Get Rich Quick Seminars


Enrichment classes: Gain a new skill, enjoy new riches? Think again!

"Mr X makes 1,500% profit in one month" "Mrs Y turned $2,000 into $15,000 in three weeks"

Three friends signed up for a preview seminar on foreign exchange (forex) options trading. Two of them signed and paid up for the actual course after attending the preview seminar. After 3 years, one has finally given up trading options after suffering huge losses while the other is still struggling to make a profit. The third friend felt put off from attending the actual course because the trainers at the preview seminar seemed overly positive, focusing on: leverage or the potential to make large gains with little upfront cash; the potential for limiting loss and unlimited gains; and finally, the potential to make profits under all market conditions.

These days, newspapers carry ads for forex trading seminars regularly, often daily. The success stories are catchy: the chance to retire early, earn extra income or make some money after years as a home-maker are appealing.

But media reports have carried mixed views about these seminars. There have been admissions of losing money on top of paying out hefty course fees. Others have ended up seeking refunds from the seminar organisers, approaching CASE and the Small Claims Tribunal when unsuccessful. One complained to CASE about being exposed to hard-selling tactics and another felt misled when the actual course signed up for failed to meet expectations.

So remember, if someone offers to help you make amazing and consistent returns by teaching you all about forex trading: be cautious! The tactics are similar: pay a few thousand dollars for a high-powered seminar or invest in some clever trading software or sign up to receive SMS updates on an FX guru's next trade and all your financial worries could vanish. Sounds too good to be true? That's because it is.

What is forex trading?

Forex trading is about betting on the future movement of exchange rates. Forex trading is generally considered a high-risk activity. Professional forex traders have jobs in which 100% of their time is devoted to making profits by trading. These traders have market experience and real-time market information at their finger tips. They may also have huge amounts of capital to bet. As retail investors, most of us will not have much, if any, of these.

Here are a few key things to think about before parting with your money.

- Take a reality check If the individual or company claims to have a fool-proof method of ensuring high and consistent profits, why is he spending time trying to sell you software or a training programme or to sign you up to receive SMS updates on his latest trades when he could be making millions instead?

- Am I suited to fast-paced trading? Forex trading is fast-paced, requiring round-the-clock attention to the markets and rapid decision-making. Not everyone will be suited for such demands, or is able to devote the required time and attention. Ask yourself if you are suited to this sort of trading or lifestyle.

- Do I understand what makes forex markets tick? Forex markets are complex. Identifying and making sense of the same economic indicators, trade data and monetary policy statements that are relied on by forex market professionals require analysis and judgement.

- Am I suited to high risk investments? Forex trading can be very risky. The risks are further increased when you trade forex using leverage or on margin. With leverage, the gains and losses can be magnified many times. For example, if the leverage is 100 times, with $100 on hand, you can place a $10,000 investment that a certain currency will appreciate. If the currency depreciates 20% in one day, you lose $2000 (20% of the $10,000 investment). Even after writing off the $100 you started with, you will still need to pay out another $1900 to make up the loss. Are you able to tolerate this level of risk?

- What is the downside? Marketing testimonials may tempt you to think that everyone who has signed up for the forex seminar, or bought the recommended software or placed the same trades as the forex guru, has made money more often than lost. Have you considered that perhaps there may be many more individuals who have not done as well, or failed miserably, suffering heavy losses? Always ask yourself what is the worst that can happen and whether you can withstand this.

- Are the returns realistic? The offers look attractive because the potential returns touted are huge. Look beyond the headline rates and consider how realistic the returns are. The risks could be equally massive too: the potential for wiping out your capital (or more if you use margin) on a bad trade may not justify the returns promised.

Before you go into a high risk activity like forex trading, do take the time to research other investment products too. Find out about likely returns and how much risk each of these products exposes you to. By comparison, does the expected return from forex trading justify the amount of risk you are taking on?

- What experience does the individual or company making the offer, really have? Offers may appear credible if the person or company claims to be an expert, with vast trading experience, and/or regulated by the authorities. Do your homework and conduct independent checks to establish the credibility of such claims. For instance, you can check:

  • The Financial Institutions Directory to see if a company is regulated by the MAS and whether the investment activity he is marketing to you is a regulated activity.
  • The Investor Alert List for a list of unregulated persons who, based on information received by MAS, may have been wrongly perceived as being licensed or authorised by MAS.
  • The Enforcement Actions page to see if MAS has taken regulatory actions against this person or company.

Finally...

There is no free lunch in investing. An instrument or investment strategy offering a higher potential return carries with it a higher risk of you losing some or all of the money you invested. Even years of market experience and a split-second ability to process information and make decisions do not guarantee consistent or high returns for a market professional. If you are a retail trader starting from scratch, think again. Be extra diligent and cautious when you come across offers of exceptionally high or consistent profits. Always ask yourself what the catch is.

 

This article is prepared in collaboration with the Securities Investors Association (Singapore) and the Consumers Association of Singapore (CASE).