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.
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