Education

I received an email from a member recently asking if the course offered by *********** is worth going to. They want $4500 for a two day course that says they’ll teach me how to trade and I am guaranteed to make money. Do I know them?

Yes, I know them and they are absolute shonks. They have been trawling this industry for years. What they are best at is manipulating Google so they always come up at the top. It’s a pity there isn’t a link between good SEO and quality. Google’s algorithm doesn’t filter for liars and cheats. But if you go to page 2 of the Google search you will find a litany of ex-customers trying to expose them for their reckless abuse of well-intentioned retiree investors.

The problem with crooks

The problem with the crooks in this industry is that when a business blossoms because naïve people lose money trading, they make a lot of money, which means they’re rich, which means that if I was to mention the company above in the newsletter (they are still active) I would have a lawyer knocking on my door tomorrow. They can afford them and because of that no one dares to cross them, including me.

I remember a decade or so ago going to an investment conference. The hotel hosting it had a habit of offering to valet park any expensive cars for free, which means they would leave them where they were, outside the front door. It made the hotel look flash.

This conference was aimed firmly at self-directed (mostly retiree) equity investors. On the third day there was a red Ferrari and bronze Aston Martin parked outside the front door of the hotel, visible to all from breakfast, and later that day inside the ballroom were two well-dressed 30-year-olds telling an audience of 400 people twice their age with exponentially more investment experience, how fabulous CFDs were, and how the forex market in particular was a golden fountain just waiting to pour its cash all over the audience.

For those of you wondering why everyone on this side of the industry makes such a fuss of the foreign exchange market, let me explain. If you make your money by facilitating other people’s trades (having them trade on your platform for instance) then the more they trade the more money you make. Whether that is through the spread, through commission, or through your platform taking the other side of the trade (their loss is your gain - like a bookie), the name of the game is the same. More trades = more profit.

The problem with equities is that the equity market is only open in Australia between 10am and 4pm and if a stock only trades once a minute say, there are only 360 trades a day. It’s really slow going in the equity market.

Forex on the other hand (trading in currencies) has multiple currencies trading multiple times every second 24-hours a day. If a currency only ticked (traded) once a second (popular currencies like the A$ trade much more than that) then there will be 86,400 trades a day. So if the number of trades is the game, getting other people dealing in foreign exchange is potentially 240x more profitable than persuading them to trade equities. Its like selling to China instead of Tasmania. There’s more money to be made in China.

Now do you understand why everybody wants you to trade Forex, why everybody tells you it’s easy, why it’s glamourised in advertisements showing young executives sitting in the back of limousines trading forex on their mobile phone, why they tell you you can do it and why they tell you it is easy. Because you might, just, believe them.

And now do you understand why a few years ago all the CFD platforms rotated from focusing on equities to plugging foreign exchange trading. Because equities are sooo boring by comparison.

I do know a guy who employed the husband of a friend of Emma’s to operate the night shift of his forex trading strategy. He paid quite handsomely. It worked. But to make it work someone had to sit there 24 hours a day and hit the buttons at the exact moments. It could not be automated. He described it as throwing heads and tails constantly with a tiny edge that only worked if you dealt big numbers over a long long period of time and had deep pockets to cover the drawdowns (losses) when they happened. It couldn’t be done in small size because you had to pay people to sit there, so there was a minimum size which meant a minimum (quite large) risk. He doesn’t do it anymore. A seismic moment in the currency markets wiped them and their jobs literally overnight. Its always the same with systems, it’s the once in a lifetime X-Factor not factored in that buggers up the theory.

Back to our Ferrari driving lecturer (the boss from Sydney) and his Aston Martin sidekick (who ran the local branch office).

I’ve always found it odd at these conferences that the youngest, most inexperienced people are always the ones telling everybody else what to do from the podium. This was no exception. At the end of their head set mic’ed stage walking slick talking exceedingly polished Wolf of Wall St ‘f@#k the client’ timeshare style sales spiel, a tired looking 80 year old retiree investor waddled up to the floor microphone for the Q&A. I’m not sure these guys knew there was a Q&A possibility. He cleared this throat.

“Are those your cars at the front of the hotel?” he said.

“They most certainly are” came the reply.

“Whose is the Ferrari?” said our retiree.

“That’s mine” said the Sydneysider.

“Can I have the keys?” said the man. “Because I’m one of your customers which means you are driving around in my Super Fund. The least you can do is let me have a go although I can’t guarantee I’m not going to wrap it round a f#@king tree for you. I don’t know who let you in here but I think I speak for everyone when I say, why don’t you f@#k off!”

Silence, a clap, clapping, applause, raptuous applause.

Want to know who they are? You can always tell a predator, they change the name of their business regularly. Burning brand name after brand name. Moving just fast enough for their outraged customer reviews not to catch up with the first page of the Google search. Follow the person not the business and when you find them, just make sure you read page two or three of their artfully honed interweb presence.

DISCLAIMER - I'm an equities guy, what would I know?

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Marcus Padley is the author of the Marcus Today stock market newsletter. To sign up for a 14-day free trial please click here.



Matt Daniell

Interesting, and I agree but... There's the parallel aspect to that story and that's a successful day trader - whether forex, equities/indexes, commodities - and whether using CFD's or binary options (a favourite!). The interesting thing or question I would ask - questions I guess - is : Do these businesses - "brokers"/platforms (not the courses) have a legitimate existence? The courses obviously sell, showing that there is a demand for trading knowledge and therefore brokers/platforms which allow self-traders. The demand would legitimise them I guess. The more important question then is - how should these platforms/brokers be allowed to handle the inherent conflict of interest most have (CFD/binary/Forex) when they take the other side of a trade/client. ASIC allows them to put a clause in their disclosure where they can shut a client down arbitrarily... Would a successful day trader be a threat - or would a successful day trader actually help self regulate the industry? At the moment ASIC have a white paper which aims to use their product intervention powers to basically render trading off limits (or not lucrative to be useful) to retail clients, while at the same time protecting the inherent conflict of interest these brokers have. The shonky courses obviously are selling a best case, but not necessarily an impossibility. The "questionable" brokers are the ones who are removing the hope of profit. I should note clearly that it is the brokers who have the ASIC protected business model where they are Principal (take the other side of clients) I am referring to.

Andrew North

Brilliant couldn't agree more with this old sage advice

James Gerrish

Cracking article Marcus. I know exactly who you are talking about, I find myself going, how the.....every time a cheesy video appears sprouting absolute BS.

Paul Mackay

The problem is that ASIC is asleep at the wheel. Always has been. Probably always will be.

Paul Mackay

I lodged a recent complaint with ASIC concerning a major systemic breach by a very large company. The breach was detailed in the email. I sent the email to 2 senior people at ASIC. They replied saying I had to make a formal complaint and gave me a link. A bit like going into your local police station to report a serious crime, only to be told you are at the wrong police station and that you need to go to another one to report the crime. Simply ridiculous.

Ron P

Old boy clearly didn't follow the system. The system works. Don't criticise the system..

Jack Upton

I was expecting that the cars were hired for the day. And my belief has always been that there are more than enough suckers to keep the shonks and their scams well oiled. And as James Gerrish said below "how the hell can people believe that ..." these come-ons. But then people will "believe what they want to believe" and nothing will shake their faith in the nirvana that will appear as over the years I've had friends and acquaintances pay hundreds of dollars to go to all manner of seminars/workshops/lectures repeatedly and they still believe even when nothing comes of the last 1/2/3/4/... that they have attended.

Anthony West

Dear Ron P, Thank you for your detailed analysis with background briefing. Would you be so kind to repeat your statement with some shall we say "FACTS"?

Matt Daniell

I think the system comment was in jest, ? , but there is some truth to it. How much of the blame comes down to the wannabe-trader? Or how much of the ridicule comes down to the same attitude on the professional side - with the belief ! that what is sold at those courses could never be true... Interesting discussion actually. I'd be curious what you advised your friend Marcus?

Leet Digital

Interesting....

Ruth Kassulke

Great story Marcus. I've always liked your honesty. You call it like you see it.

Julian Watt

Great article Marcus, Thanks. They are in the equities arena as well. Years ago when I first started direct investing in equities I subscribed to a advice site. Let's call it Dumb Parrot. They proudly showed how much you could have made following their advice. I discovered later that they deleted their failures, which far outweighed the few, often temporary, successes. Totally agree with Paul Mackay as well, ASIC have been shown to be useless, time and time again, yet they endure.

DAVID EGAN

Good one Marcus, well written. David