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.
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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, lets
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 Ks 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
Ks Forex trading operation. Short while after Ws second investment,
the Securities and Exchange Commission filed a complaint against K
and his firm for engaging in a scheme to defraud investors. Ks
firms assets were frozen, including the $900,000 invested by W. A
receiver was appointed to distribute the remaining assets of Ks
firm to defrauded investors. The assets were distributed on
pro-rata basis with no legal preference given to any of the
victims. Since Ks firms assets were not enough to satisfy all of
the defrauded investors 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 profi 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 unpredic. 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
them 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 firms
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 firms 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
firms platform. In addition to various fees imposed on traders
using the firms platform, the Forex firm makes money as an
introducing broker. Each time the novice trader trades through the
firms system, a good part of the spread charged by the broker is
shared and goes into the firms coffers. After few months, the
novice trader loses all of her capital and leaves. The Forex firm,
having made money during the novice traders 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 want 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
perspective investors 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.
Investors who are careful and diligent are likely to avoid the
perils of this market, and will profit from the growth and
opportunities of foreign currency trading.
Since we review business opportunities for a
living we know which one work and which ones don't. Click
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