Social psychologists highlight manipulative tactics used by Forex, binary options firms
A study by scientists at the University of Aix-Marseille shows online trading firms’ sales teams use tactics like “foot in the door” to manipulate clients.
Just a couple of weeks have passed since the French Financial Ombudsman published her annual report for 2016, showing a raft of complaints by French investors about being harassed by Cypriot investment firms. Adding to the topic, France’s financial markets regulator AMF today published a study by two scientists at the Laboratory of Social Psychology at the University of Aix-Marseille.
The analysis examines the psychological tactics used by representatives of online trading firms (Forex and binary options brokers) when communicating with potential and existing clients. The study was based on: testimony of 24 traders, that is, clients of online trading companies; communication materials (emails, Skype chats, phone calls, traditional mail), and 110 ads uncovered by the AMF during its conventional surveillance procedures.
The analysis details dozens of psychologically manipulation tactics used by sales teams of brokers. Most of these tactics tap into social norms and conventions, which make people easily susceptible to suggestions. For instance, people that receive a gift feel obliged to repay somehow – that is why, offering them a bonus makes them feel obliged to the broker. This is an example of abuse of the so-called “reciprocity rule”.
The “foot in the door” implies asking for something small before asking for something big. One client was first asked to invest EUR 250 and, after a couple of days, was contacted again to add extra EUR 450.
Football sponsorships and advertising using sports legends counts on the so-called “attractiveness of the source” and makes any claims plausible. This is an ancient trick known as “argumentum ad hominem” – if an expert says it, then it must be true…. AMF stresses that sports partnerships that seek to advertise high-risk financial products are prohibited under the Sapin 2 law.
Concerning the content of FX/binary options advertisements, an AMF analysis of ads during 2016 showed that 30% of them focused on education claims, whereas 25% focused on the promises of fast profits. Education promises are treated as a form of marketing by the AMF and are covered by the ban included in the Sapin 2 law, the regulator explains.
FinanceFeeds has recently noted the rise in unfounded educational services promises by unregulated binary options firms. For instance, the RED List, or Registration Deficient List, composed by the Commodity Futures Trading Commission (CFTC), currently includes 111 names of binary options and FX firms that are foreign entities acting in an unregistered capacity, that is, they have no permission to target US customers. All of the binary options firms featured on the RED List are offering “education” services to their customers.
In conclusion, let’s mention some numbers. In the beginning of 2017, complaints regarding Forex and binary options brokers represented 30% of all of the complaints received by the AMF Investor Center. This compares with a proportion of 40% in the beginning of 2016. Despite the fall, AMF notes that the number of complaints concerning online trading companies remains high.