Foreign exchange fraud is any trading technique used to fraudulently manipulate investors by convincing them that indeed they can legitimately expect to earn a substantial profit from trading in the forex market. Currency trading has become a very common form of forex fraud over the past few years, according to Michael Dunn, a former chief executive officer of the U.S. commodities trading commission. While it’s unlikely that forex fraud actually robs anyone blind, forex fraud can leave the inexperienced or less knowledgeable investor with enormous financial risks and painful losses. The forex market is an extremely vast and liquid market, making it possible for forex brokers to convince individuals that their trades are secure. If someone has the right amount of trust, however, even these seemingly safe transactions can be fraught with disaster.
According to Dunn, some forex fraud occurs “without anybody knowing.” Foreign exchange traders often contact investors through advertisements on investment opportunities or through websites that purport to offer a “miracle” return on investments in minutes. These investors may be told that the returns will be significantly higher than what they could have obtained with more traditional investments, like mutual funds or stocks. When the investor confirms that he or she is going to be investing money in the forex market, however, the true nature of the transactions becomes clear. Foreign exchange traders can withdraw their money at any time without penalty, and they cannot be held responsible if the value of the currency they bought drops to less than what they paid for the investment.
An even more devious form of forex fraud occurs when an investor trades using his or her bank account. In this case, the buyer is tricked into wiring money to an account in the name of a forex broker. This broker may then instruct the seller to sell a currency that doesn’t actually exist. If the buyer complains about such unauthorized trades, the seller can simply deny all knowledge of the transactions. Investors who become victims of this type of crime can be stuck holding unsecured loans for days, or worse, years as the company tries to recoup its losses.
According to Dunn, there are three main types of forex fraud. “The first is selling bogus stocks that don’t exist. The second is buying securities that are not valid, but which the buyer believes is so.” Lastly, investors can be accused of trading in a state of ignorance.
In the case of selling bogus stocks, the seller may advertise the stock as being sold at a “good price.” He may also promise that gains of five percent or more can be made within the first few days of trading. According to Dunn, forex fraud of this kind results from the inability of investors to discern the true value of a particular currency, especially when they are making their first trades in the forex market.
Aside from this form of forex fraud, investors can be accused of trading in a state of ignorance. In this scenario, the investor may believe that the currency’s value will appreciate in time when it is actually just a currency with an unknown value. This sort of forex fraud can often lead to criminal charges. Investors who trade in currencies without first understanding their true market value face the risk of arrest and legal consequences. Investors who do know what they’re doing can still be accused of forex scams.
Because of the serious risks involved in forex fraud, international lawyers who specialize in this area are in great demand. Foreign exchange lawyers work closely with U.S. attorneys who handle forex scams. According to Dunn, many individuals who have been accused of forex fraud have suffered in jail time. Many who are currently in jail are there because their forex scams resulted in them losing their businesses and even their homes. Laws surrounding foreign exchange investments are very complex, and they are best handled by qualified lawyers.
It is important for investors to avoid high leverage schemes. Leverage means that you put more money on one trade than you could afford to lose. High leveraged transactions can lead to forex scams, as well as to higher transaction costs, slower returns, and other disadvantages. According to Dunn, regulated companies should be at the forefront of educating traders about the risks of trading on margin. According to him, only regulated companies can provide forex traders with the necessary education and the appropriate guidelines to avoid high leverage schemes.