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It’s not Donald Trump, it’s not inflation, it’s not the plunging pound. Some basic security issues for beginning investors and traders are still catching out thousands of people around the globe, every day. Here are five of the top security risks we think are still facing new and intermediate traders this year. This list has been partly informed by data collected by securities regulators in Europe and North America.

#1 Unregistered sources

Traders need to be certain that anyone offering securities or trading facilities is fully registered and authorised to do so. Just because you can access a website in your home country does not mean that provider has been regulated. Securities regulators should be ensuring that authorised have met minimum standards of proficiency. Last year even the financial regulator in Cyprus began to tighten up local brokerages that were offering trading services outside Cyprus. Check with regulators to see if firms have been properly registered and authorised.

#2 Binary options scams

Binary options are bets that are meant to pay out based on whether a fixed asset or market goes up or down. Regulators will become increasingly strict about the sale of binary options in 2017. On average, binary options traders were estimated to lose around $15,000 to $20,000 each on binary options, according to the Alberta Securities Commission in Canada. Those reputable brokers that have historically offered binary options are now withdrawing them from the market.

#3 Offshore investments

Sending money to companies with ‘offices’ overseas is an automatic red flag – for example, traders continue to make use of brokers in Caribbean locations like Antigua or Panama where there is little to no oversight and little chance of getting your money back if things go wrong. These brokers often offer forex accounts or binary options trading. The regulators in these countries have little interest in helping foreign investors to get their money back. It remains easy to set up a brokerage in such locations as regulators have limited understanding of the industry.

#4 Deceptive online advertising

The internet and social media remain favourite locations from fly by night brokers to advertise. One favoured tactic is to use fake endorsements from celebrities or football teams, which those brokers simply have not acquired. It is easy to assume that a celebrity has endorsed an account when there has been nothing of the sort.

#5 The Next Big Thing

This is an old one, but keeps coming back. In a world where some of the biggest companies are in the technology sector, it is easy to hype stocks as the next global giant. In a world where even presidents are happy to spread false information, it is easy to spread fake news about a dodgy company. Company shares in emerging industries can easily rise based on such rumours. A good example was the outbreak of the Zika virus last year – several companies were touted as manufacturing Zika vaccines when this was far from the case.

“Making a decision to invest without doing any research is like playing with fire,” says Alison Trollope, director of investor education at the Alberta Securities Commission. “No matter how great an investment opportunity sounds, be sure to take time to do independent research before making a decision to invest.”

This also goes for opening a new account with a broker – make sure that broker is properly regulated, and covered by any investor compensation schemes that might exist in the jurisdiction where it is regulated.

We take great care to ensure that any broker featured on our broker directory has the appropriate regulation from a recognised authority. That way, should you experience any problems with your broker, you will be offered some protection against improper conduct.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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