The Great Currency Converter Scam
June 3, 2011The Forex Scam that Offered Secret Fess on Arrival
Imagine that your local supermarket started advertising its products, in newspapers, and on the shelves, at the wholesale prices, only hitting customers for the higher marked-up cost when they arrived at the checkout. Nobody would put up with that kind of nonsense! In fact, if they dared try it, somebody, maybe the local Consumers’ Association, would shut them down. You just don’t get away with that kind of thing these days, right?
Believe it or not, something similar to this is done by many of the online foreign exchange brokers, and nobody bats an eyelid. Consumer protection doesn’t seem to apply in the area of foreign exchange and money transfers, as I pointed out in a previous post about the commonly used ‘0% Commission’ deception. The other ploy used by many online fx brokers is the ‘Interbank Currency Converter’ scam.
If you’ve looked at many foreign exchange transfer websites, you’ll probably be familiar with the handy currency converter prominently displayed somewhere on the home page. We have one of those ourselves. Ours tells you exactly what rate you will get if you change money right now. After all, that’s what they’re there for, isn’t it?
Not exactly. What many of them actually do is show you what they call their ‘indicative’ rate. Often they will have a small disclaimer, which they know very few people read, to the effect that the rate supplied is a market rate only available to ‘banks and brokers’ and that you should ‘call for a live quote’. What is this rate indicative of exactly? It’s the wholesale rate! If you do call them, you’ll find that the real rate they’ll give you is anywhere from 1% to 2.5% worse than this interbank rate quoted on their home page.
Always Be Aware of Forex Trading Scams
Why do they do this? They know that the majority of people don’t read the fine print. People come to the site, see the interbank rate, (which is obviously a very good rate – in fact, until CurrencyFair came along, it couldn’t be beaten), and sign up. We’ve had a number of customers tell us that they had gone through the process of registering with a different broker before realising when they came to actually do an exchange that they’d been hoodwinked by the currency converter! Luckily those people that came to us had time to switch, but for many people with an urgent need to send money abroad, it may be too late at that point. Plenty of others probably don’t realise at all.
There’s a second reason many broker sites don’t quote you a live rate though, and that’s because there isn’t one. Not a single one, anyway. Many online brokers have dealers working partly or fully on a commission basis. They want you to call for a rate, because this lets them get a feel for whether or not you are shopping around, and what sort of margin they think they can get away with. So just remember that the friendly person on the other end of the phone might have a vested interest in not giving you the best possible deal.
The final reason they quote the interbank rate rather than a real rate is probably that they feel they cannot afford not to. If all their competitors are quoting interbank rate, then they know they might lose business by quoting a live rate that is inferior. We applaud those other brokers that, like ourselves, are transparent enough, and perhaps courageous enough, to show live actual exchanging rates to anyone on their website, whether or not they are logged in or have an account.
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So, please, don’t be fooled by the currency converter. If you are shopping around, read the disclaimer, and make sure you’re comparing apples with apples. Exposing these little tricks and not putting up with them any longer is the key to getting some real transparency in foreign exchange.