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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.
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