Forex Scams: How to Spot Them

The ads for foreign currency trading, or forex, are everywhere. You've seen them and it's probably why you're reading this now.

"Make $1000 per week, every week."
"We guarantee you will make at least a 30-40% rate of return within two months."
"Whether the market moves up or down, in the currency market you will make a profit."
"Your investment is secure."

As the old adage goes, if it sounds too good to be true, it probably is. With the number of forex scams that have exploded with the emergence of the internet, that adage should always be at the forefront of your mind.

Foreign currency trading is legitimate, accounting for trillions of dollars in trades every day. It is one of the largest financial markets in the world, including trading between large banks, currency speculators, governments and corporations. It's that legitimacy that seeds the ground for frauds.

The internet is the fertilizer. It's an inexpensive way to lure millions of victims with attractive websites that appear legitimate promising high-return, low-risk investment opportunities or even highly-paid currency trading employment opportunities for quick wealth.

While the currency market has long had its share of swindlers, it has become the biggest source of financial fraud since early 2008 with the average victim losing $15,000. According to the North American Securities Administrators Association, "off-exchange forex trading by retail investors is at best extremely risky, and at worst, outright fraud."

Typically, investors are promised thousands of dollars in profits in just a few weeks or months, with an initial investment of only $5,000. Often, the investor’s money is never actually placed in the market through a legitimate dealer at all, but simply stolen. Known as “bucket shops”, your money appears to be invested as you watch the phony platform, but in reality it has never entered the market at all.

The Warning Signs of Forex Scams

1. Avoid opportunities that sound too good to be true. Get-rich-quick schemes tend to be frauds. There is no such thing as a "free lunch", there's always a catch.

2. Stay away from any company that guarantees large profits or promises extremely high performance. Those claims are often false.

3. Avoid companies that promise little or no financial risk, especially in the forex market. Currency markets carry substantial risks and are not the place to invest funds you can't afford to lose. You can lose it all quickly trading foreign currency futures or options.

4. Don't trade on margin unless you understand what it really means. Many currency traders will ask you to give them money for "margin", often in the range of $1,000 - $5,000 which actually controls much larger dollar amounts of trading. It makes you responsible for losses much greater than the amount you deposited.

5. Be wary of sending or transferring cash on the internet and be alert to the dangers of trading on-line. Many of these phony companies are not located in the US and don't display any address or other information identifying their nationality. If you transfer money to them it will be very difficuly or impossible to recover.

6. Get the company's performance track record. Beware of any company who isn't willing to provide you, in writing, complete and verifiable information about the company's performance record on behalf of other clients. Check any information you get regarding the company's or individual's background. If you aren't convinced that it is completely legitimate, avoid it.

Foreign currency trading can be a profitable investment strategy when you take the steps to become well educated in what it is and what it isn't. Do your homework first and protect yourself from the experienced con artists who want to part you from your hard-earned cash.