You can bet that if the returns are enticing enough, even hedge fund managers can be tricked.

A person by the name of John “Scott” Clark raised some $47 million for his firm, Impact Cash from 2006 till now. John offered his investors returns of up to 80% per year.

Impact Cash firm is supposedly a payday lender. A payday lender gives short term loans of less than a month at astronomical interest rates (10 to 20%). Payday loans are quite common in USA to help people tide over their cashflow problems till their next paycheck. Due to the high interest rates, it also means that many of these people who rely on payday loans are forever stuck in the poverty cycle.

Last September, a few hedge fund managed invested $15 million with John. The returns that were promised to them was 55% a year. That was just months before Impact Cash finally collapsed.

Looks like some hedge fund managers really don’t learn…

Ponzi Scheme Hits Mystery Hedge Funds

It was reported in today’s newspapers that the Insurance and Financial Practitioners Association of Singapore (IFPAS), the premier professional association for financial practitioners, had endorsed a MBA program that turned out to be a fake.

More than 80 students have graduated with the fake MBA.

IFPAS had marketed this MBA program offered by Vancouver University (VU) and CPPD Systems Associates. Apparently, VU was not approved by the Canadian government to grant degrees and has been told to shut down in 2007.

Subsequently, the MBA program was transferred to International University (UI) in Vienna, but it is also not on the Austrian’s government list of approved private universities.

IU was actually registered in the American state of Alabama, which has been known to have a number of degree mills.

Other than the fake MBAs, some insurance agents have gone further to obtain their PhD from the unaccredited universities. Next time you see an insurance agent with a Dr title, you might want to ask him where and how he obtained his doctorate from.

A lot of other credentials have also come onto the market in the past couple of years. For example, you now have titles like Chartered Asset Manager (CAM), Chartered Wealth Manager (CWM) and Master Financial Professional (MFP).

I’m not too sure about the validity about these newer titles as some of them can be earned with minimal study and a few hundred dollars.

The ones that are actually more established and recognised would be Chartered Financial Analyst (CFA), Certified Financial Planner (CFP®) and Chartered Financial Consultant (ChFC®).

The CFP® and ChFC® are quite similar and are more applicable to financial planners. They are at a lower level compared to the CFA which remains the certification of choice for people in the financial industry.

Trading is an activity whereby everyone who trades will think that he is better than the average trader. (same goes for driving)

But by the definition of average, it is impossible for everybody to be above average.

Most traders end up losing money and the percentage can run to as high as 80-90% of traders.

It takes hard work to be in that top 10%. You need mental resolve, money management and a system.

One fine day, someone realized that there is actually an easier way to make money from trading.

If 90% of traders actually lose money, then all it takes to be a profitable trader is to trade against that 90%. No need to have any system, money management skills or mental resolve.

Just book every trade against the masses and you will win. Be the house.

And so we have the birth of bucket shops.

A bucket shop is a broker/platform that takes the opposite side of a retail customer’s order without actually having them executed on an exchange. A bucket shop will make money when you lose and vice versa. Spreads and commissions can be kept very low because that is not where they make the money.

Years ago, we have many such bucket shops in Singapore

People will be enticed to trade commodities with these bucket shops through advertisements of job recruitment or promises of great wealth.

Some of these bucket shops even rig the prices in an dishonest way. It is already hard enough to be a profitable trader in the market, but to be profitable in a rigged system is next to impossible. Ultimately, people who trade with bucket shops end up losing most of their money.

You can read this advisory posted by CAD on bucket shops.

Fast forward to now. Do we still see such bucket shops around?

We can argue that they still exist but in a different form.

Today, there are many platforms (both legal and illegal) that allow you to trade CFDs and forex.

Do the trades pass through to the market or are the providers actually making money from your losing trades?

For CFDs, the provider is actually the counter-party to all your trades so it is a matter of whether they hedge your position by squaring it off with other clients, passing them through to the market or taking on the market risk themselves.

The one that offers you the best commission rate might very well be the one that takes on the opposite side of your trade and does no hedging on your position.

Be careful of who you trade with.