Forex Scams: How to Spot Them A Mile Away
In recent years, investors have witnessed increased number of
investment opportunities and offerings. While the complexity and
success of these investment products vary, technological
innovation has made the Forex market one of the fastest growth
areas. Many of the leading Forex brokers reported up to 500% rise
in the number of new retail customers. However, the growth of the
Forex market has been accompanied by a sharp rise in foreign
currency trading scams.
Many of these Forex scams are promoted on the radio,
television, newspapers and the Internet. Investors who fall
victim to these schemes, often lose all of their money.
As an illustration, let's examine the facts of a recent case
involving Forex fraud and its consequences. W learned of a
foreign currency trading opportunity through an infomercial on
the radio. K, the owner of a Forex asset management firm, spoke
during the infomercial, promising viewers significant profits
with minimum risk. After seeing the infomercial, W contacted K,
and later attended a seminar presented by K and his firm. The
seminar was so convincing that W wrote a check to K for
$100,000.
Several months later, W received statements (which were false)
from K's firm reflecting significant returns on his initial
$100,000 investment. Thereafter, W attended another seminar and
decided to invest more money. W took a loan and invested another
$800,000 in K's Forex trading operation. Short while after W's
second investment, the Securities and Exchange Commission filed a
complaint against K and his firm for engaging in a scheme to
defraud investors. K's firm's assets were frozen, including the
$900,000 invested by W. A receiver was appointed to distribute
the remaining assets of K's firm to defrauded investors. The
assets were distributed on pro-rata basis with no legal
preference given to any of the victims. Since K's firm's assets
were not enough to satisfy all of the defrauded investor's
claims, W received only about $22,000 of the $900,000 he
invested.
Since a whole book can be written on the various tactics and
methods used by Forex scam artists, in this article, I will focus
on the major warning signs that one needs to identify to avoid
falling victim to Forex swindlers.
1. Promises of Little or No Risk
If you encounter a Forex firm that claims to have developed a
foreign currency trading strategy that carries very little or no
risk, stay away. The reason Forex trading can be very profitable
is because it also carries a very high risk of loss. The Forex
market is very volatile, and, without good money management, an
investor can lose most if not all her capital within few days.
Thus, individuals and firms who make claims that are far from
market realities, as is riskless Forex trading, are really after
your money.
2. Guarantees of Large Profits
Beware of firms that guarantee large profits in Forex trading.
These so called "guarantees" are mere ploys to entice investors
and make them believe that their money is safe and that they will
definitely make large profits. Such claims are simply untrue,
because even the best professional traders cannot guarantee that
they will make a profit any given day. The Forex market, as most
financial markets, is very unpredictable. Hence, be suspicious of
such claims and those who make them.
3. Employment Ads For Forex Traders
Many Forex trading firms use employment ads to attract
individuals with capital to trade using their systems. The
employment ads, which often appear in newspapers and on the
Internet, state that a foreign currency trading firm is looking
for individuals to teach how to trade the foreign currency market
using firm capital. Those who reply to the ad are convinced by
the firm that they will make a fortune trading currencies if they
participate in the firm's training program. During the training
process, which often occurs on a demo system, the novice traders
are encouraged and told that their demo trading records show that
have made significant profits, that they are ready to make real
money and would very successful. Despite the firm's assessment of
the novice trader as a brilliant newcomer, no firm capital is
provided to the trader, instead the excited novice is told to use
her own capital to trade using the firm's platform. In addition
to various fees imposed on traders using the firm's platform, the
Forex firm makes money as an introducing broker. Each time the
novice trader trades through the firm's system, a good part of
the spread charged by the broker is shared and goes into the
firm's coffers. After few months, the novice trader loses all of
her capital and leaves. The Forex firm, having made money during
the novice trader's short stint, moves on to new traders eager to
become rich trading foreign currencies.
4. Is the Forex Firm a CFTC or NFA Member
Before you sign a check and give your capital to a Forex
company, make sure you investigate the entity. Check to see
whether the Forex firm, with which you plan to do business, is
registered with the United States Commodity Futures Trading
Commission or the National Futures Association. Many scam artists
falsely claim that their firms are registered with the CFTC or
the NFA to gain a prospective investor's trust. Do not trust
anyone, research the firm and the background of the individuals
involved before parting with your hard earned money.
The Internet has paved the way for many new opportunities for
retail investors. The Forex market is both exciting and fast
paced. Investor's who are careful and diligent are likely to
avoid the perils of this market, and will profit from the
opportunities foreign currency trading has to offer.
John Bekian is the founder of http://www.electronicforextrading.com,
an informative resource for novice and professional Forex
traders.
 Today's
forex currency trading news updated
Thu. February / 09 / 2012
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India Eases Currency Trading Limits for Some BanksWall Street JournalBy SUDEEP JAIN MUMBAI -- India's central bank has asked banks to approach it individually for relaxing some foreign currency trading limits and has already eased restrictions for some banks, a top official said Monday. "Some limits, based on their ...and more » |
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iFOREX Adds Oil to its list of Tradable CommoditiesMarketWatch (press release)ROAD TOWN, Tortola, Feb 09, 2012 (BUSINESS WIRE) -- Leading currency trading company, iFOREX, has recently expanded its services, giving all Forex trading accounts direct access to oil CFDs. Targeting an audience that has little or no experience with ...and more » |
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Bank of England and ECB Hold Steady, Indonesia CutsCNBC.com[CNBC] ----------------------- MULTI CURRENCIES VS THE DOLLAR Tune In: CNBC's "Money in Motion Currency Trading" airs on Fridays at 5:30pm and repeats on Saturdays at 7pm. Learn more: The essential vocabulary for currency trading is on Key Currency ...and more » |
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