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Avoiding Forex-Related Frauds And Scams
By: Marquez Comelab
A lot of people have been ‘burnt' from scam operations on the Internet. Their
sites may look so perfectly legitimate that you doubt whether they would have
gone through all that trouble building a trading platform just to steal your
money. Beware.
The first thing I look for is the geographical location of the broker. If I find
that they are based in a country where the financial industry is, in my opinion,
relatively unregulated and under-developed, I quickly forgo signing up. This is
terrible news for honest brokers in those countries, but your job as a trader is
to protect your capital. If you loose that, then you cannot trade. The onus is
on them to convince you that they will do the right thing by you as an investor.
I started out with an Australian broker. Currently I am using an American one. I
have not tried UK-based brokers but the British financial industry is one of the
best. Companies that are based in countries such as Japan , Germany and France
are probably just as good too, if their website speaks your language.
Notice any license numbers that they may have registered with regulatory bodies
that act like government watchdogs who oversee the finance and investments
industries. These are organisations that impose strict rules to safeguard your
investment. Some of these rules may include the requirement that brokers
segregate all customer funds from the operational funds of the business. Your
money is required to be put in highly-reputable banks and the funds are only
withdrawn from these accounts upon specific withdrawal requests.
Take note that there are some fake regulatory bodies being thrown around in
cyber-space as well. Take a look at how long they have been operating for. Try
and search out any reviews or comments made about them. See if you can find
forums where traders have discussions about their brokers.
Below is a list of things to keep in mind to help you avoid being a victim of a
scam:
• Stay Away From Opportunities That Sound Too Good To Be True
There are people who may have just acquired a large amount of money just and
recently are the same and are shopping around for safe investment vehicles.
These may include retirees who have access to their retirement funds. It is
understandable why retirees would be drawn to ‘high-return, low-risk
investments'. This is also what makes them very vulnerable. If you identify
yourself to be one of these people, be careful. A lot of deceitful characters
are after your money. Furthermore, only allocate a tiny amount of your money to
trading until you can start growing it. Not all people can trade successfully,
so it is a venture you should take on haphazardly. It is your life savings at
risk.
• Avoid Individuals Or Organizations Who Claim To Predict Or Guarantee Large
Profits
Any form of trading is hard. Trading currencies is no different. Be wary of
statements that make it sound easy. Statements like:
• “Whether the market moves up or down, in the currency market you will make a
profit”;
• “Make $1000 per week, every week”;
• “We are out-performing 90% of domestic investments”;
• “You'll make returns of 70% a year”;
• “Here is a no-risk strategy”.
If they could make such returns, why would they even bother letting you know
about it.
• Be Wary Of Companies Who Downplay Investment Risks
Hold your wallet tight and zip up your purse when companies say that written
risk disclosure agreements are routine formalities imposed by the government.
Watch out for statements like:
• “With a $10,000 deposit, the maximum you can lose is $200 to $250 per day”;
• “ We promise to recover any losses you have ”.
• Be Wary Of Companies That Claim To Trade In The ‘Interbank Market'
Do not believe it when some people say that they have access to the ‘Interbank
market' or that they can give you access to trade in that market because that's
where bargain prices can be obtained. This is not true. The ‘interbank market'
is not a place, it is not a physical building. It is simply a loose network of
currency transactions that are negotiated between big financial institutions and
other large companies.
• Ethnic Minorities Are Often Targeted
Ethnic newspapers and television ‘infomercials' are sometimes used to attract
Russian, Chinese and Indian minorities. Sometimes these ads offer so-called ‘job
opportunities for account executives to trade foreign currencies', whereby the
recruited ‘account executive' is expected to use his own money to trade
currencies and would often times be encouraged to recruit members like their
friends and family to do the same.
• Seek Out The Company's Background
Check any information you receive to be sure that the company is who they claim
to be. If at all possible, try and get the background of the people operating
the company. Do not rely solely on oral statements and promises made by the
company's employees.
• If You Are In Doubt, It Is Not Worth Risking Your Money
If after trying to solicit information and at the end of it all, you are still
in doubt about the credentials of a particular company, my suggestion is to
start looking elsewhere.
You may find further information by contacting government ‘watchdogs' because
they keep up to date with trends and reports regarding scams and other
fraudulent activities. Please check the resource section of this site for the
information of organizations that regulate the securities industry, sorted by
country. There is also a list of brokers that you may want to look at.
Marquez Comelab, © 2006.
This is an excerpt, modified from the book: The Part-Time Currency Trader.
About the Author:
Marquez Comelab is the author of the book: The Part-Time Currency Trader. It's a
guide for individuals interested in trading currencies in the forex market. See:
http://marquezcomelab.com and http://thefreedomtochoose.com for more.
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