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Newcomers to forex still need to protect themselves from fraudsters

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It is 2014, and the retail forex trading industry has had over two decades of amazing growth, but, as one might suspect, there have been a multitude of growing pains to beat the band along the way. The early “Wild, Wild, West” days are now far behind us, due primarily to the Herculean efforts of the “Sheriff” in town, the Commodity Futures Trading Commission (CFTC). Experienced security professionals will tell you that any fast-growing activity that involves money will always attract the criminal element of our society, and such was the case in a big way in our fledgling industry.

In that bygone era, if it was not an unscrupulous broker out to fleece you of your hard-earned capital, then it could easily be a slick marketing agent selling his questionable goods or a sleazy money manager promising outrageous claims and returns. Forex brokers located overseas were some of the most aggressive crooks, knowing full well that you would be unable to enforce your legal rights in a foreign jurisdiction. An unsuspecting trader would wire his initial deposit and then never see it again. Something had to be done and quickly.

And it was. The CFTC, along with its “cousin”, the National Futures Association (NFA), the overseer of the U.S. futures market, took on the task with a full frontal assault. Crooks were jailed. Rampant fraud was curtailed, and a broad-based consumer education program was implemented. The final nails in the fraud coffin were added in 2010 with the adoption of the Dodd–Frank Wall Street Reform and Consumer Protection Act. Stricter licensing, operating, reporting, training, and capital standards were enforced. Many overseas brokers departed the U.S. market and still refuse to accept U.S. customers to this day.

The problem with fraud, however, is that you can never eliminate it. Crooks are well organized and are continually reinventing themselves and the scams they purvey. The best hoped for results can only be to manage the fraud down to a low level and keep it there. What is a consumer to do to protect him or her self? Your first line of defense is awareness, which you must acquire on your own, hopefully not through fraudulent experiences. The CFTC does publish many helpful guidelines to aid you in this most important task (a link to the CFTC website is provided at the end of this article).

For example, if you are approached directly by a salesman pitching forex as the easiest way to make a fortune in a short period of time, then watch out for these warning signs:

  • They may lead you to believe you can profit from current news already known to the public.
  • Initial contact is made through word of mouth referrals or emails from friends and relatives, members of community organizations, churches, or social groups.
  • You are contacted and asked for personal information such as your name, phone number, and email and home addresses.
  • You are promised that with Forex there is not a “down-turning market”.

These signs only relate to the sales pitch. Crooks are very experienced at what they do. They have honed their persuasion tactics to a fine edge to manipulate the unwary. There are plenty of other red flags, but the point is that you have to be skeptical and remember to ask many questions. If there is any hesitation from the sales agent, especially if you suggest that you want to review everything with your own financial professional, then be sure to be cautious. Do not wire funds to a domestic or overseas account until you have completed your own due diligence process.

The key point here is that you are your first and last line of defense when it comes to preventing a scam to take place. While most brokers and agents in the forex space are on the up and up, these tough economic times have had a way of ramping up the dark side of the industry. If you would like more information on fraud prevention, there are many other articles on this website, but if you wish to check out the specific advice from the CFTC, then here is a link to their page:
https://www.cftc.gov/ConsumerProtection/FraudAwarenessPrevention/CFTCFraudAdvisories/fraudadv_forex.html