It seems that recently online trading sites are desperately searching for new clients, and that some of these brokers will stop at nothing to try and get you to sign up. Since a substantial amount of these ‘trading service providers’ are crooks who just want to take your money and vanish, you can guess that these people are going to use some very unethical tactics in the process.
One thing you may have noticed is that these websites use a lot of terms which the average person is not very familiar with, and that is definitely not done unintentionally. A lot of times they will also try to give you an explanation, but you can be sure that they are misleading you. That’s why we’ve gathered some of the most common phrases they use, so you can get a real explanation of what they mean.
Leverage
This is the act of magnifying your investment without actually needing the money to do it. Well, at least that’s how the broker is going to present it. They’re going to tell you that you can ‘borrow’ money to place an investment. That way, for example, you can put $100 on a stock by only depositing $1 on a trade (and the leverage is accordingly 1:100). This, they will tell you, is a great way to enhance profit.
What they won’t tell you is that it’s also a great way to enhance losses – and there’s a reason they don’t tell you that. They give different leverage levels on different assets, and there’s a reason for that as well. Assets with low profit probability will usually be leveraged higher, so your losses increase. The ‘safer’ assets will be leveraged lower – or not leveraged at all.
CFD
Cost for difference (CFD) is a trading method very common with these online brokers. What this means, basically, is that you don’t need to own an asset, but rather to bet on its value. This may seem ideal because it saves the bureaucracy, for example, of buying a stock or a crypto coin. It also allows you to trade with leverage, since you’re not really buying anything.
Again, you won’t be told about the lack of supervision on CFD trading, which is illegal in many countries across the world. When you’re not really buying anything, the only one who sets the rules is the broker, which in this sense acts just like a casino and not a trading institution. That leaves a whole lot of room for different CFD trading scams, such as surprise fees or fake rates.
Spreads
Spreads are the difference between a buying rate and a selling rate at any given moment. A great example of spreads is with buying foreign currency, where there’s a difference between the amount you pay for each, let’s say, Euro you buy, and the amount you get for each Euro you sell. The broker will tell you that these spreads are ‘tight’ and ‘competitive’, meaning that the difference in price between buying and selling is supposed to be small.
Well, ‘supposed to be’ is the key phrase here. That is because when they say ‘competitive’, they mean that the rates are low compared to what others are offering. However, many of these websites are actually owned by the same company, so there’s no real competition here. Competing brokers also coordinate spreads sometimes, just like a cartel, making ‘competitive’ no more than a pair of hollow words.
Binary options
Remember this infamous term from a few years ago? Binary options used to be a win-or-lose offer provided by an online broker. You bet on whether a situation does or does not happen. For example, you can bet that by 9 PM today, Bitcoin’s rate will reach and cross the $52,000 mark. It sounds very attractive, mainly because it sounds very simple with no fine print.
This used to be popular among investors, but it isn’t anymore, because it’s illegal in most places around the world, and you can guess why (hint: it has to do with a whole lot of scams and frauds). Victims reported that the crooks had found very creative ways to avoid paying, especially with the help of contracts containing a lot of fine print. There’s a reason why many former owners of these binary options brands are currently sitting in prison or had done time in the past.
