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Excluding winners of the lottery and those who have received large inheritances, you are going to be hard pressed  to find a truly wealthy individual that has created wealth by doing nothing.  Regardless of the truth of this fact, if you type “forex” into any of the major online search engines, you are sure to get a seemingly endless number of fly-by-night websites making these audacious claims. 

One of the primary reasons so many scams exist in the forex market compared to other financial arenas is because, unlike U.S. equity markets, the fx market is not regulated.  Brokers, traders, and various fx websites do not have to be registered.  This lack of regulation in the market has created a vacuum for con artists to operate under the radar.  In fact, one way to subvert many of the fx scams listed below is to simply conduct business only with individuals, brokers, and investment companies who are fully registered with the National Futures Association (NFA).

Common Scams in the FX Market

Ponzi Schemes–  A supposed successful fx trader collects money from many investors in order to “manage” these funds in the fx market.  The trader guarantees a monthly interest rate to investors and pays out the interest rate return he owes each investor each month, but in the meantime he is spending the remaining principal on cars, boats, houses, etc.  As long as he can lure in new investors, he can continue to meet his interest payments each month.  But eventually enough investors will call for their principal, the trader won’t have enough to meet the requests, and the entire scheme falls apart.  These are running rampant in the FX market right now.  No legitimate operation will ever guarantee a monthly return. Certain individuals believe the U.S. Government to be the largest ponzi scheme in history.

Outrageous Claims– The old mantra, “If it sounds too good to be true, it probably is,” applies here.  Many forex scams will use language such as “Earn thousands from your home office in the forex market!!”  “Generate returns of 40% per month, guaranteed!!”  Any hyped promises of guaranteed trading income or returns should serve as an immediate red flag. 

No Disclosure of Risk– A legitimate financial professional will always, without fail, fully disclose risk.  If you are not being informed of the risk of loss inherent in the forex market, then you are dealing with either a fraudulent operation, or a completely naïve, inexperienced operation.  Either way, it is best to stay away.

Unregistered Brokers –  These financial firms are able to operate in various unethical business practices since they are not subject to the governing power of the NFA.  Oftentimes, unregistered brokers will go bankrupt and all client funds will be frozen, or worse, stolen.  In many cases, clients never see their money returned to them.

How To Avoid FX Scams

  • The safest way to avoid FX Scams is to conduct business only with financial professionals and firms that are fully registered with the NFA.  You will be able to research a registered firm in order to find out if they have any claims or actions against them from the NFA.  If they don’t, it is probable, although not guaranteed, that you are dealing with a legitimate firm.  It is recommended to never deposit funds with an unregistered broker.  The best forex brokers will always be fully registered (regulated by the NFA, CFTC…etc) and willing to answer questions.
  • Before you ever turn your hard earned money over to a money manager or financial firm, always conduct in-depth due diligence.  Look at personal backgrounds, financial reports, track records, etc. 

When putting your hard earned money with a person or firm, there should never be the slightest doubt in your mind that you are dealing with a completely legitimate firm.  When in doubt, the best step is oftentimes to not move forward with the person or firm in question.