Forex trading scams

A warning to anyone new to the world of forex trading. Hopefully as I try to arm myself with information, being new to the world of forex trading myself, what I learn and discover along the way can be of use to others. This is an article about forex scams. Before you deposit money with a forex trading firm please take every step available to you in checking out the firm’s background and credentials. Scammers love people like us, people who are in dire financial straits and are desperately seeking solutions to our money problems. Women who work from home or are looking for work from home opportunities are also fast becoming a prime target of forex scams. Don’t become a victim.

If you are considering investing in the Forex markets, be sure that you are going in with your eyes wide open. Your experience may not be what you were expecting. The Commodity Futures Trading Commission, or (CFTC) has been busy tracking down scammers and you should be paying attention. In a case in 2004, the CFTC found that the owners of a forex trading firm were making material omissions to their clients. In other words, they weren’t being entirely truthful. Once the clients had deposited funds with the company, the owners were taking the funds and buying luxury cars and homes and taking gambling trips to Las Vegas. [Source: http://cftc.gov/opa/enf04/opa4956-04.htm]

Foreign exchange trading is a negative-sum game. If you make money, then it is because someone else lost the same amount of money. That in itself, would be a zero-sum game. However, once you add broker’s fees and commissions, you can see that the total pie is actually negative. [Source: http://en.wikipedia.org/wiki/Forex_scam]. This is where the problem of Forex scams originates. Generally, the perpetrators of such scams tell potential clients that they can expect a large return on their money within a short period of time. Since Forex trading is a negative-sum game, this simply can not be true for all entrants to the market. It is logically impossible. Once the customers have deposited their funds with the company, often times the owners just divert the money to their own personal accounts. [Source: NY Times]

In other cases, the scam is more subtle. The users of the service attempt to perform trades, but are unable due to “glitches” in the software that always seem to work against them and make them lose money. Perhaps the trades aren’t executed when they are supposed to. They end up being traded at a different price level. Where does the money that is lost go? Perhaps into the hands of the brokerage. The brokerage may be loaning your money on margin to another account without paying you a share of the interest. Even worse, some users have experienced margin calls on their positions that were not in line with reality. [Source: http://www.forexrealm.com/brokers-reviews/#FXCM]. All of these little scams can add up to millions of dollars in gains for the brokerage, at the expense of their own clients!

If you are planning on investing in Forex markets, be sure that you understand the risks involved first. Before you deposit any money into an account, do a thorough investigation of the firm. Make sure that existing customers are satisfied. Generally, if there are problems you can find out about them on the web by doing a thorough search. These days, disgruntled consumers will take their concerns to the internet and will post. So it should not be difficult to verify the reliability of your broker. Try to find a brokerage that has been around for many years and is established.