1. Stay away from opportunities that seem too good to be true:
Always remember that there is no such thing as a "free lunch." Be
especially cautious if you have acquired a large sum of cash recently
and are looking for a safe investment vehicle. In particular, retirees
with access to their retirement funds may be attractive targets for
fraudulent operators. Getting your money back once it is gone can be
difficult or impossible.
2. Avoid any company that predicts or guarantees large profits:
Be extremely wary of companies that guarantee profits, or that tout
extremely high performance. In many cases, those claims are false. The
following are examples of statements that either are or most likely are
fraudulent: "Whether the market moves up or down, in the currency
market you will make a profit." "Make $1000 per week, every week" "We
are out-performing domestic investments." "The main advantage of the
forex markets is that there is no bear market." "We guarantee you will
make at least a 30-40% rate of return within two months."
3. Stay Away From Companies That Promise Little or No Financial Risk:
Be suspicious of companies that downplay risks or state that written
risk disclosure statements are routine formalities imposed by the
government. The currency futures and options markets are volatile and
contain substantial risks for unsophisticated customers. The currency
futures and options markets are not the place to put any funds that you
cannot afford to lose. For example, retirement funds should not be used
for currency trading. You can lose most or all of those funds very
quickly trading foreign currency futures or options contracts.
Therefore, beware of companies that make the following types of
statements: "With a $10,000 deposit, the maximum you can lose is $200
to $250 per day." "We promise to recover any losses you have." "Your
investment is secure."
4. Don't Trade on Margin Unless You Understand What It Means:
Margin trading can make you responsible for losses that
greatly exceed the dollar amount you deposited. Many currency traders
ask customers to give them money, which they sometimes refer to as
"margin," often sums in the range of $1,000 to $5,000. However, those
amounts, which are relatively small in the currency markets, actually
control far larger dollar amounts of trading; a fact that often is
poorly explained to customers. Don't trade on margin unless you fully
understand what you are doing and are prepared to accept losses that
exceed the margin amounts you paid.
5. Question Firms That Claim To Trade in the "Interbank Market"
Be wary of firms that claim that you can or should trade in the
"interbank market," or that they will do so on your behalf.
Unregulated, fraudulent currency trading firms often tell retail
customers that their funds are traded in the "interbank market," where
good prices can be obtained. Firms that trade currencies in the
interbank market, however, are most likely to be banks, investment
banks and large corporations, since the term "interbank market" refers
simply to a loose network of currency transactions negotiated between
financial institutions and other large companies.
6. Be Wary of Sending or Transferring Cash on the Internet, By Mail or Otherwise
Be especially alert to the dangers of trading on-line; it is very easy
to transfer funds on-line, but often can be impossible to get a refund.
It costs an Internet advertiser just pennies per day to reach a
potential audience of millions of persons, and phony currency trading
firms have seized upon the Internet as an inexpensive and effective way
of reaching a large pool of potential customers. Companies offering
currency trading on-line will usually be located in different legal
jurisdictions to you. Even if they display an address or any other
information identifying their nationality on their Web site it may be
false. Be aware that if you transfer funds to foreign firms it may be
very difficult or impossible to recover your funds.
7. Currency Scams Often Target Members of Ethnic Minorities:
Some currency trading scams target potential customers in ethnic
communities, particularly persons in the Russian, Chinese and Indian
immigrant communities, through advertisements in ethnic newspapers and
television "infomercials." Sometimes those advertisements offer
so-called "job opportunities" for "account executives" to trade foreign
currencies. Be aware that "account executives" that are hired might be
expected to use their own money for currency trading, as well as to
recruit their family and friends to do likewise. What appears to be a
promising job opportunity often is another way many of these companies
lure customers into parting with their cash.
8. Be Sure You Get the Company's Performance Track Record
Get as much information as possible about the firm's or individual's
performance record on behalf of other clients. You should be aware,
however, that It may be difficult or impossible to do so, or to verify
the information you receive. While firms and individuals are not
required to provide this information, you should be wary of any person
who is not willing to do so or who provides you with incomplete
information. However, keep in mind, even if you do receive a glossy
brochure or sophisticated-looking charts, that the information they
contain might be false.
9. Don't Deal With Anyone Who Won't Give You His Background
Plan to do a lot of checking of any information you receive to be sure
that the company is and does exactly what it says. Get the background
of the persons running or promoting the company, if possible. Do not
rely solely on oral statements or promises from the firm's employees.
Ask for all information in written form. If you cannot satisfy yourself
that the persons with whom you are dealing are completely legitimate
and above-board, the wisest course of action is to avoid trading
foreign currencies through those companies.
