Exercise caution when accepting foreign exchange trading advice

 

The story

William deposited USD5,500 into a foreign exchange trading account with Gold and Silver Traders.  William was an inexperienced trader, and relied on the advice of his trading analyst, Luke, when making trades.  On 3 March William made three beneficial trades when Luke suggested one further trade.  William said Luke told him not to set a ‘stop loss’ on the trade because when the market opened the following day he would receive a bigger benefit.  William was surprised at Luke’s advice, and questioned him about it.  William accepted Luke’s advice, but when the market opened he saw it move against his position, and William stopped the loss himself at USD4,071.  When William queried Luke about the loss, Luke assured him it was normal.

 

William was uncomfortable about continuing to trade, but Luke persuaded him to re-enter the market on 5 March, then advised against the trade that was to take place on 6 March and delayed the 7 March trade causing William to lose money.  Gold and Silver Traders said this loss was as a result of a technical difficulty they were experiencing, and offered William USD5,000 to continue trading.

 

Dispute

William was suspicious of Luke’s advice, and Gold and Silver Traders’ motives in making the settlement offer.  William suspected Gold and Silver Traders had been using him to manipulate the market and asked us to investigate.

 

Gold and Silver Traders said William acted contrary to Luke’s advice when placing the 3 March order, but appeared to accept responsibility for the technical difficulties associated with the 7 March trade.

 

FSCL’s review

Gold and Silver Traders only provided a very brief response to William’s complaint, and failed to respond to requests for more detailed information.  As we cannot wait indefinitely for information we formed a view based on William’s submissions.  Although we had insufficient information to draw any conclusions about William’s allegation of market manipulation, in the absence of evidence to the contrary, we:

  • accepted William’s submission that Luke had told him not to set the ‘stop loss’ causing him loss
  • understood Gold and Silver Traders accepted responsibility for the technical error causing delay with the transaction on 7 March.

 

Outcome

We proposed, and both parties accepted, Gold and Silver Traders return to William the USD5,500 he had deposited into his trading account.

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