The Risk in Social Media Platforms Offering Forex Facilities
From tantalizing food photography to fashion to forex, the social media revolution is well underway in all aspects of our lives. Over the past decade, social media companies have made the all-important journey from “curiosity to adoption to now trust” – in the mind of the consumer. We don’t even doubt for a moment the veracity of an update on the employment status of an ex-colleague or a cross-country migration of an old friend. It is this confidence, coupled with breaking news, that has given social media its transformative power. When it comes to staying connected and informed, social media seems like the panacea for all ills.
But is it?
The Reserve Bank of India (RBI) recently issued a missive warning about misleading advertisements of unauthorized Electronic Trading Platforms (ETPs) that offer FX trading services to Indian residents. These are available on social media platforms, search engines, Over The Top (OTT) platforms, gaming apps, etc. I’m all for convenience – but the RBI has also mentioned that there have been reports of ETPs hiring agents who personally contact gullible people to undertake forex trading/investing schemes.
First, how and when did forex trading intersect with social media?
The 2 greats of social forex
Forex as an industry has been more suited to the LinkedIn and Twitter environment than to Facebook. Over a billion new content is uploaded to Facebook every week. But as a platform, Facebook was never intellectual or corporate, but rather a place to connect on a more personal basis. Therefore, there is only the occasional Facebook page offering Forex content, or the Instagram page suggesting a trade.
LinkedIn is very influential. All leading Forex experts manage and maintain active profiles on LinkedIn. They share their insights and tips for other traders to see. Many big names in the Forex brokerage arena have a serious presence on LinkedIn. Most of them have a group, in which they share all the details of their offer, their content, as well as the latest developments in the market in general, and their company in particular. However, it can be used to oversell leverage – Forex markets allow high leverage – 50 to 1 for some currencies; someone with just $1,000 to trade can trade $50,000 worth of currency. The opposite, losing everything you have, and more, is also true.
Twitter is perhaps another platform where maximum precautions are necessary. Several accounts sell Forex. Twitter is serious media; so it is not out of place for online Forex portals to share their insights in the form of Forex news, analysis, articles or product reviews. What should annoy you is if you find that there is no engagement in these fake accounts because the tweets (updates) are auto-generated by so-called bots, completely missing the Twitter interest.
Twitter posts such as “I get paid while I sleep” are a common incentive pattern. These messages come from a new breed of forex traders, who share “mentorship” opportunities. They continue with publications on an ambitious lifestyle. The more people they can persuade to sign up, the more money they start making. This is the deployment of an MLM (multi-level-marketing) channel that ostensibly intends to make you rich overnight.
As a consumer, you face a dilemma. What to believe and what not to believe. Let’s watch this dispassionately for a moment-
1. We are talking about a subject that lies at the intersection of personal finance and integrated finance. So, there are two perspectives- From a personal finance perspective; reports of these ETPs offering disproportionate/exorbitant returns to vulnerable consumers present a chilling scenario. Consumer advocacy and education is urgently needed in this industry as frauds emerge and many residents lose money through these exchanges/schemes. From an integrated finance perspective, such reports of fraud will erode consumer confidence in the idea of “digital forex”. The fintech industry has worked long and hard to make consumers see “digital forex” and “digital payments” as trusted technology solutions. Therefore, the e-commerce company on whose platform the forex solution is offered must step up and take responsibility for ensuring that all regulatory requirements are met and this must not disturb the consumer. The platform must have the appropriate license from the regulator and perform all underlying AML and KYC checks before authorizing any payment.
2. Residents of India may only transact foreign exchange with authorized persons and for authorized purposes as per the Foreign Exchange Management Act 1999 (FEMA). Although permitted foreign exchange transactions can be executed electronically, they should only be carried out on ETPs authorized for such purpose by the RBI or on recognized stock exchanges (National Stock Exchange of India Ltd., BSE Ltd. and Metropolitan Stock Exchange of India Ltd.). The above list of Approved Persons and Approved FTEs is available on the RBI website.
Social media and forex trading have become deeply intertwined in recent years. Carefully selected feeds (if you follow the correct accounts) are information only and should be treated as such.
What you need to understand is that you can have an active and successful business life without going through social networks. Likewise, you can be an influencer on social media without ever using them for forex trading.
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