tell the whole world about the guy who separated you from your money, so others don’t make the same mistake. So actually no news is good news sometimes. Of course, huge hedge funds or account managing companies have their own websites but sometimes the minimum required investment is too high and this makes them inaccessible to most of us.

 

Last Word

Naivety and the Internet don’t go well together. Why do I say that? Because like it or not, the Internet is an enormous marketplace and almost everyone is trying to sell you one thing or another. The most common thing that’s being sold lately is “the dream” – you can lose weight, you can meet the girl of your dreams, you can make her fall in love with you using an “incredibly secret technique” and of course, you can be financially free if you give all your money to a trading guru who will double your investment during the first month. Now, I don’t know a lot about secret ways to make girls love me, but I do know a thing or two about what FX Capital Managers should look like and most importantly, what they shouldn’t.

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