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Investment Fraud Prevention: Forex Traders Beware?


By Bryan Sayers of

In today’s topsy-turvy world of foreign exchange, a successful trader has to assimilate a ton of current information in order to develop trading strategies that pay off in real-time. With all of the attention that Goldman Sachs and Paulson & Co. have gained in the public spotlight of late due to alleged fraud activities, is fraud prevention in forex really something extra that a trader must worry about? Unfortunately the answer to your query is a most definite “Yes”. Does the fact that 26,000 people lost over $460 million in a six-year period from forex fraud rock your boat? And those stats are from a few years back. Every indication from those that track these things is that forex fraud is on the rise and dramatically so!

Protecting yourself from online scams and con artists starts with preparation. The old Scout motto is not to be disparaged. Being prepared is your best line of defense, and it starts with you, your online forex broker, and your settlement bank. Let’s begin with the latter and work our way back to the former.

Your settlement bank, the one holding your precious funds, should be one that is familiar to you, credit worthy, and above all, onshore. There are online services that you can check for bank ratings, or you can go straight to the FDIC and download the current financial statements for your banking institution. This current economic slowdown, one of the worst in memory, has decimated many a balance sheet, banks included. If they have been losing money for many quarters in a row and their capital section looks especially weak, then it might be time to consider a move. Offshore banks are not a way to hide gains from the tax authorities. Besides tax evasion, trying to press your legal rights with an offshore entity can be a nightmare waiting to happen. Safety first is always a good thing!

How well do you know your forex broker? Although you may be very comfortable using his platform for forex trading, comfort is not the same thing as security. Remember that this is a business partner that you have never met face-to-face. The Internet has been the greatest enabler for online trading to come along in years, but it has also increased the risk potential of doing business. Make sure your broker is licensed. Check out the blogs for good and bad opinions. Check with other traders whose opinion you respect and trust. His quotation services should be real-time, and your trades should be handled quickly and efficiently. Lastly, access to your funds should not be delayed for lengthy amounts of time and should be in an acceptable form, preferably wired or ACH’ed to your checking account.

The only remaining part of your defense establishment, the most important part, is YOU! Yes, you must be ever vigilant to avoid the siren’s call when it appears in your email inbox, in the local paper, on radio channel, or even in your mailbox. Offers of all manner and type arrive in this fashion, some real and worthy of attention, but a special few, which are sophisticated in their attempt to lure you to send money, should be avoided.

There are a number of warning signs that should be heeded at all costs. If the offer sounds too good to be true, it probably is. Get rich schemes that offer six-figure incomes by trading foreign currencies with very little investment risk are red flags. Forex promoters that offer high levels of leverage deserve your skepticism. Numerous trading scams have involved high leverage programs where spreads were artificially created by design to wipe out your position. This form of fraud is difficult to prove since there is no permanent record of trades as with a stock exchange.

You should also be very skeptical of phone call solicitations from unfamiliar out-of-state vendors. These approaches will generally evolve to a high pressure effort to convince you to send your deposit immediately, either overnight delivery or credit card authorization. The only person who can protect you at this point is yourself, so don’t be shy. Back away and live to trade another day!

Forex scam artists have an ingenious way of knowing when someone receives a large sum of money or has just retired. The criminal element is very organized, and they, too, have learned that information is critical to creating wealth. They prey on the vulnerable because it is the easier path to riches, and they are very accomplished at manipulating their marks who, more times than not, are well educated, intelligent people.

Risk management in the forex trade is as simple as the “3 B’s”, your Broker, your Banker, and the Body in front of your PC. It is smart to be cautious, and before you send anyone your hard earned cash, be sure to do your due diligence. Be prepared!


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