Avoid Forex Trading Scams

The foreign exchange (forex) market is huge, with an average daily trading volume of more than $5 trillion, including currency futures and options.

That means the chance still exists for many forex scams that promise quick wealth through "secret trading formulas," or "forex robots" that do the trading for you.

Before getting involved in forex trading, perform your own due diligence by visiting the Background Affiliation Status Information Center (BASIC) website created by the National Futures Association (NFA), the futures and options industry's self-regulatory organization, to learn how to choose a reputable broker and avoid scams.

Before dealing with the public, every company or someone who wants to lead off-exchange forex business is needed to become a member of the NFA and to file with the Commodity Futures Trading Commission, the government office that oversees futures and options trading.

You can search BASIC to find out what regulatory actions, if any, have been brought against a particular person or firm.

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Signal Sellers

One of the challenges a rookie forex investor faces is finding out which operators to trust in the forex market and which to avoid. Signal sellers are one group of operators to observe carefully.

A signal seller basically offers a system that purports to identify appropriate times for buying or selling a currency pair. The system may be manual, in which case the user must enter trading info, or it may be automated to put through a trade when a signal takes place.

Some systems depend on technical analysis, others depend on breaking news, and many use a combination of the two. Signal sellers usually charge a fee for their services.

The signal sellers' frequent criticism is that if it were really possible to use their system to beat the market, why would the individual or firm that has this information make it widely available? Wouldn't it make more sense to use this incredible signaling system to make huge profits for themselves?

Other analysts distinguish between known scammers and more respectable sources of market information that offer a well-thought-out signaling service.

There is a larger difference of opinion about whether anyone can predict the next move in a trading market Behind these opposing views lies. This fundamental disagreement won't be settled any time soon.

Eugene Fama (economist, Nobel prize-winning) proposes in his well-regarded efficient market hypothesis that finding these kinds of momentary market advantages really isn't possible.

Robert Shiller (economist, Nobel prize-winning) believes differently, citing evidence that investor sentiment creates booms and busts that can provide trading opportunities.

The best way to determine if a signal seller can benefit you is to open a trading account with one of the trusting forex brokers and enter practice trades that

Be patient, and with time, you'll determine whether predictive signaling works for you or doesn't.

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Forex Investment Management Funds

The last few years, forex management funds have proliferated. Most of these are scams. They offer investors the "opportunity" to have their forex trades carried out by highly-skilled forex traders who can offer outstanding market returns in exchange for a share of the profits.

The problem is, this "management" offer requires the investors to give up control over their money and to hand it over to someone they know little about other than the hyped-up and often a completely false record of success available on the scammers' website and brochures.

Investors often end up with nothing, while the scammers use investors' funds to live high on the hog.

A good rule of thumb in the forex market, as with other areas of investment, is that if it sounds too good to be true, such as annual returns of more than 100 percent, for example, it's almost certainly a scam.

 Dishonest Brokers

Although the forex market is not fully regulated, it has no single central regulatory authority. However, the spot Forex market, which accounts for the majority of trades, is completely unregulated. This gives the opportunity for some forex brokers to deceive their clients and do not deal with them fairly.

Any trader can avoid a bad broker by dealing with trading companies approved and licensed by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). Although forex trading itself may be unsupervised, the SEC and FINRA broker may not risk licensing other securities by fraudulent forex clients.