Forex and CFD traders potentially lost over $1 billion trading the markets during COVID-19 lockdown
Financial regulators have been warning forex traders and retail investors about market volatility and various scams amidst the coronavirus pandemic. There is a real possibility that you have been a victim of foul play without even noticing. Massive volatility has easily hidden the deception of forex brokers in plain sight.
How global markets reacted to COVID-19
The Coronavirus pandemic emerged in January 2020. The Chinese Communist Party and other world leaders assured the public and businesses that the risk was controlled and limited. Despite all the positivity, the number of cases in Europe and America escalated throughout February and continued to grow exponentially. As the events unfolded, global financial markets remained unaffected. It wasn’t until Monday the 24th of February that the markets began to react to the situation. Indices and stocks around the world tanked for weeks, and the US Dollar appreciated significantly against most other currencies.
The S&P 500 lost 36% of its value in the weeks that followed. However, the price didn’t just drop. There were many points of resistance on this journey that lasted four weeks. Prices were swinging up and down several percent a day. The unprecedented volatility in the forex and stock markets coupled with vast amounts of leverage is a recipe for disaster and a perfect opportunity to deceive traders.
There is no shortage of examples of extreme volatility in the financial markets. The S&P 500 lost 12,149 points for four weeks. West Texas Oil CFDs fell 30% in a single day and experienced multiple days with swings of 10% or more. EUR/USD sharply fell from 1.15000 to 1.06350 in just two weeks, again, swinging abruptly.
Everyone is exposed to risk
Forex and CFD brokers are at just as much risk as traders are. Many brokers take the other side of their clients positions, acting as a market maker. In normal circumstances, brokers have internal policies on how to manage risk reasonably. As markets react unpredictably, robust risk management strategies are in the rearview mirror, and all bets are off.
All brokers have a dealing room. Although how they work differs, the objective is always the same; take every step possible to eliminate risk to the company.
Volatility disguises deception
Over the years, there have been countless forex trading scams. While forex scams are common, the number is lower than it has been in the past. Due to the excellent work of regulators and asset recovery services, investment scams are quickly identified and shut down. However, amidst absolute chaos, traders on the dealing-desk may employ dirty tricks to make sure they don’t look bad and lose the company money.
What a lot of traders forget is that brokers have total control of the trading environment. Brokers can inject prices to hit your stop losses or cause you to get stopped out. Deceptive practices are easily cloaked by the chaos that is already happening.
Stretched to the limit
Not everyone is out to get you, but mistakes do happen when people and technology are pushed to the absolute limit. When markets move fast, and many traders are signed in simultaneously, trading platforms can lag. A lagging trading platform can cause slippage and order execution issues. In normal circumstances, slippage can be a few points or pips, costing traders cents or even dollars. During extreme volatility, slippage can have catastrophic results.
There is a lot of administration work involved in running a brokerage. Busy people make mistakes all the time. The SWAP fees you pay on overnight positions might be calculated incorrectly, the spreads on your trades could be much wider than advertised, and margin calculations can change abruptly. All of these oversights can cripple a trading strategy that would otherwise perform well.
Liquidity providers and market data feeds are also subject to being overloaded. Packets of data can get lost, which means you could be trading on stale or incorrect prices. Price feeds can also stream large spikes and gaps.
Just because a mistake wasn’t made to harm you intentionally, doesn’t mean the forex broker responsible shouldn’t be held accountable.
Traders may have lost billions
According to the Australian Securities and Investment Commission (ASIC), in a single week (16th to 22nd of March 2020), twelve of the biggest forex and CFD brokers in Australia reported clients had NET losses of AUD$234 million ($162 million).
Considering that this figure is only for a one week period and only from a sample of brokers in Australia, the actual number of retail clients losses is likely to be an order of magnitude higher than $162 million.
Have you been the victim of a forex scam?
Do you think you have lost money when you shouldn’t have while trading forex during the COVID-19 pandemic? There is a real possibility that you might have. It’s not always clear if you have been defrauded or if negligence by your broker has caused you to lose money or miss out on an opportunity.
At Spectra Finance Security, we specialize in recovering losses for clients who have been victims of financial fraud. We conduct detailed investment fraud investigations for individual investors and corporations. Our team of analysts will review your claim by scrutinizing your trading account statements, cross checking market conditions with other brokers and exchanges, researching your broker’s terms & conditions and thoroughly understanding the applicable laws and regulations in your jurisdiction and the jurisdiction of your broker.
If we believe there is a case, we will attempt to recover your losses. Our specialists will work on collecting your assets plus additional compensation to cover damages and legal fees.
How to recover forex scam losses?
There are a number of methods we use to recover losses from forex frauds. The method that our consultants will recommend entirely depends on the method used to defraud you and many other variables affecting the situation.
Methods used to recover forex and investment losses include chargebacks, out of court settlements, accessing investor compensation schemes, court cases and many other less common methods. Each investment recovery strategy is tailored to suit each individual case.