Unfortunately, many people associate Forex trading with scams, and perhaps for good reason. The number of unscrupulous companies has been increasing. The number of Forex-related scams has increased abruptly over the last few years, and it is important for you to be able to identify a hoax.
Currency trading is an exciting and potentially profitable investment option, but as with anything involving money, there are people out there who will rob you blind if you don’t know what you’re doing. Let’s take a closer look at Forex scams, so you are properly equipped to spot one.
Understand Genuine Forex Operations
So, where are Forex scams likely to occur? Advertisements for scams can often be spotted in online pop-ups, newspaper advertisements, and the classified sections of financial magazines. How do you weed out the good from the bad?
A first step is to learn how legitimate Forex trading is conducted. Generally, Forex traders can place orders through an exchange or board of trade, a bank, insurance company, registered securities broker/dealer, or other financial institution.
This means that you should search out these types of institutions in order to trade currency. It also means that many scammers will masquerade as one of these types of companies in order to trick you. So where can you turn for help? Is there anyone out there tracking down and punishing these evil-doers? Never fear, the CFTC is here to help you.
Meet A powerful Ally – The CFTC
Even though Jack Bauer doesn’t work there (that’s CTU), the CFTC or Commodity Futures Trading Commission is a great source of information for Forex scams. They have been working tirelessly to crack down on the number of scams, and while it has taken longer than 24 hours, their efforts have produced solid results which Forex traders can utilize.
In the United States, the CFTC has federally mandated authority and jurisdiction to investigate and take legal action when appropriate against corrupt Forex brokers. Additionally, they have the ability to prosecute any firm registered with the CFTC if the firm’s actions violate any CRTC-mandated rules.
The CFTC was empowered in December 2006 with the passing of the Commodity Futures Modernization Act. Their efforts have centered on educating potential Forex traders about currency trading’s best practices as well as keeping tabs on the people who offer Forex services.
The CFTC has issued several reports concerning the offering and trading of foreign currency futures and options contracts. Some of the main points of advice from the advisory are the following:
- Stay Away From Opportunities That Sound Too Good to Be True
- Avoid Any Company that Predicts or Guarantees Large Profits
- Stay Away From Companies That Promise Little or No Financial Risk
- Don’t Trade on Margin Unless You Understand What It Means
- Question Firms That Claim To Trade in the “Interbank Market”
- Be Wary of Sending or Transferring Cash on the Internet, By Mail or Otherwise
- Currency Scams Often Target Members of Ethnic Minorities
- Be Sure You Get the Company’s Performance Track Record
- Don’t Deal With Anyone Who Won’t Give You Their Background
Additionally, the CFTC warns to be careful of unsolicited phone calls about “can’t miss” investments from offshore salespersons or companies that don’t sound familiar.
The following are some of the steps prescribed to identify a potential scam by the CFTC, and we encourage you to follow them:
- Contact the CFTC.
- Visit the CFTC’s forex fraud Web page.
- Contact the National Futures Association to see whether the company is registered with the CFTC or is a member of the National Futures Association (NFA). You can do this easily by calling the NFA or by checking the NFA’s registration and membership information on its Web site. While registration may not be required, you might want to confirm the status and disciplinary record of a particular company or salesperson.
- Get all information about the company and verify that data, if possible. If you can, check the company’s materials with someone whose financial advice you trust.
- Learn all possible information about fees charged, and the basis for each of these charges.
- If in doubt, don’t invest. If you can’t get solid information about the company, the salesperson, and the investment, you may not want to risk your money.
No Free Lunch
One of the basic principles of economics is the concept that there is no such thing as a free lunch. This concept is for the most part true (soup kitchens excluded) and particularly applies to any type of investing, especially Forex trading.
If a Forex claim seems too good to be true and a broker is seemingly giving money away, then don’t invest. This doesn’t mean you shouldn’t try to find low commissions or low bid/ask spreads, but remember there is no invincible Forex formula or brokerage which will enable you to instantly make huge amounts of money trading currency.
Never Stop Learning
The only foolproof method to avoiding currency scams and to become a successful Forex trader is to gain as good an education as possible. The more you learn about Forex trading in general, the easier it will be to spot currency trading scams.
For example, what would happen if on your way into your favorite electronics store, someone stopped you and said not to buy that Plasma which you’ve been saving all year for, because they could guarantee you a better television at half the price? They explain all you have to do is give them $1000 in cash and they’ll present you with the TV.
Would this get your attention? Of course. Would this be a good idea? Not unless you want to wave goodbye to one thousand hard-earned dollars. How do you know? You’re a well-informed and responsible consumer with years of purchasing experience. In order to identify Forex scams you must also become a well-informed and responsible Forex investor.
Some good places to enhance your Forex scam-spotting abilities are:
- Federal Reserve Board
- Federal Financial Institutions Examination Council
- Federal Deposit Insurance Corporation
- U.S. Securities and Exchange Commission
- The Office of the Comptroller of the Currency
- Office of Thrift Supervision
- National Credit Union Association
- National Association of Securities Dealers Regulation, Inc.
- All U.S. Government Web sites
- Your state Attorney General’s office and state banking, insurance and securities regulators (which often have tweir own Web sites).
Do Your Homework
A crucial part of any education – and the primary source of agony for kids over the age of 5 – is homework. But before you take anyone up on an offer or enlist the services of an enticing broker, do your homework. Thoroughly research all aspects of the action you’re about to take, and don’t act until you are absolutely certain the offer is legit.
Sources From http://www.currencytrading.net