Forex Trading Frauds: 8 signs of a scam

The United States Commodity Futures Trading Commission (CFTC), the federal agency regulating commodity futures and options markets in the United States, warns traders and investors of the various frauds and scams being perpetrated in today’s financial markets, in particular those involving forex trading.

Currency trading scams often attract customers through advertisements in local newspapers, radio promotions and good looking websites, advertisements boasting high-return low-risk investment opportunities in forex trading. Because of the increasing numbers and growing complexity of financial investment opportunities in recent years, a sharp rise in forex trading scams has occurred. While much forex trading is legitimate, a small minority are sophisticated scams designed to defraud the public.

The Commodity Futures Modernization Act of 2000 is a new federal law clarifying that the CFTC has jurisdiction to investigate and to close down a wide range of unregulated firms offering forex futures and options contracts to the general public.

The CFTC urges you to be skeptical when investigating forex trading offerings. Here is a list of eight signs indicating that you may be in danger of getting involved with a scam:

  1. Opportunities That Sound Too Good to Be True: forex get-rich-quick schemes tend to be frauds; be particularly cautious if you just acquired a large sum of cash and are looking for a safe investment vehicle, as this makes you a prime target for scammers.
  2. Offers promising little or no financial risk: The forex futures and options markets are volatile and expose unsophisticated customers to substantial risks; be suspicious of companies downplaying risks and insisting that your investment is secure.
  3. Requests to transfer cash on the Internet: many companies offering currency trading on-line are located outside the United States and may not display their address on their website; be aware that if you transfer funds to such foreign firms, it may be hard to recover your funds.
  4. Trading on Margin: understand what that means before agreeing to it; margins let you control a much larger pool of money than your original deposit, and as such expose you to tremendous risks, including losing your entire deposit; with margins, small sums in the range of $1,000 to $5,000 can control far larger dollar amounts of trading, a fact that often is poorly explained to customers.
  5. Guarantees of large profits: run away, this is the clear sign of a scam; there is no way to know if any forex trading strategy will or will not be profitable; forex companies offering real guarantees would take the risk of being wiped out, and hence cannot do it; be also wary of extremely high performance disclaimer.
  6. Claims to trade in the “Interbank Market”: small brokers or even wealthy clients of large banks are not allowed to trade forex in the “interbank market”; if a claim is made that better prices are obtained for you in the interbank market, this is a lie.
  7. Not giving their background: check any information you receive to verify that the company is what it says it is; get the background of the persons running or promoting the company and ask for all information in written form.
  8. Company’s Performance Track Record: be aware that even if a company provides you with a beautiful brochure and sophisticated-looking charts, the information they contain might be false; nevertheless, always ask for the firm’s and individual’s performance record (note though that firms and individuals are not required to provide such information).

Avoid forex trading firms showing some of the 8 signs. Spend time doing your research and you will be fine.