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Office of Competition and Consumer Protection

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Alternative investments - calculate and don't miscalculate!

< previous | next > 13.09.2021

Alternative investments - calculate and don't miscalculate!
  • Low-interest rates on deposits make you want to invest your savings in unusual products? You can invest in almost anything, but be aware of the risk of losing your money.
  • Apart from standard securities such as shares, bonds or currencies, there are also risky tokens or cryptocurrencies available on the market. You can also invest in natural resources, precious metals, works of art, livestock or postage stamps.
  • Calculate and don’t miscalculate! – is the slogan of the social campaign launched by UOKiK.

Gold, oil, diamonds, coffee, cereal, works of art, luxury goods – these are just a few examples of alternative investments. Thanks to the internet, we can buy them from anyone in the world without leaving the house. Some of the offers are similar to the banking or investment products we know from the standard offered by conventional financial market institutions, which are described in general conditions, contracts or regulations. Others, however, require explaining, which is done using videos published in social media, descriptions presented by bloggers or internet influencers, documents entitled "white paper", often available only in foreign languages.

Alternative investments are mainly offered by entities that are small, less known and subject to rapid and frequent changes (e.g. start-ups). The investments are based on or use of mobile technologies, including social media or other technological innovations (including artificial intelligence, cloud data, big data or blockchain), and payments are generally electronic (e-wallets) and may be based on cryptocurrencies (alone or alongside traditional currencies) or internal payment units with rather unusual names.

New technologies, wide access to the internet, electronic payments, and the global market influence consumers' access to many investment offers – says Tomasz Chróstny, President of the Office of Competition and Consumer Protection. – Companies try many ways to make us entrust our savings to them, most often tempting us with high profits. However, the customers should scrutinise not only the expected or declared profits but also the costs to be borne and possible losses, as a hasty decision may lead to losing all invested savings. In the case of alternative investment instruments, I recommend extreme caution and not investing in something that you do not fully understand or that seems too good to be true. So give your attention not to profits, as traders want, but to costs and risks so that every decision is thoroughly thought through. Calculate and don’t miscalculate! – adds the President of UOKiK.

Every investment involves risk, and alternative investments are no different. Apart from entities operating legally with necessary permits, the internet is full of fraudulent and misleading sites, so be careful. Masterminds behind them are based in countries without efficient supervisory bodies and prosecution services, dealing with cybercrime, for instance.

Below, we describe a selection of alternative investments

Forex investment

Forex is now the largest automated foreign exchange market in the world – the vehicle through which the global financial industry conducts the majority of its transactions. Internet users have repeatedly come across advertisements of so-called Forex platforms that allow you to invest in attractive securities (e.g. shares in major companies, currencies, natural resources or precious metals), which are traded on Forex. Most such platforms use a tool called leverage. It is based on the fact that consumers can invest more funds than they initially have when they start investing. Thus, if the investors do not have more funds with which they could, for example, buy more diamonds (and thus multiply the potential profits), they use leverage, thanks to which they obtain the missing money from the platform owner. In a way, the latter "leverages" the consumer to a potentially higher level of potential profits because when the price of diamonds rises – the owner will get the money back. Then the investors (i.e. you) will also start making money. However, when the price of diamonds drops, not only will you lose the money you invested, but the platform owner will demand a return of what he put up for you. In this way, you can lose much more than you invested.

Thus, thanks to leverage, Forex investments are not much different from gambling because, in principle, you never know what shares, currencies or commodities will bring profits, and since someone "credited" your investment, before you start earning – the intermediary, i.e. the platform owner, will profit from it. According to the Polish Financial Supervision Authority, in 2020 as much as 78 per cent of Forex investors suffered losses that average about PLN 11 thousand , and the total loss of costumers of brokers registered and legally operating in Poland is PLN 1.1 billion.

According to the law, Forex brokers must be licensed by the Polish Financial Supervision Authority or another authority if the Forex platform is registered in the European Union (then it operates on the basis of the so-called single passport). This is important as there is a compensation scheme under the law in case of a loss incurred in connection with the operation of such an investment firm (e.g. in case of its bankruptcy or insolvency). If such a firm operates outside the territory of the European Union, in particular, is registered in the so-called tax havens, where there is no adequate standard of consumer protection, you may have real difficulty recovering your money.

In addition to the incentives for direct Forex trading, some platforms advertise themselves by offering training programmes and tools to help consumers find their way in a hitherto unknown world and simplify trading. The quality of some training courses is high, but the substantive content of some of them is questionable because it happens that they are used to collect detailed personal data and also have pyramid promotional schemes "embedded" into them. In fact, participants are urged to recruit more participants and the fees for attending training courses of questionable value are used to fund a programme that is effectively a shell. Thus, the purchase of the training service is a "cover" for the actual income, which arises only when you build a sales structure, and the real profit is obtained only when you "bring in" a sufficient number of other participants. But have no illusions – it's not you, the ones on the lowest levels, but the people above you who will earn the best under such schemes. In general, the investment simplification tools offered by platforms are algorithms based on which automated investment decisions are made. Sometimes these tools mimic the business moves of actual investors, and sometimes they use their own technical assumptions, which by definition should be safer than the individual decisions of individual consumers, although on the other hand... if the algorithm follows the moves of a specific investor, then if the investor bought shares in company "X" and the algorithm replicates these actions – assuming free market forces – the replication of purchase transactions puts upward pressure on the price. But why not try to invest yourself?

Cryptocurrencies are - without going into complicated technical details - digital means of payment that are currently available apart from standard currencies. Cryptocurrencies can be used to pay for goods or services but they can also be a form of an investment and you can make a profit if you buy them cheaply and sell them more expensively. Cryptocurrencies are subject to periodic price fluctuations resulting from the law of supply and demand, their value is shaped by speculative behaviour - the dynamics of changes may be very high and it is not limited by any regulations. For example, the value of Bitcoin, which is the most popular cryptocurrency on the market, has dropped - the exchange rate dropped by 35% in 10 days. (11 May 2021 -21 May 2021).

Just as there are other currencies apart from the dollar or the euro in the world, this is also the case with cryptocurrencies. A number of investments are based not only on the most popular cryptocurrencies such as Bitcoin and Ethereum but other cryptocurrencies are created. They serve either as an object of trade or to settle accounts in the investment projects. Their initial value, and also current value, is often set arbitrarily by the managers of the investment project, and before investing in such assets it is good to check the rules based on which their price is determined.

While discussing cryptocurrencies, it is worth mentioning tokens - another type of crypto-assets that can be used to make payments but they can also constitute evidence of making an investment. As per the above, a token is similar to security, including shares or bonds, as the owner is entitled to, for example, dividends (sometimes it is called a token). The similarity of the function of tokens does not mean that their holders have identical rights as shareholders or bondholders, whose rights and obligations are precisely described in the regulations. With regards to tokens - each of them is standardised, based on separate documents created by their issuer, often not subject to any regulations.

Investments in natural resources or precious metals are said to be risk-free – especially in times of crisis it is supposed to be economically reasonable to invest in gold or diamonds. Technically, we can invest in anything that is produced, mined, grown, farmed or traded. However, we should note that each product is subject to periodic fluctuations, agricultural and food products are subject to seasonal changes of prices. Moreover, there are various political, economic or social events on the market that have an impact on prices and we must be particularly careful in this regard not to invest all our funds in just one type of securities, but to spread our capital across various products.

Artworks are also suitable to investment; this market has quadrupled globally in value over the past two decades. However, this is an offer for patient people because not everyone can afford to invest in the works of famous (and thus expensive) artists that quickly gain value. For this reason, works of young artists are usually purchased. These artists may become popular and their works more valuable only with time. However, we should remember that for one artist whose works sell for tens, hundreds or hundreds of thousands zlotys at auctions, there is a whole group of his/her colleagues who will never achieve any significant commercial success – hence, investing in young art is lottery-like. Let's legally purchase art, let's use the opinions of experts (not only those who specialise in investments, but also those who specialise in art), let's take advantage of trends and the awareness that whatever we invest in, it is significant that it not only gives us a possible profit in the future, but it is also eye-pleasing.

Finally, we can invest in unusual assets. When we use most online services and social networks, we encounter slogans like "risk free profit", "legitimate business", "100% profit after only three months", "benefits with no down payment", "money making machine" and other similar ones. A reliable organiser of investment, even in the strangest products or services, should explain everything thoroughly if they want to encourage buyers and they should not be surprised when the consumer asks on what basis such incentives and high profit percentages are formulated. 

Consumer advice:

Calculate...

  • All costs associated with an alternative investment - please note that some of the costs are similar to the fees (incurred to start the investment, to continue the investment, or to resign) that you already know from standard investment offers, however, some of them are of a completely unusual nature. If you plan to invest in natural resources, you have to take into account, for example, the cost of opening an account at a brokerage house for which you will have to pay. Obviously, on the internet, you will be able to find gold investment offers that do not involve such costs, however, please consider whether the transactions offered by such a broker are safe for you.
  • Is it possible to make the profit announced in the advertising and information that you have received? Does historical data confirm the achievement of the assumed profit? Please ask questions about the "alternative" of the investment, its advantages over other offers, how the assumed profit was calculated, and whether it is economically possible to achieve it - please consider the amount of profit, the time of investment, the costs that you have to incur and the fact that historical data can be presented in such a way that the project manager is able to prove the particular thesis.
  • What needs to be done to start an investment - what personal data you have to provide, sometimes you are only asked for your e-mail address and name, however, in many cases, a scan of your last electricity or gas bill, your ID or a payment card is required - please consider whether your data will be safe and whether you will have a real possibility to delete it.
  • Opinions that appear on the Internet, on reliable websites to check the credibility of information and messages from consumer protection institutions (in particular, any public warning letters), opinions of reliable experts.
  • Activities related to a specific investment or its type on social networks, blogs, internet forums devoted to specific investments - you can check the number of entries - especially from the territory of Poland, the frequency of changes introduced to the pages (whether the website is updated on an ongoing basis or is a dead page), dates of the latest posts on blogs or social networking sites, the number of followers (all of the above shows the reliability of the entity).
  • Who and how promotes a particular investment - please be careful while dealing with persons who are aggressive, pushy, who promote themselves and the benefits which they have gained from the investment in an ostentatious way. Please consider whether those individuals seem trustworthy.
  • Can you afford to lose your invested funds? Don't invest in systems which you don't understand. If you want to explore or test the system, invest a small portion of capital first and wait for the results, learn by investing gradually.

...and don’t miscalculate

  • Alternative investments are quite volatile and changeable, and the entities that offer them appear and disappear - please consider if this suits you.
  • As a rule, the entities that offer alternative investments do not have a permanent office that you can visit (they use virtual offices), they do not employ consultants with whom you can talk (because they use machines-robots that operate based on artificial intelligence), some of the entities operate from outside of the European Union (there are no specific pro-consumer regulations there) - please consider whether such a standard of service suits you, assuming that investment means not only opening an investment account but also maintaining business relations with someone to whom you entrust your finances.
  • A number of entities that operate on the market may exploit the reputation of other companies that you known or the investment products they offer - please check carefully whether this is "the" correct entity that you trust, or whether it is someone else who claims to be that entity.
  • Please be careful while dealing with telemarketing companies and people who contact you and claim to be consultants, account managers, etc., especially when giving your consent to use your personal information, passwords, codes, etc.
  • Many alternative investments are based on communities - when starting the investment we become members of the social network, we use additional information, announcement and training services. Please be aware that, in this way, the entities that offer the investment obtain a lot of data about your daily activities or habits. Please consider how this data is used by the organiser of the investment project.
  • Please check whether the investment includes the so-called affiliate programme (referral programme, referral system or similar) that consists of various bonuses for persons who persuade others to invest. This could be a sign that the development of the project is based on a pyramid scheme-like promotional system and the profits for existing investors come from the ongoing contributions of persons who are currently joining the project.
  • Try to prevent possible risks: respect your personal data (do not provide them to unverified entities), respect your money (do not spend all of it on one investment product), respect your computer (beware of risks related to cyber attacks).
  • When starting investing, check carefully what withdrawal options you have (for example, whether you have to send a letter to the company's headquarters in a tax haven).
  • Take a critical view of any offer, however best and most profitable.

Calculate and don’t miscalculate! – UOKiK campaign

As part of the "Calculate and don’t miscalculate!" awareness campaign, UOKIK prepared two 30-second video spots for broadcast on TV and radio. They warn of the real loss of invested funds and point out the inability to repay the loan if interest rates rise. These video spots can be seen on public television and heard on radio from 6 September. They are broadcast at no cost, pursuant to i.a. Art. 31(c) of the Act on Competition and Consumer Protection. The "Calculate and don’t miscalculate!" campaign video spots and other downloadable content are available on the UOKiK website.

Konsument.edu.pl

Thinking about your future? Your friend proudly informs you about a new way to make money online? Then (s)he provides a link and urges you to make millions? See if you are immune to these types of lures. Visit www.konsument.edu.pl - it is a social network simulator, where we safely show what tricks scammers use. Each "trap" ends with a summary: advice on what and how to check before using the offer, as well as information concerning where to find help. The website is free to use to educate young people – it includes a special menu for educators along with 10 lesson plans.

Consumer assistance:

Tel. 801 440 220 or 22 290 89 16 – consumer hotline
E-mail: [SCODE]cG9yYWR5QGRsYWtvbnN1bWVudG93LnBs[ECODE]
 Consumer Ombudsmen – in your town or district

Additional information for the media:

UOKiK Press Office
Pl. Powstańców Warszawy 1, 00-950 Warszawa, Poland
Phone +48 695 902 088, +48 22 55 60 246
E-mail: [SCODE]Yml1cm9wcmFzb3dlQHVva2lrLmdvdi5wbA==[ECODE]
Twitter: @UOKiKgovPL

 

 

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