Online trading platforms: How to protect yourself from fraud when trading cryptocurrencies, CFDs and Forex!

Who doesn't dream of making a quick buck? This is precisely the desire that providers of dubious online trading platforms exploit, luring unsuspecting investors into their trap on the internet and social media. But instead of the promised high profits, the supposed investment usually ends in total financial ruin for those affected. We explain how you can recognise the scam and how you can protect yourself.

We repeatedly receive complaints from consumers about fraud cases involving investments on unlicensed online trading platforms in other EU countries.

Fraudsters have increasingly focused on investment opportunities in contracts for difference (CFDs), binary options on shares, indices, commodities and currencies (forex trading) and cryptocurrencies.

The internet is full of advertisements for various investment opportunities. CDF trading, forex trading and cryptocurrencies are often mentioned. But what are they exactly? We explain these terms below.

What is CFD trading?

CFD trading is a highly speculative financial product that is only suitable for very experienced and well-informed investors.

The focus here is on market fluctuations and rising or falling prices of individual financial products and financial markets. The abbreviation CFD stands for ‘Contracts for Difference’ and describes trading on rising (long) or falling (short) prices of shares, indices, commodities, currencies or interest rate products.

In CFD trading, users do not acquire company shares, as is the case with traditional purchases of shares and securities. The profit or loss results from the difference between the entry and exit prices (purchase and sale prices) of the underlying asset. This means that they only participate in the price development of a specific underlying asset.

CFDs therefore belong to the group of derivatives (investment products that derive their value from other securities) and are thus among the most complex investment products on the financial market.

Forex stands for ‘Foreign Exchange Market’ (FX for short) and refers to the currency market. With a daily trading volume of over 9.6 trillion US dollars, the Forex market is the world's largest financial market where traders trade currencies.

Forex trading can be thought of as similar to exchanging currency on holiday. For example, when a consumer from Germany travels to Denmark, the amount of Danish kroner they receive is calculated based on the current exchange rate. When the consumer returns from their trip, they can exchange the Danish kroner back into euros. If the exchange rate is lower, they lose money. If the exchange rate is higher, they profit from the exchange.

Please note: Trading in foreign exchange and cryptocurrencies involves a very high risk of loss. Accordingly, a high level of expertise and experience is required. Consumers should therefore steer well clear of this investment product.

Cryptocurrency is a digital currency that can be legally exchanged and traded. Issuers/companies (known as issuers) of cryptocurrencies are supervised by the competent supervisory authority in the EU and require a licence from this authority. In Germany, this is BaFin. The aim is to prevent money laundering and terrorist financing. However, despite regulations within the EU (Regulation on Markets in Crypto Assets/MiCar), cryptocurrencies themselves remain unregulated. This means that this form of investment can entail a high risk for investors.

When trading digital currencies, investors speculate on price movements in the market. Trading takes place via a CFD trading platform or on the stock exchange.

Trading is completely anonymous and pseudonymised, which means that pyramid schemes or other investment fraud models can be hidden behind this investment opportunity.

Online trading with binary options is purely speculative and carries a very high risk of loss.

With this type of investment, investors speculate on the rise or fall in the price of an asset (e.g. shares, currencies, commodities). It's all or nothing: either you win or you lose. The principle is immediately understandable even to laypeople – if the prediction is correct, investors receive a fixed profit; if they are wrong, they make a loss. But this is precisely what makes binary options so dangerous.

The problem is that the value of binary options is not determined by supply and demand, but rather by the provider, who sets the price themselves. This makes it difficult for customers to understand or verify.

Consumers frequently contact the ECC Germany to report fraud on dubious online trading platforms based in other EU countries. The scam always follows a similar pattern:

As shown in Martin S.'s example, the scam always follows a similar pattern. As soon as customers have registered on the supposed trading platform or expressed their interest via social media or messenger services, a supposed ‘broker’ or call centre employee gets in touch. Sometimes it works the other way around: first, the supposed ‘brokers’ arouse consumers' curiosity on the phone, and then they register on the platform.

These supposed brokers or call centre employees are specially trained to persuade investors to make bigger and bigger investments in the long term. Supposedly to achieve ‘maximum profits’.

Once the consumer has deposited initial capital on the trading platform, the first profits are displayed in the customer account after a short time. This is intended to convince the investor of the financial product and encourage them to make new investments with the steadily increasing profits.

What customers do not know, is that this is a fake trading platform. It is used to simulate fake account movements and profits. Nowadays, it is very easy to build such a site yourself, without any special technical knowledge. Since no one checks a website before it is put online, criminals have an easy job.

In reality, no trading takes place at all. Instead, the deposited funds end up in the fraudsters' foreign accounts. Investors are initially unaware of this.

The problems usually start when the victims want to cash out their alleged profits. They are put off by the supposed brokers. It is not uncommon for the latter to ask those affected to pay taxes or processing fees that are supposedly incurred for the payout of the profits. This serves solely as a delaying tactic by the fraudsters to get their hands on even more money.

At first glance, fraudulent websites are difficult to recognise. Potential investors should therefore find out as much as they can about the trading provider. We have some tips for you on what to look out for and how you can protect yourself from fraudsters.

Fraudsters sometimes pose as regulatory authorities, mediators or solicitors and send fake letters to victims, giving them hope that they will get their lost money back.

But beware: this could lead to even greater losses. Here's how investors can protect themselves from this scam involving supposed helpers.