Watch out for confusions on the Forex market!

Online currency trades don't always take place in a safe environment, according to the analysts and managers of some of the brokerage firms that provide foreign exchange services. They advise investors to have a balanced attitude when it comes to personal strategies and to invest in as varied as possible classes of assets.

Some of them consider that the Forex companies present on the market should be authorized by the supervision authority (the Romanian National Securities Commission, which has now been merged into the Financial Supervision Commission), mostly due to the perception of this market and to the unconventional practices which some of these "so-called" brokers use.

The Forex market exists everywhere, in every corner of the world, and the trades take place continuously, for various purposes, not just for speculation, brokers say.

They emphasize the fact that the competent authorities in the field should initiate a process of informing and educating the public concerning stock market investments and how they can protect themselves against such practices.

• Tadeusz Kuropatwinski, "X Trade Brokers": "There is a multitude of so-called companies that promise safe and quick gains"

The majority of the Romanian public does make the distinction between authorized and unauthorized companies, and this represents a challenge, especially given the low level of financial education in Romania, said Tadeusz Kuropatwinski, general manager of X-Trade Brokers. "There are currently a multitude of so-called companies that promise safe and quick gains".

"This makes it a bit difficult for us, because the first thing that we need to explain to the people who are interested in trading is how they van make o make the distinction between ourselves and a company that wants to cheat them. We succeed in doing so by first showing them that we are interested in having them learn and then start trading. The next step is giving them regulated platforms which are accessible and efficient, while at the same time keeping high standards of transparency and efficiency".

Tadeusz Kuropatwinski also said: "We hop that by building this reputation and by increasing the level of financial education, companies that have no other objective than to cheat people will disappear from the market faster than we would expect".

He also said that first of all, traders need to consider the fact that risk involves "know-how" and that is why it is important to have a solid financial education and constantly learn.

Kuropatwinski said that XTB România provides various educational tools.

Tadeusz Kuropatwinski advises traders "not to put all of their eggs in the same basket" and to have a balanced attitude when it comes to their personal strategies, namely to invest in assets as varied as possible.

"Not least of all, traders must be balanced themselves - fear, greed, anxiety, these are normal feelings when they are trading and they should learn not be ruled by them when they are trading. Psychology is a very important element in trading, and a good trader should know how to control these aspects", Tadeusz Kuropatwinski considers.

According to him, trading isn't an exact science, it isn't limited only to technicalities and mathematical functions, it also means learning to understand the market and see the direction it is headed in.

• Cristian Cochinţu, "Admiral Markets": "Many brokers use unconventional practices to attract their customers"

Authorized brokerage firms are especially affected by the perception created by their unauthorized counterparts and by the fact that investors are later disappointed and give up, subsequently thinking that it was the market's fault and it wasn't adequate for investments, or that all the intermediaries are alike, says Cristian Cochinţu, financial analyst at Admiral Markets.

"Some of those who invest don't do so in an environment that is safe, authorized and overseen by local and international authorities. Many brokers use a series of unconventional practices to attract their clients, based on aggressive marketing and promises of quick profits, or phone recommendations, but often times the result is disappointing", he added.

According to Cristian Cochinţu, the brokerage firm must comply with the confidentiality policy, to only contact the client by mail or by phone, provided they have expressed interest in certain services and only as long they accept to be contacted. The information provided should not under any circumstances represent investment recommendations or promises, the analyst of Admiral Markets says.

The decision to invest, when and how, should be at the discretion of the client, and the broker should inform them about the risk involved in trading on margin, to give them the necessary technical support and educational materials, he told us.

"The fact that the market is not regulated, because it simply can't be regulated (the Forex market is everywhere, in any corner of the world, and the trades take place continuously for various purposes, not just for speculation), doesn't mean that it involves an additional risk over trading on a regulate market, as long as the intermediary is regulated and supervise", Cristian Cochinţu emphasized.

He argues that the average monthly volatility of currency pairs is 2%, of the stock market indices and gold is 5%, and that of oil and the most popular stocks is 8%.

"It can't be said that the Forex market is riskier, it depends on whether investors understand or not, or if they ignore risk management. What is certain is that due to various reasons, online currency trading doesn't always take place in a safe environment", Cristian Cochinţu said.

According to him, brokerage firms need to be licensed in their country of origin, with the most respected licenses being those issued by the FSA in a EU-member state, by the NFA in the US or by the ASIC in Australia, and registered in the countries where they operate, such as the ASF (Financial Supervision Authority) in Romania.

Trading through an unregistered company is not justifiable regardless of how attractive the offer may be, Cristian Cochinţu added.

"Unregistered brokers and those that present themselves as < Introducing Broker > can not be controlled or supervised, the clients don't know where their money gets, where it is traded, whether it is a real or virtual market, if they can still withdraw their investments or the potential profit", the analyst of Admiral Markets said.

He went on to say: "Beginners in particular, have no financial knowledge which would allow them to understand how brokerage works, and they should therefore seek the protection of a supervisory authority. The first consideration in choosing the broker is safety: where are they registered and by whom, what is their history and reputation, which legislation will protect the interests and the money of the investors, where does the money go and what are the costs of the transfers, or whether there is a threshold for the funds that guarantee investors in the event the company goes bankrupt. After that, the investor will look for the quality of services and of the trading conditions".

Prior to the decision to invest through a broker, an investor should investigate these aspects on the broker's website, on the website of the supervisory authority, open a demo account, check the provided support, and last but not least the international and local reputation of the broker, Cristian Cochinţu concluded.

• Victor Stănilă, "Tradeville": "Unauthorized companies have succeeded in twisting the idea of investing of on the capital markets"

Amid the absence of a constant policy of promoting stock market investments, of the failure to implement educational programs and the strict regulation of the marketing for authorized intermediaries, the unauthorized firms have succeeded in have succeeded in twisting the idea of investing of on the capital markets, said Victor Stănilă, PR representative of "Tradeville".

He said: "Using the fact that there are derivatives which have as their underlying asset the foreign exchange pairs (forex) which are regulated in the EU (contracts for differences or CFD), these companies have succeeded in creating confusion on what can be traded and what can't, but the problem stems mostly from the status of those companies.

The internet has been flooded with advertisements that promise fabulous gains in just a few minutes. For various reasons, some people trust these companies' messages and unfortunately invest money with them".

Victor Stănilă argues that many of these companies claim on their websites that they are authorized by the MiFID or the ESMA, with reference to the European directive concerning the financial markets or the European Authority for Securities and Markets (ESMA), which is greatly misleading, because the former is a legal norm, and whereas the latter is not entitled to issue authorizations.

"According to the ESMA, in several European countries, it has been noted an increase in the offers of firms unauthorized to make trades or to offer platforms for trading derivatives. This has caused the ESMA to raise a warning, which Tradeville has conveyed to the Romanian investors", he went on to say.

In such a context, where authorized firms come with promises of spectacular gains, it becomes increasingly harder for a certified intermediary to stand out, especially as advertising is extremely rigidly advertised, Victor Stănilă considers.

In his opinion, in order to offset the aggressiveness of the unauthorized firms and to defend the image of the equity market, the authorities operating on that segment should begin a process of informing and educating the public concerning stock market investments, the means they can protect themselves against such measures and what the people who were unfortunate enough to fall in the trap of such a company have done.

Victor Stănilă added: "First of all, we need to mention that there is forex trading that is regulated by the European community legislation, namely the trades involving the derivatives named contracts for difference, which any intermediary can provide to their customers. There are also spot forex trades, which are not regulated by the stock market legislation and which brokers are not allowed to provide to their clients.

Once we have made this differentiation between the types of trades, a distinction which should also be made by the persons that want this kind of investment, a discussion of the status provided by the investment is also required".

Thus, prior to signing any commitment, the possible investors must verify whether the company is authorized or not, where its headquarters is and what are the rules that govern the market in question, if its headquarters is outside the country, he said.

Victor Stănilă also said: "After clarifying these essential aspects, I would suggest that in the process for the selection of the intermediary, the investors should consider, beyond the reliability of the platform, which comes first from the speed of processing orders and the ancillary services which help in making the decision, the experience of the broker on the Romanian market and the business model".

Also, investors need to select that intermediary that will give them personalized assistance, preferably in their native language, facilitating the process of understanding between the broker and client, says Victor Stănilă.

"It is a very specialized and complex segment, and the situations where misunderstandings can occur because of the language are very frequent. A serious intermediary can make available to customers a specialized analysis department, a prompt helpdesk department, and which is capable to help customers make the best decisions", he considers.

The representative of Tradeville also explained that before trading, the investor should set investment objectives, depending on their risk appetite and their level of expertise.

Victor Stănilă concluded: "In the event of a beginning investor, it is preferable that they understand how the market works first and what the main risks of the investment are. Investors need to check whether the firm is authorized or registered with the regulatory authority; in Romania's case this was the Romanian National Securities Commission, which has recently become part of the Financial Supervision Authority".

• The Association of Brokers, warns against the risks of trading forex

The association of Brokers has warned investors on the stock market against the risks that they are exposing themselves to by accepting the offers to trade forex, without being fully aware of the risks involved, according to a press release of the Association, of March 26th.

According to the Association, at this moment, the market for Forex trades is not under the direct regulation of the Romanian National Securities Commission (ed. note: currently the ASF).

Given that forex trading isn't regulated, that the risk involved in trading on the forex market is much greater than the one on the regulated market, and many of the companies that operate the trading platforms are registered in tax havens, investors can be deceived by the promises of this type of brokerages, the document also states.

According to the Association of Brokers, due to the lack of information by a significant part of the users of Forex trading platforms, the confusion is created that trading using these platforms means trading on a regulated market, causing serious harm to the image of the financial intermediation companies authorized by the CNVM.

Lately, there has been extremely aggressive advertising for this kind of trading which promise greater gains in the short term, the press release also states.

Due to these practices, the image of authorized brokerages is affected, because most people that forex trading agents are targeting can not make the distinction between authorized and unauthorized capital market activities, the aforementioned document states.