Forex investment scams

[Micheal Alexander]

The spot forex market traded over $6.6 trillion a day as of April 2019, including currency options and futures contracts.1 With this enormous amount of money floating around in an unregulated spot market that trades instantly, over the counter, with no accountability, forex scams offer unscrupulous operators the lure of earning fortunes in limited amounts of time. While many once-popular scams have ceased—thanks to serious enforcement actions by the Commodity Futures Trading Commission (CFTC) and the 1982 formation of the self-regulatory National Futures Association (NFA)—some old scams linger, and new ones keep popping up. Forex investment scams

Back in the Day: The Point-Spread Scam

An old point-spread forex scam was based on computer manipulation of bid-ask spreads. The point spread between the bid and ask basically reflects the commission of a back-and-forth transaction processed through a broker. These spreads typically differ between currency pairs. The scam occurs when those point spreads differ widely among brokers.

KEY TAKEAWAYS

* Many scams in the forex market are no longer as pervasive due to tighter regulations, but some problems still exist.

* One shady practice is when forex brokers offer wide bid-ask spreads on certain currency pairs, making it more difficult to earn profits on trades.

* Be careful of any offshore, unregulated broker.

* Individuals and companies that market systems—like signal sellers or robot trading—sometimes sell products that are not tested and do not yield profitable results.

* If the forex broker is commingling funds or limiting customer withdrawals, it could be an indicator that something fishy is going on. Forex crypto scams

For instance, some brokers do not offer the normal two-point to three-point spread in the EUR/USD but spreads of seven pips or more. (A pip is the smallest price move that a given exchange rate makes based on market convention. Since most major currency pairs are priced to four decimal places, the smallest change is that of the last decimal point.) Factor in four or more additional pips on every trade, and any potential gains resulting from a good trade can be eaten away by commissions, depending on how the forex broker structures their fees for trading.

This scam has quieted down over the last 10 years, but be careful of any offshore retail brokers that are not regulated by the CFTC, NFA, or their nation of origin. These tendencies still exist, and it’s quite easy for firms to pack up and disappear with the money when confronted with actions. Many saw a jail cell for these computer manipulations. But the majority of violators have historically been United States-based companies, not the offshore ones.