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Tuesday, October 9, 2007 |
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| Forex fraud and scams |
There are a lot of fraud and scams from the direction of intermediaries such as brokers and dealers in Forex business. The United States Commodity Futures Trading Commission (CFTC) is the federal agency that regulates the trading of Forex currency, commodity futures and options contracts in the United States and takes action against firms suspected of illegally or fraudulently selling Forex currency, commodity futures and options. Off-exchange trading of Forex, foreign currency futures and options contracts with retail customers by a counterparty that is not a regulated financial entity as set forth in the CFMA is unlawful and may be a fraud or scam.
Using the "kitchen" method, management of the dealing center is based on the assumption, that the majority of players (clients) will lose the money sooner or later. It is promoted by a lot of the reasons. The cores are the lowest vocational training of the client, excessive aggression and practically absolute ignorance of foreign language. Such clients are very often completely out of the basic information streams.
Brokerage is the overlapping of absolutely all client transactions (positions) during their performance. "Brokerage" can be profitable only at a great deal of clients and their activity at transactions' performance. Broker can earn money "moving" of the market against the client. It is possible to shift the market in the various ways. Since any client transaction passes through dealer of dealing center, the dealer forms the quotation, giving to the client.
Basis of this broker strategy is the following thesis: dealing center doesn't use brokerage as the basic technology, a basis of profit are the client's losses. The client transactions completed in current of one day, as a rule, do not bring to dealing center neither greater profits, nor heavy losses. In a total sum these transactions make small profit. The basic money appears when positions open in current of several bank days and lead the client to greater, significant losses.
At "pseudo-brokerage" any position has moments during which client is incured losses, accordingly, dealing center has some profit on this position (provided that this position is not blocked at the foreign broker).
Some dealers guarantee that you will not lose more than you invest, which includes both the initial deposit and any subsequent deposits to keep the position open. There are two significant differences between buying off-exchange Forex currency options and buying options on futures contracts. First, when you exercise an option on an exchange-traded futures contract, you receive the underlying exchange-traded futures contract. When you exercise an off-exchange Forex currency option, you will probably receive either a cash payment or a position in the underlying currency. Second, NFA’s options brochure only discusses American-style options, which can be exercised at any time before they expire. Many Forex options are European-style options, which can be exercised only on or near the expiration date. You should understand which type of option you are purchasing.
Retail off-exchange Forex currency trades are not guaranteed by a clearing organization and are the most sustainable to fraud and scams. Furthermore, funds that you have deposited to trade Forex currency contracts are not insured and do not receive a priority in bankruptcy. Even customer funds deposited by a dealer in an FDIC-insured bank account are not protected if the dealer goes bankrupt. There is no central marketplace unlike regulated futures exchanges in the retail off-exchange. Forex currency market there is no central marketplace with many buyers and sellers. The Forex currency dealer determines the execution price, so you are relying on the dealer’s integrity for a fair price.
You should ask the dealer how it is regulated and check with the dealer’s regulator about the dealer’s registration status. You should also ask the dealer if its regulator has adopted rules to regulate its retail Forex activities.
Unlike Forex dealers, firms and individuals that solicit retail accounts for Forex currency dealers and manage those accounts do not have to be regulated or affiliated with a regulated firm. Therefore, you should find out if the person’s Forex activities are regulated and by whom.
Warning Signs of Fraud
Watch for the warning signs listed below, and take the following precautions before placing your funds with any currency trading company.
1. Stay Away From Opportunities That Sound Too Good to Be True
2. Avoid Any Company that Predicts or Guarantees Large Profits
3. Stay Away From Companies That Promise Little or No Financial Risk
4. Don't Trade on Margin Unless You Understand What It Means
5. Question Firms That Claim To Trade in the "Interbank Market"
6. Be Wary of Sending or Transferring Cash on the Internet, By Mail or Otherwise
7. Currency Scams Often Target Members of Ethnic Minorities
8. Be Sure You Get the Company's Performance Track Record
9. Don't Deal With Anyone Who Won't Give You Their Background
10. Warning Signs Of Commodity "Come-Ons"
Most Forex fraud and commodity fraud is committed by either firms located in South Florida (Boca Raton was voted by CNBC the telemarketing fraud capital of the world in 2000), Southern California or outside the United States. Never make a check or bank wire payable to ANYONE other that a FCM registered with the NFA. In the majority of cases Forex fraud is perpetrated by firms located in the United States and the principals and brokers of the firm and were at one time registered with the National Futures Association (800) 621-3570 and have had their licenses revoked.
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posted by jaimatadi @ 3:25 AM  |
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