Be wary of Forex frauds

Have you been invited to trade foreign currency contracts (also known as forex)?

Have you read an advertisement offering fast profit or free bonuses to open a free trading account?

If so, you need to know how to spot foreign currency trading frauds.

The Republic of Serbia Securities Commission as the institution that looks after, oversees and regulates the capital market in Serbia, warns investors to pay special attention to various kinds of frauds existing on the financial market, including the foreign currency, gold, oil, stock exchange indices and other commodities and derivatives trading markets, and the so called Forex.

The Law on the Capital Market authorizes the Securities Commission to inspect, investigate and perform legal actions in order to close down unregulated firms publicly offering or selling financial instruments.

The Securities Commission has observed the increasing number and growing complexity of financial investment opportunities in recent years, including a sharp rise in foreign currency trading scams. While much foreign currency trading is legitimate, various forms of foreign financial instrument trading have been touted in recent years to defraud members of the public.

Such scams often attract customers through advertisements in local newspapers, radio promotions or attractive internet sites. These advertisements may tout high-return, low-risk investment opportunities in foreign currency trading, trading in gold, oil, stock indices and other commodities and derivatives, or even highly-paid trading employment opportunities. The Securities Commission urges you to be skeptical when promoters of foreign financial instruments trading claim that their services or account management will earn high profits with minimal risks and that they will make you wealthy quickly.

Understanding Legitimate Foreign Currency Operations

Generally speaking, foreign currency futures and options contracts may be traded legally on an exchange or MTF that has been licensed by the Commission.

Warning Signs  

If you are solicited by a company that claims to trade foreign currencies or other commodities and asks you to commit funds for those purposes, you should be very careful. 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

Get-rich-quick schemes, including those involving foreign currency trading, tend to be frauds. 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
• Earn 60% return within six months
• 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. 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:

• 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 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. Many companies offering currency trading on-line are not located within your country and may not display an address or any other information identifying their nationality on their website. Be aware that if you transfer funds to those foreign firms, it may be very difficult or impossible to recover your funds.

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 Their 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.

10. Warning Signs for Commodity Trading  

If you are solicited by a company to purchase commodities, watch for the warning signs listed below:

• Avoid any company that predicts or guarantees large profits with little or no financial risk.
• Be wary of high-pressure tactics to convince you to send or transfer cash immediately to the firm, via internet, by mail, or otherwise.
• Be skeptical about unsolicited phone calls about investments from offshore salespersons or companies with which you are unfamiliar.
• Prior to purchasing contact the Securities Commission.

11. More Information and Contacts

If you need any further information or have questions concerning this advisory you may address them to the Securities Commission, Supervision department: or to the postal address:
Securities Commission
Omladinskih brigada 1/VII,
11070 Beograd, Serbia

The Law on the Capital Market is available in our Regulations page. To find out whether firms with whom you plan to trade are registered or regulated institutions or entities that are outside the Commission’s jurisdiction, you can check the lists of regulated institutions on our website: in the section Market Participants.