Telltale Signs of a Forex Trading Scam

Who doesn't want to make a quick buck? Or better yet, a cool grand for just about a week of virtually effortless trading in the foreign exchange market? But before you hand over your hard-earned money to that smooth-talking account executive who called you earlier, remember the adage: if it sounds too good to be true, then somebody's trying to scam you.

Formerly a domain of banks, hedge funds, and large financial corporations, the forex market has become more accessible to individual traders. Unfortunately, it has also become a haven for fraudsters who target hapless retail speculators. Although there are regulatory bodies in most countries, the market is generally loosely regulated. Novice traders are also easy targets for fraudulent market makers since they are more likely not yet knowledgeable on the technical nature of forex trading.

Audacious claims about guaranteed profits with minimal or no risks are warning signs that the company is not to be trusted. After all, the very nature of forex markets belies these assertions. The reality is, investing in forex entails a substantial amount of risks. Currency trading is highly volatile; foreign exchange rates are affected by a lot of factors and can change quickly and, at times, in a very unpredictable manner. A wise rule in forex trading is you shouldn't invest the money you can't afford to lose, like your retirement savings or emergency funds. An even wiser thought is to stay away from trading companies that promise everything short of the moon and stars; all they're certainly going to leave you with is their dust after they run away with your money.

When a firm advertises itself as a trader in the interbank market, you better make sure that it really is a bank or a large corporation. Otherwise, it's just luring you with a well-concocted lie. Interbank trading offers better prices so it is enticing to investors. As the name implies, however, the only participants in this network are banks, investment banks, and huge financial companies.

As a shrewd trader, one of the basic things you should do before investing in forex trading is to check the background and track record of possible companies that will manage your account. Nowadays, most trading firms have impressive, well-designed websites that boost their legitimacy. They also employ people who sound so convincing they could just as easily sell you the Brooklyn bridge. The key is to look beyond the glossy image and demand substantial data. Verify their contact information. Examine the background of the management team. Check the financial statements of the company (Yes, these are public records and are available in the Securities and Exchange Commission). It's also helpful to ask experienced traders. If the company seems hesitant or evasive in providing non-PR information to you, then it's not worth entrusting your money with.

Regulatory agencies such as the Commodity Futures Trading Commission (CFTC) provide a list of registered trading firms as well as information on companies that have committed irregularities and those that have been charged with fraud. However, a lot of unscrupulous firms use the names of registered companies to appear legitimate so again, do a thorough background check.

An investment in the forex trading has its own profits and losses. The important thing is to arm yourself with sufficient and useful information so that you can make intelligent decisions as you trade.