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How to identify FX Trading scams

How to Identify FX Trading Scams


The global growth of the internet has brought many new advances but, regrettably, created a universal playground for fraudsters and con artists. This is especially true with FX trading where many fly by night operators promise the easy buck and incredible riches. While the seasoned trader will tell you that FX trading generally presents a steep learning curve, you should be on the look out for fraudsters who make everything look so rosy that you are tempted to throw all caution to the wind and invest your hard-earned money. So how do you tell the real from the counterfeit?

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Location and regulation

One of the easiest ways to confirm that you are dealing with a genuine FX broker is to find out where the broker is located and the body which regulates its operations. Companies located in the industrial world are subject to stringent regulation and are generally a better bet than companies in less stable economies. You should, however, note that many genuine brokerage firms are spread all over the world and confirming that their operations are subject to regulation could save you much grief. In the US, for example, confirm that the firm you are dealing with is subject to regulation by the Commodity Futures Trading Commission (CFTC). In the EU, compliant firms are required to comply with the requirements of EU law as set out in the Market in Financial Instruments Directive (MFID). Regardless of location therefore, it is the trader’s duty to verify compliance as this could make the difference between profitable trading and a complete rip-off.

Little or on financial risk, huge profits

You can easily tell that you are dealing with fraudsters when your broker tells you that there is hardly any financial risk you are taking and that you are guaranteed huge profits. The FX market is one of the most volatile in the world and, while profits are made everyday, so are massive losses. Statements underplaying the loss possibility generally target new traders who might have a lot of money at their disposal which they cannot decide how to invest. As a general rule, it would be unwise to use critical funds such as retirement benefits or insurance funds for FX trading.

Beware of companies that require you to send money immediately

Like other fraudsters, FX scam operators work with a certain degree of urgency ‚Äď it actually borders on desperation. Most scammers will create very easy fund transfer options but you should remember that money transferred might be impossible to recover should you need it back. Therefore, apart from the company‚Äôs website, you should verify the company‚Äôs physical location. Moreover, it helps to dig out the company‚Äôs background and especially the history of the chief officers. You operate with a measure of satisfaction when you know that the company you are dealing with is headed by individuals who have worked with major financial institutions or a leading stock exchange.

Finally, it helps to find out what other traders have to say about the company you wish to trade with. There are many online forums which discuss the operations of FX companies and here you could obtain unbiased opinions to help you make your decision.