[disinformation editor's note: We decided to run this article because of recent wild swings in currency exchange rates resulting from turmoil in the financial markets. We recognize that the author is promoting his website but feel that our readers may still value the information.]
Trading in foreign exchange, or forex, has become increasingly popular in recent years for a variety of reasons. The Internet has become the “Great Facilitator”, but has it also spawned another industry, that of forex fraud?
Unfortunately, the answer to that question is a resounding “Yes”. Foreign currency trading is not immune, not by a long shot. Published figures from federal authorities note that forex fraud has increased dramatically, impacting 26,000 individuals to the tune of $460 million over a period of six years, and that was three years ago. With this kind of “music” playing in the background in the shadows, what must a forex trader do?
The secret to fraud prevention in the world of foreign exchange is all about preparation and the “3 B’s”. The first “B” is for the Body that is presently in front of your PC. Yes, I mean you! You are your first line of defense.
The best way to prevent fraud is to stop it before it ever happens. The U.S. Commodity Futures Trading Commission, which loosely regulates the foreign exchange market in the United States, has noted an increase in the amount of malicious activity in the non-bank foreign exchange industry. They attribute most of this activity to solicitations from companies claiming to offer forex trading services either over the Internet, by email, or by direct cold-calling. It is up to you to avoid these siren calls that promise quick wealth for little investment or risk. At some point, you will be asked to send funds after a very convincing sales pitch. Beware! Go back to your trading desk and forget about it!
The second “B” is your “Bank” where your broker deposits your funds. The recent meltdown of banks brought on by the mortgage crisis has affected nearly all financial institutions to some degree. Check with the FDIC website and download your bank’s financial statements. Be happy with what you see or consider moving to a safer entiity. Safety first is always a good rule to follow!
The last “B” is for your forex “Broker”. Forex brokers also require a share of your “due diligence” attention. There are independent reviews and web blogs to review for pertinent information. Are they licensed and regulated? Are there any legal actions pending? Gather information from other traders that you trust and respect. Even though they may have the slickest trading platform that you have ever seen, there are still a few isolated cases of spread manipulation, designed by unscrupuous parties to wipe out an over leveraged account balance in the blink of an eye.
The Internet has become the forex trader’s best friend of late, but the security of looking your business partners directly in the eye is not to be had. The only available substitute is research and greater due diligence. If you receive offers that are obviously too good to be true or your broker suddenly suggests that you increase your leverage well beyond what common sense dictates, then perhaps you have received warning signs of potential doom. You are not immune. Protect thyself, and be prepared!