Fraud Advisory from the CFTC: Foreign Currency Trading (Forex) Fraud
Know How to Spot Forex Fraud
The CFTC has witnessed a sharp rise in foreign currency trading scams in recent years and advises potential customers to be aware of the potential for fraud.
The CFTC has jurisdiction and authority to investigate and take legal action to close down unregulated firms offering or selling foreign currency futures and options contracts to the general public. The CFTC also has jurisdiction to investigate and prosecute foreign currency fraud occurring in its registered firms and their affiliates.
Legitimate Foreign Currency Operations
Generally foreign currency futures and options contracts may be traded legally on an exchange or board of trade that has been approved by the CFTC.
Even where currency trading does not occur on a Commission-approved exchange or board of trade, the trading can be conducted legally where, generally speaking, one or both parties to the trading is (or is a regulated affiliate of) a bank, insurance company, registered securities broker-dealer, futures commission merchant or other financial institution, or is an individual or entity with a high net worth.
The CFTC has jurisdiction over forex firms and their transactions that do not fall into the categories of regulated entities outlined above and engage in foreign currency futures and options transactions with or for retail customers who do not have a high net worth.
Two Kinds of Forex Fraud are Common
Be skeptical when promoters of forex trading claim their services or account management will earn high profits with minimal risks or that you can get wealthy quickly by working as a currency trader.
Be very careful if you are solicited by a company claiming to trade foreign currencies and be especially careful if such a company asks you to commit money for forex trading.
Watch for These Red Flags to Help Identify Foreign Currency Trading Scams:
Opportunities that sound too good to be true.
Get-rich-quick schemes, including those involving foreign currency trading, tend to be frauds. Remember there is no such thing as a free lunch.
Be especially cautious if you have acquired a large sum of cash recently and are looking for a safe investment vehicle. Retirees with access to their retirement funds can be attractive targets for fraudulent operators.
Getting your money back once it is gone can be difficult or impossible.
Guarantees of profits or claims of high performance.
These claims and claims like these can be false:
Risks that are downplayed or you are told that that a written risk disclosure statement is just a routine formality imposed by the government.
Be suspicious of such statements.
Remember that the currency futures and options markets are volatile and carry substantial risks—they are not the place to put any money that you cannot afford to lose. Retirement funds, for example, should not be used for currency trading. You can lose most or all of this money very quickly trading foreign currency futures or options contracts.
Beware of statements like these:
Margin: don’t trade on margin unless you understand it.
Margin trading can make you responsible for losses that greatly exceed the dollar amount you deposited. Don't trade on margin unless you fully understand what you are doing and are prepared to accept losses that exceed the margin amounts you paid.
Many currency traders ask customers to give them money, which they sometimes refer to as "margin," often sums in the range of $1,000 to $5,000. However, those amounts, which are relatively small in the currency markets, actually control far larger dollar amounts of trading; a fact that often is poorly explained to customers.
Interbank market.
Question and be suspicious of firms that claim you can or should trade in the interbank market or that they will trade in the interbank market for you.
Unregulated, fraudulent currency trading firms often tell retail customers that their funds are traded in the "interbank market," where good prices can be obtained. Firms that trade currencies in the interbank market, however, are most likely to be banks, investment banks, and large corporations. The term "interbank market" refers simply to a loose network of currency transactions negotiated between financial institutions and other large companies.
Sending or transferring cash on the Internet, by mail, or otherwise.
Be especially alert to the dangers of trading online; it is very easy to transfer funds online, but often can be impossible to get a refund.
Many companies offering currency trading online are not located within the United States and may not display an address or any other information identifying their nationality on their website.
Be aware that if you transfer funds to those foreign firms, it may be very difficult or impossible to recover your funds.
Currency scams targeting members of ethnic minorities.
Some currency trading scams target potential customers in ethnic communities, particularly in the Russian, Chinese, and Indian immigrant communities, through advertisements in ethnic newspapers and television "infomercials."
Sometimes such advertisements offer so-called "job opportunities" for "account executives" to trade foreign currencies. Be aware that "account executives" that are hired might be expected to use their own money for currency trading and to recruit their family and friends to do likewise. What appears to be a promising job opportunity can be another way many of these companies lure customers into parting with their cash.
Difficulty in getting the company’s performance track record.
Get as much information as possible about the firm's or individual's performance record on behalf of other clients. You should be aware, however, that It may be difficult or impossible to do so, or to verify the information you receive.
While firms and individuals are not required to provide this information, you should be wary of any person who is not willing to do so or who provides you with incomplete information.
Remember that even if you do receive a glossy brochure or sophisticated-looking chart they may contain false information.
Difficulty in getting background information.
Don’t deal with anyone who won’t give you their background.
Check all information you do receive to be sure the company is and does exactly what it says it does.
Ask for the background of the persons running or promoting the company. Do not rely solely on oral statements or promises from company employees.
Always ask for all information in writing.
If you are not satisfied that the people you are dealing with are not completely legitimate and above board, the wisest course of action is to avoid trading through those companies.
Source: CFTC.GOV
Know How to Spot Forex Fraud
The CFTC has witnessed a sharp rise in foreign currency trading scams in recent years and advises potential customers to be aware of the potential for fraud.
The CFTC has jurisdiction and authority to investigate and take legal action to close down unregulated firms offering or selling foreign currency futures and options contracts to the general public. The CFTC also has jurisdiction to investigate and prosecute foreign currency fraud occurring in its registered firms and their affiliates.
Legitimate Foreign Currency Operations
Generally foreign currency futures and options contracts may be traded legally on an exchange or board of trade that has been approved by the CFTC.
Even where currency trading does not occur on a Commission-approved exchange or board of trade, the trading can be conducted legally where, generally speaking, one or both parties to the trading is (or is a regulated affiliate of) a bank, insurance company, registered securities broker-dealer, futures commission merchant or other financial institution, or is an individual or entity with a high net worth.
The CFTC has jurisdiction over forex firms and their transactions that do not fall into the categories of regulated entities outlined above and engage in foreign currency futures and options transactions with or for retail customers who do not have a high net worth.
Two Kinds of Forex Fraud are Common
- Unregulated firms offering/selling foreign currency futures and options contracts to the public, and
- Forex fraud by registered firms and affiliates
Be skeptical when promoters of forex trading claim their services or account management will earn high profits with minimal risks or that you can get wealthy quickly by working as a currency trader.
Be very careful if you are solicited by a company claiming to trade foreign currencies and be especially careful if such a company asks you to commit money for forex trading.
Watch for These Red Flags to Help Identify Foreign Currency Trading Scams:
Opportunities that sound too good to be true.
Get-rich-quick schemes, including those involving foreign currency trading, tend to be frauds. Remember there is no such thing as a free lunch.
Be especially cautious if you have acquired a large sum of cash recently and are looking for a safe investment vehicle. Retirees with access to their retirement funds can be attractive targets for fraudulent operators.
Getting your money back once it is gone can be difficult or impossible.
Guarantees of profits or claims of high performance.
These claims and claims like these can be false:
- Whether the market moves up or down, in the currency market you will make a profit.
- Make $1,000 per week, every week.
- We are out-performing 90 percent of domestic investments.
- The main advantage of the forex markets is that there is no bear market. We guarantee you will make at least a 30-40 percent rate of return within two months.
Risks that are downplayed or you are told that that a written risk disclosure statement is just a routine formality imposed by the government.
Be suspicious of such statements.
Remember that the currency futures and options markets are volatile and carry substantial risks—they are not the place to put any money that you cannot afford to lose. Retirement funds, for example, should not be used for currency trading. You can lose most or all of this money very quickly trading foreign currency futures or options contracts.
Beware of statements like these:
- With a $10,000 deposit, the maximum you can lose is $200 to $250 per day.
- We promise to recover any losses you have.
- Your investment is secure.
Margin: don’t trade on margin unless you understand it.
Margin trading can make you responsible for losses that greatly exceed the dollar amount you deposited. Don't trade on margin unless you fully understand what you are doing and are prepared to accept losses that exceed the margin amounts you paid.
Many currency traders ask customers to give them money, which they sometimes refer to as "margin," often sums in the range of $1,000 to $5,000. However, those amounts, which are relatively small in the currency markets, actually control far larger dollar amounts of trading; a fact that often is poorly explained to customers.
Interbank market.
Question and be suspicious of firms that claim you can or should trade in the interbank market or that they will trade in the interbank market for you.
Unregulated, fraudulent currency trading firms often tell retail customers that their funds are traded in the "interbank market," where good prices can be obtained. Firms that trade currencies in the interbank market, however, are most likely to be banks, investment banks, and large corporations. The term "interbank market" refers simply to a loose network of currency transactions negotiated between financial institutions and other large companies.
Sending or transferring cash on the Internet, by mail, or otherwise.
Be especially alert to the dangers of trading online; it is very easy to transfer funds online, but often can be impossible to get a refund.
Many companies offering currency trading online are not located within the United States and may not display an address or any other information identifying their nationality on their website.
Be aware that if you transfer funds to those foreign firms, it may be very difficult or impossible to recover your funds.
Currency scams targeting members of ethnic minorities.
Some currency trading scams target potential customers in ethnic communities, particularly in the Russian, Chinese, and Indian immigrant communities, through advertisements in ethnic newspapers and television "infomercials."
Sometimes such advertisements offer so-called "job opportunities" for "account executives" to trade foreign currencies. Be aware that "account executives" that are hired might be expected to use their own money for currency trading and to recruit their family and friends to do likewise. What appears to be a promising job opportunity can be another way many of these companies lure customers into parting with their cash.
Difficulty in getting the company’s performance track record.
Get as much information as possible about the firm's or individual's performance record on behalf of other clients. You should be aware, however, that It may be difficult or impossible to do so, or to verify the information you receive.
While firms and individuals are not required to provide this information, you should be wary of any person who is not willing to do so or who provides you with incomplete information.
Remember that even if you do receive a glossy brochure or sophisticated-looking chart they may contain false information.
Difficulty in getting background information.
Don’t deal with anyone who won’t give you their background.
Check all information you do receive to be sure the company is and does exactly what it says it does.
Ask for the background of the persons running or promoting the company. Do not rely solely on oral statements or promises from company employees.
Always ask for all information in writing.
If you are not satisfied that the people you are dealing with are not completely legitimate and above board, the wisest course of action is to avoid trading through those companies.
Source: CFTC.GOV
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