Forex scams

scam alertWhere there is money, there are scammers. Unfortunately, the forex field is no exception. If you are interested in forex trading, it is very important that you chose a reputable forex retail broker with a good track record. Also, be vary of anything that sounds to good to be true. There are plenty of “get quick rich” schemes floating around in the forex world. Always be critical when reviewing any proposal, just as you would be within any other field, e.g. investing in real estate, stocks, art, antiquities, etc.

Examples of swindles

Here are two examples of forex swindles. Of course, it is just two of many examples. Simply typing scam + forex into a search engine online will provide you with an abundance of cautionary tales.

Ponzi scheme

A ponzi scheme is a scheme where the operator pays returns to its investors from new capital paid to the operator from by new investors. So, instead of using actual earnings to pay old investors, the money distributed to them comes from new investors.

The ponzi scheme is named after Charles Ponzi who used this technique in 1920, but the basic idea has been around for much longer and is for instance described in Charles Dicken’s novel Martin Chuzzlewit from 1844.

ponziA ponzi scheme can be based on nearly any type of purported investment or speculation, including forex trade. One real world example is where the ponzi scheme operator – let’s call him Peter – offered people to invest in a novel new forex project, a project where a computer-generated program was to be used to make money on arbitrage transactions on the forex market. Peter made sure to make it sound very technically advanced and approached people that he figured would be especially keen on investing in such a thing. Instead of casting a wide net, Peter focused on inviting only a few select individuals from the community where he lived. This served to make the investment seem more appealing – it wasn’t open to just anyone! After the first group of investors had handed over money to Peter, most of the money Peter received from new investors where used to pay a large profit to the original investors.

Happy with their huge return and proud over their success on the forex market, these original investors gladly talked to their friends and business partners about Peter’s amazing computer program. More new investors sought out Peter, and at the same time, earlier investors where happy to invest even larger sums than before. With new money constantly flowing in, Peter cut keep the wheels spinning and pay out large profits. Eventually, he decided to put an end to the scheme, and after receiving several really big investments from well heeled individuals, he simply pocked the money and left town. Any attempts of going after him proved futile, and it was unveiled that Peter had been operating under a false name ever since he first arrived to the community.

It’s a numbers game

This is another example of how a forex swindle can be carried out.

  1. The operator of the swindle – let’s call her Ms Jones – makes a phone call to Mr Brooks. She tells Brooks that her Forex trading company is great at predicting the future movements of currencies. She doesn’t ask Brooks for any investment. She is offering a free forecast, just to show Brooks what her company is capable of so that he can determine if maybe he wants to invest with them at some point in the future. “During the next week, the USD will appreciate against the EUR”, she says.
  2. Just as Jones predicted USD does appreciate against the EUR. When Brooks gets a new call from Jones, his interest has been piqued. This time, she tells him that the USD will depreciate against the JPY tomorrow.
  3. Once again, Jones’ prediction turns out to be true. Brooks is now eager to invest with Jones, and is also a bit annoyed that he didn’t follow her advice before. Imagine all the money he could have made already! To compensate, he decides to make a pretty big investment with Jones now.

So, was Jones a great analyst? A clairvoyant? Did she have access to secret information? No, she simply put in the time to make 200 phone calls. She told 100 people that the USD would appreciate against the EUR, and 100 people that the USD would depreciate against the EUR. When the USD appreciated against the EUR, she made a new call to the 100 people who had received a correct prediction from her. Now, she told 50 people that the USD would appreciate against the JPY and 50 people that the opposite would happen.

Of course, there is absolutely no guarantee that a person that receives two accurate predictions will be willing or even able to invest. But if you contact large numbers of people, your chances of finding a suitable victim will increase. Today, many forex scammers have therefore turned to emails or texts to send out a really big amount of messages. Calling 200 people takes a lot of time and effort. Sending out thousands of emails can be done in the blink of an eye. Earlier, many people would regard a phone call as inherently more trustworthy than an email or text, but today this notion is beginning to shift, partly because of the prevalence of dishonest or simply annoying telemarketers that contact people by calling them up.