Search

Common Scams to Avoid When Trading in Forex Markets

By: , dated January 25th, 2013

Forex markets are among the most active trading markets in the world, with participants ranging from large banks, to multinational corporations, to governments, to speculators and even to a small fraction of individual professional traders. The instability foreign currency prices can result in heavy losses for an investor. However, this is not the only risk that investors have to consider. Investors also need to be aware of forex scams designed to rip them off. The highly technical nature of the retail forex industry, off-exchange forex trading, and the loose regulation of the market can leave retail speculators susceptible to forex frauds. The internet is also giving a boost to these scam forex companies with fake names and credentials.

Forex scams include creating false customer accounts for the purpose of generating commissions, selling software that is supposed to garner large profits for the customer, false claims of customers making huge money, the theft of a customer’s account and phony marketing. Forex scams draw customers in with sophisticated advertisements placed in the newspaper, heard on the radio, or seen on internet websites. Forex promoters often lure investors into scams with various assurances, including their ability to predict an increase in currency prices and claims of high returns with low risk. An unregulated financial company trading off-exchange Forex, foreign currency futures and options contracts with retail customers is illicit and may be a fraud or scam. In many cases, investors may be guaranteed high returns in the tens of thousands of dollars over a few weeks or months, with a relatively low initial investment. In reality, the investor’s money is never used for forex trading, but is simply stolen.

The Commodity Futures Trading Commission (CFTC) is the federal agency with control over the trading of currency, commodity futures and options contracts in the United States. The CFTC takes action against firms suspected of illegitimately or deceitfully selling currency, commodity futures and options contracts. Here are few tips that the CFTC has created to give you some insight on how to avoid scams:

  • The company offers opportunities that sound too good to be true: Stay away from forex trading opportunities that claim to make you rich overnight. Do not use your hard-earned savings or your retirement fund, or resort to mortgaging your house, to invest in these types of schemes. Chances are that you may never get your money back.
  • The company guarantees profits or claims unusually high performance: Anybody claiming to give you a 30 or 40% return in two months is promising something that they cannot deliver. These claims of massive profits are false and are basically tactics to lure in your money.
  • The company downplays the risks involved with currency trading, or tells you that a written risk disclosure statement is just a routine formality imposed by the government: Always be wary of statements claiming that a company will recover your loses or that your investment will remain safe. Forex trading involves a high amount of risk, and you may end up losing all or part of your money in it. Do not put any money which otherwise you cannot afford to lose.
  • Don’t trade on margin unless you understand what it means: Margins should never be used if the investor does not have the experience or time to closely scrutinize trades. Margin trading can end up creating more debt than profit.
  • The company operates on an interbank market: Stay away from companies which lure you into trading in the interbank market at better prices. In the interbank market, mostly speculative and short-term currency transactions are negotiated in an unstable network of large companies and banks.
  • The companies wants you to send or transferring cash to them via the the Internet, mail, or non-physical location: Steer away from sending your money online to companies providing online forex trading. These phony companies are located overseas and are created with the sole aim to defraud investors. If the company does not have a physical office near you, be wary.
  • Currency scams targeting members of ethnic minorities: Ethnic communities, chiefly in the Russian, Chinese, and Indian immigrant communities, are lured by scammers who place advertisements in ethnic newspapers and television infomercials. They promise job opportunities and end up using your own money for their own currency trading.
  • The company makes it difficult to get their performance track record: Be skeptical of forex trading companies that provide no or incomplete information about their performance history. All reputable forex trading websites, companies and brokers are a member of the CFTC or the NFA. Even if the sham company provides a glossy brochure with false information, check with CFTC or NFA to see that the company is a member of one of these organizations before dealing with them.
  • It is difficult to get background information on the company: Don’t deal with anyone who won’t readily give you their background information. Use the CFTC and investigate the company or broker you are thinking of doing business with by checking their fraud alert pages.
This article was brought to you by the InvestorGuide Staff Writers and Editors.

Copyrighted by InvestorGuide.com. All rights reserved.

One Response to “Common Scams to Avoid When Trading in Forex Markets”

  1. Truth chaser. says:

    Forex is a scam.

    There are nonloser methods that can allow you to win large amounts but the plattform atleast the one i use dont let me place such type of order.

    Shouldnt a plattform let you place any kind of order you wish where you want it?

    Its a scam i tell you.

Leave a Reply