Modern Safeguards for Traders
Thanks to stricter regulations by bodies like the Financial Conduct Authority (FCA) and ESMA, misleading financial advertising is now more heavily scrutinized:
- Mandatory Risk Disclosures: Ads must prominently highlight the risks of trading, such as the statistic that most retail traders lose money. Many brokers now include statements like: “76-89% of retail investor accounts lose money when trading CFDs.“
- Regulated Brokers: Only trade with FCA-regulated brokers to ensure you benefit from protections like negative balance protection and transparent costs.
- Due Diligence: Research thoroughly and consider educational tools provided by reputable brokers. Avoid “get-rich-quick” schemes.
No risk! Guaranteed profits! Financial freedom! – Financial Spread Betting
Advertisements for some spread betting systems or from some trading gurus make spread trading look like a virtual bonanza where everyone’s a winner.
But if one thing’s certain about stocks, commodity futures, options and spread betting, it’s that they’re uncertain. Any system that guarantees huge earnings is feeding you a load of “bull.”
Spread betters spend their time at computer screens, quickly buying and selling trades within a few weeks or even days – and reacting to continual market swings. They trade in the hope that their spread bets will soar in value in the short time they hold them, and net them quick profits. Sometimes they even use computerized systems that claim to be able to predict the markets.
No doubt about it, this is a risky business. Despite the picture of investing success painted by some spread betting companies’ ads or gurus promising you earnings of £500 a day , far more spread betters lose money than make it. Some traders lose big, forfeiting their student loan money, second mortgages or retirement funds. In addition, people who trade on margin or sell short risk losing much more than their investment.
Every time a spread better makes a trade, they pay a commission in the form of the bid-offer spread. That’s true whether they buy or sell and whether they make money or lose their shirt.
Understanding Spread Betting Advertisements
1. Extravagant Profit Claims:
- Ads that promise six- or seven-figure incomes often rely on hypothetical performance data, which means the results aren’t based on actual trades. These claims fail to account for market unpredictability, personal skill, or the real-life execution challenges traders face.
- Reality Check: Even experienced traders can face significant losses. Market volatility ensures that no system can guarantee consistent profits.
2. “Best Trading System” Claims:
- Promises of astronomical profit-to-loss ratios and consistently high returns per trade are highly suspect. These ads typically omit the crucial disclaimer that past performance is not indicative of future results.
- Reality Check: Market conditions change rapidly, making any system’s past success an unreliable predictor of future outcomes.
3. Automated Trading Software:
- Claims about automated systems that signal the perfect buy/sell times are alluring but often oversimplified. Markets are influenced by human behavior, global events, and random fluctuations, which no algorithm can fully anticipate.
- Reality Check: If such systems were infallible, their creators would likely use them privately rather than selling them.
4. Unrealistic Annual Returns:
- Ads touting unrealistically high annual returns often downplay risks or omit them entirely, encouraging reckless behavior.
- Reality Check: Investments offering high potential rewards usually carry commensurate risks, including the possibility of losing the entire investment.
5. Testimonials:
- Testimonials, while persuasive, may not represent typical results. They are often cherry-picked or fabricated to paint an overly rosy picture.
- Reality Check: Verify claims through independent reviews and consider regulatory warnings before trusting testimonials.
Read Between the Lines
Learning the language of spread betting can help you separate fact from fantasy when reading an ad or listening to a commercial.
If the ad promises… “The potential to make a six or seven figure annual income from trading is at the ends of your fingertips.”
Remember that… It’s dangerous to fall for extravagant profit claims. Many are based on hypothetical performance, meaning that no trades were ever really made. And it’s far from certain that a bona fide trader will be able to place the same trades as the hypothetical trader. Actual results may not match the hypothetical performance – and even trading advisors with a long track record of success can lose a fortune suddenly.
If the ad promises… “The absolute best trading system with a profit-to-loss ratio of 12-to-1 and an average return better than 18 percent per trade…”
Remember that… Even if the system really has had such successes, past performance is no guarantee of future results and nobody – not even financial experts – can guarantee what the market is going to do from day to day or even minute to minute. No matter how strong the market may seem and how solid a particular company may appear, prices can skyrocket or plummet faster than you can say “Wall Street.”
If the ad promises… “Our software signals precisely when to buy and when to sell a particular security, allowing you the opportunity to make money regardless of the market going up or down…”
Remember that… As tempting as it might be to leave your investment decisions in the hands of a software program, the ultimate responsibility for protecting your capital belongs to you. No matter how sophisticated a system for evaluating market entries/exits might sound, there’s no way to guarantee the future performance of such systems. If there were, you can be sure that the software developers would be making their money using their programs themselves, not promoting it to others!
If the ad promises… “Our recommendations returned an average annual return of 250 percent. If you can just follow our recommendations, you will make money.”
Remember that… There’s no fail-safe way to invest without any risk. High-yield investments tend to involve high risk. Be particularly suspicious of sales pitches that play down risk or portray written risk disclosures as routine formalities. Believe the risk disclosures that say you could lose your whole investment. Jumping on a “hot” investment tip is a good way to get “burned.”
If the ad promises… “Timothy Smith, who used our system wrote to us, ‘… at night I work with your trading system for a few hours and am averaging more than $500 a day.'”
Remember that… Everyone loves a good testimonial, but it’s smart to be wary of them. The story may or may not be true. And it’s highly unlikely that the testimonial reflects the actual experiences of other people using the system or advisory service – or the result you’re hoping for.
