Forex Scams: How To Spot Them A Mile Away
By: John Bekian
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 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 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 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 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 growth
and opportunities of foreign currency trading.
About the Author:
Please visit http://www.forexweek.com.