An Intellectual Casino
By Abdul Turay
Published Postimees 15 October 2012
Published Postimees 15 October 2012
Imagine an animal. It is grey, has eight arms, a primitive brain, and suckers, lives in the sea. It looks like an octopus, it's mother and father are octopuses, its children are octopuses. But it is not an octopus. Let's call it a giraffe.
Now imagine an investment firm. It has grown at a phenomenon rate over 10 years. Its sleekly dressed, oily, smooth-talking, Russian-speaking owners make huge amounts of money. Most of its customers lose money and they lose ALL their money. But lets not call it a scam, let's call in a respectable brokerage company working hard to make money for it clients. It is not in any case an octopus.
Tallinn is the global headquarters for a venerable institution, a giraffe, which for legal purposes we will call Giraffe Forex company. It is all part of the retail forex market which in Estonia is controlled by Russian-speaking Estonian who started out in the 90s. They allied with Russian from the mother land in the early 2000s and set up shop here in Tallinn. Giraffe Forex has plush offices down town. It billboards can be seen in advertising hoarding in the city centre. With offices in over 27 country and growing, its ehhh..... tentacles are spreading out across the world.
Giraffe Forex remains an excellent way for suckers to lose all their money. Don't take my word for it.
"Ninety five percent of our retail customers lose their money. It's an intellectual casino," Juri K one of the companies top managers told me. He went on to say that the education and training programs are a waste of time.
Juri seems typical of Giraffe's senior managers, speaking perfect English, he is impeccably dressed, he can operate in any international setting. Ironically he doesn't operate so well in Estonia, his intellectual interests are elsewhere. In my interview with him he betrayed a lack of knowledge about what is going on here in Estonia.
Forex short for foreign exchange is investing in the price of national currencies. Just as an investor might trade shares, an investor can try to make money guessing about the price fluctuation of foreign currencies.
Everybody is in agreement that forex is high risk because it operates on something called gearing.
Think about buying a house. You put down €10,000 to buy a €100,000 house and borrow the rest from the bank. In effect you control an assets worth €100,000. If the price of the house goes up to €160,000 as happened a few years ago, you have made €50,000 profit, assuming you sell. But if the price goes down you could be in deep trouble.
That's how forex works, but the margins so much are bigger the potential for loss is enormous. €10,000 can get you control of €5000,000 at the outrageous 500:1 margins that Giraffe Forex company can and does operate.
Forex is supposed to be for the big fish. Countries and huge international financial institutions make up the bulk of the market.
In recent years the recession has created a lot of desperate people all over the world. Company's like Giraffe Forex company have preyed on them.
American, Chris Brown, 32, worked for the company for nine months developing new markets. He is one of a number of foreigners the company recruited to pull in foreign clients. He said Giraffe is a gambler's racket that attracts people who are too poor to be investing in anything, how much more Forex.
"The whole industry is centred around cultivating the idea of a casino. If you look at the style of art work on their websites."
Brown describes a world where poor people in countries like the Philippines are getting ripped off by: "shady suits in Tallinn."
"Set aside the moral elements it is bad business anyway. But that's what we were doing because it was the quickest easiest money," Brown said.
"We send advertising to people who don't have the wherewithal to understand the awful nature of trading."
The final straw for Chris was a marketing campaign which offered €50 for trading a certain amount with a demo account in the Middle East and other parts of Asia, places where €50 is a couple of weeks of helpful finance.
"First of all it is not sustainable, If you want to be a sharky assed businessman, there is only so many of those people you can pull in, before word spreads that it is a complete sham," Brown said.
The b*******t from Giraffe Forex company doesn't stop there. In their literature they proudly claim to be regulated by the European Union. The truth is very different.
"They try hard to be as unregulated as possible," Chris Brown said.
"We had a company that operated in the British Virgin Island and another one in Europe if anyone would ask we would say we are regulated in Europe."
"However (foreign) clients weren't dealing a European regulated company. They did not have the same protection they would have if in fact they were living in Europe.
"It is was clear that we were not going to expand into the (United) States because US regulations are 10 times tighter," Brown said.
The line from the company's PR people is pretty much what you expect.
Yes, Forex is high risk, there is an element of risk in any investment but people can make profits if they know what they are doing. The company offers training programs, seminars to teach its customers how to trade in Forex. The seminars and training programs and bundled Forex software all add to the company's profit.
But a careful examination of their public statements gives the true picture of what is going on.
"Market makers in foreign exchange trading by default sell positions to and buy positions from their customers. Different buy and sell positions cancel each other out, therefore eliminating the need for netting in the market,"Franziska R, press relations for the company informed me, in response to an email.
In other words the Giraffe Forex company really is a casino. Give them your money and you are betting against the house and not on the market.
Chris Brown said that as a broker clients would ask him.
"If you are the counter party to my trade, if I lose, you win which is technically true," he said.
"If the client wins the brokerage loses but most people trade poorly because they don't quite understand what they should be doing to maintain share margin.
"If somebody doesn't have limits placed on loses and gains they are going to end up losing at some point."
Like any other casino it is in the house's interest for the customer lose money.
Does any of this matter, this article is not suggesting that the company is breaking any laws. Besides Tallinn has plenty of other casinos.
The existence of a major retail Forex company based in Tallinn doesn't mean that the reputation of the country will be damaged. There are dodgy companies everywhere.
"The only people who get into forex market are people who look at the idea of making a thousand per cent (profit) in one day. Those people who are inherently dodgy anyway," Chris Brown said.
It may not be important as the latest political scandal but it is just as sad. The company owners are misrepresenting to the whole World who they are and what they do. If they are running a casino they should call it that. And by these shady dealing they are making locals and ex-pats dislike and distrust a group of people who who everybody is trying so desperate hard to like and trust. I leave it to you to work out who.