If you are solicited by a company that claims to trade foreign currencies and asks you to commit funds for those purposes, you should be very careful. Watch for the warning signs listed below, and take the following precautions before placing your funds with any currency trading company.
1. Stay Away From Opportunities That Sound Too Good to Be True
Get-rich-quick schemes, including those involving foreign currency trading,
tend to be frauds.
Always remember that 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. In particular, retirees with access to their retirement
funds may be attractive targets for fraudulent operators. Getting your money
back once it is gone can be difficult or impossible.
2. Avoid Any Company that Predicts or Guarantees Large Profits
Be extremely wary of companies that guarantee profits, or that tout extremely
high performance. In many cases, those claims are false.
The following are examples of statements that either are or most likely are
fraudulent:
"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."
"The main advantage of the FOREX markets is that there is no bear market."
"We guarantee you will make at least a 30-40% rate of return within two months."
3. Stay Away From Companies That Promise Little or No Financial Risk
Be suspicious of companies that downplay risks or state that written risk
disclosure statements are routine formalities imposed by the government.
The currency futures and options markets are volatile and contain substantial
risks for unsophisticated customers. The currency futures and options markets
are not the place to put any funds that you cannot afford to lose. For example,
retirement funds should not be used for currency trading. You can lose most or
all of those funds very quickly trading foreign currency futures or options
contracts. Therefore, beware of companies that make the following types of
statements:
"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."
4. Don't Trade on Margin Unless You Understand What It Means
Margin trading can make you responsible for losses that greatly exceed the
dollar amount you deposited.
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.
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.
5. Question Firms That Claim To Trade in the "Interbank Market"
Be wary of firms that claim that you can or should trade in the "interbank
market," or that they will do so on your behalf.
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, since the term
"interbank market" refers simply to a loose network of currency transactions
negotiated between financial institutions and other large companies.
6. Be Wary of Sending or Transferring Cash on the Internet, By Mail or
Otherwise
Be especially alert to the dangers of trading on-line; it is very easy to
transfer funds on-line, but often can be impossible to get a refund.
It costs an Internet advertiser just pennies per day to reach a potential
audience of millions of persons, and phony currency trading firms have seized
upon the Internet as an inexpensive and effective way of reaching a large pool
of potential customers.
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 Web site. Be aware that if you transfer
funds to those foreign firms, it may be very difficult or impossible to recover
your funds.
7. Currency Scams Often Target Members of Ethnic Minorities
Some currency trading scams target potential customers in ethnic communities,
particularly persons in the Russian, Chinese and Indian immigrant communities,
through advertisements in ethnic newspapers and television "infomercials."
Sometimes those 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, as well
as to recruit their family and friends to do likewise. What appears to be a
promising job opportunity often is another way many of these companies lure
customers into parting with their cash.
8. Be Sure You Get 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. However, keep in mind, even if you do receive a
glossy brochure or sophisticated-looking charts, that the information they
contain might be false.
9. Don't Deal With Anyone Who Won't Give You Their Background
Plan to do a lot of checking of any information you receive to be sure that the
company is and does exactly what it says.
Get the background of the persons running or promoting the company, if possible.
Do not rely solely on oral statements or promises from the firm's employees. Ask
for all information in written form.
If you cannot satisfy yourself that the persons with whom you are dealing are
completely legitimate and above-board, the wisest course of action is to avoid
trading foreign currencies through those companies.
10. Warning Signs Of Commodity "Come-Ons"
If you are solicited by a company to purchase commodities, watch for the warning
signs listed below:
Avoid any company that predicts or guarantees large profits with little or no
financial risk.
Be wary of high-pressure tactics to convince you to send or transfer cash
immediately to the firm, via overnight delivery companies, the internet, by
mail, or otherwise.
Be skeptical about unsolicited phone calls about investments from offshore
salespersons or companies with which you are unfamiliar.
