ForexGetting Started

Forex Scams – How to Spot them a Mile Away

Today there are many scams involving forex and a great number of us will have seen emails or websites promising untold riches. So what are the main points to look for in spotting a scam?

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.

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 an associate in the New York office of Berg & Duffy, LLP , which focuses on international business transactions and international litigation. EDUCATION: 2000, Bachelors of Business Administration (International Business), Hofstra University, Frank G. Zarb School of Business, Hempstead, NY, Dean's List; 2003, Certificate of International Legal Practice, Center for International Legal Studies, Salzburg, Austria; 2004, Juris Doctor, St. John's University School of Law, Jamaica, NY, Dean's List, New York International Law Review. LANGUAGES: English, Russian, and Armenian

John Bekian is an associate in the New York office of Berg & Duffy, LLP , which focuses on international business transactions and international l...

trendie

Legendary member
6,213 1,000
good general advice.
however, the final couple of paragraphs relating to regulatory bodies is US-specific.

would have been good if an attempt had been made to acknowledge other countries regulatory bodies.
( FSA, etc )
 

Directional

Experienced member
1,992 251
Agree with Trendie, the NFA & CFTC only regulate US-centric firms and the US is only a part of the trading universe.

FSA are equally if not more demanding than US regulators in the scope of their protection, and then there are all the other regulators in Europe, Aus & Far East etc...
 
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vergis92

Active member
236 6
Very good advice, people tend to forget that opportunity
goes hand in hand with risk, scam artists usually use
actual statements of profitable trades in their brochures
while hiding losing ones
 

windsors

Newbie
3 0
Yeh, good article - just wish I'd read it 18 months ago before I gave a wedge to Tamodfx to 'invest' for me. Now there is no trace of said firm and even less of my money.
 

pipper

Member
80 0
Solid article. After searching through many systems, I found out the hard way about many of them. :eek:
 
M

martinengland

0 0
I am new to forex and uk based. Looking to invest $2000 to dip my toes in. Looking for a reputable regulated ecm non dealing desk broker with a website that contains half decent charting and news and calender. Am I asking for too much
 
M

martinengland

0 0
I am new to forex and uk based. Looking to invest $2000 to dip my toes in. Looking for a reputable regulated ecm non dealing desk broker with a website that contains half decent charting and news and calender. Am I asking for too much
 

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