Foreign Exchange Fraud

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Foreign Exchange Fraud

Foreign exchange fraud is any trading scheme used to [4]

“In a typical case, investors may be promised tens of thousands of dollars in profits in just a few weeks or months, with an initial investment of only $5,000. Often, the investor’s money is never actually placed in the market through a legitimate dealer, but simply diverted – stolen – for the personal benefit of the con artists.”[5]

In August, 2008 the CFTC set up a special task force to deal with growing foreign exchange fraud.[7]

The foreign exchange market is at best a zero–sum game,[8] meaning that whatever one trader gains, another loses. However, brokerage commissions and other transaction costs are subtracted from the results of all traders, making foreign exchange a negative-sum game.

Frauds might include [13]

The U.S. Commodity Futures Trading Commission (CFTC), which loosely regulates the foreign exchange market in the United States, has noted an increase in the amount of unscrupulous activity in the non-bank foreign exchange industry.[14]

An official of the National Futures Association was quoted as saying, “[1] CNN quoted Godfried De Vidts, President of the Financial Markets Association, a European body, as saying, “Banks have a duty to protect their customers and they should make sure customers understand what they are doing. Now if people go online, on non-bank portals, how is this control being done?”


Not beating the market

The foreign exchange market is a zero sum game[8] in which there are many experienced well-capitalized professional traders (e.g. working for banks) who can devote their attention full-time to trading. An inexperienced retail trader will have a significant information disadvantage compared to these traders.

Retail traders are – almost by definition – undercapitalized. Thus they are subject to the problem of bid/ask spread which makes his odds of winning less than those of a fair game. Additional costs may include margin interest, or if a spot position is kept open for more than one day the trade may be “resettled” each day, each time costing the full bid/ask spread.

Although it is possible for a few experts to successfully treasure map.)

According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) “Even people running the trading shops warn clients against trying to time the market. ‘If 15% of day traders are profitable,’ says Drew Niv, chief executive of FXCM, ‘I’d be surprised.’ “[16]

Paul Belogour, the Managing Director of a Boston based retail forex[18]

The use of high leverage

By offering high leverage, the market maker encourages traders to trade extremely large positions. This increases the trading volume cleared by the market maker and increases his profits, but increases the risk that the trader will receive a margin call. While professional currency dealers (banks, hedge funds) seldom use more than 10:1 leverage, retail clients may be offered leverage between 50:1 and 200:1.[2]

A self-regulating body for the foreign exchange market, the National Futures Association, warns traders in a forex training presentation of the risk in trading currency. “As stated at the beginning of this program, off-exchange foreign currency trading carries a high level of risk and may not be suitable for all customers. The only funds that should ever be used to speculate in foreign currency trading, or any type of highly speculative investment, are funds that represent risk capital; in other words, funds you can afford to lose without affecting your financial situation.“ [19]

Alleged scamming by Country

Convicted scammers

Under criminal investigations

See also


  1. ^ dead link]
  2. ^ Retrieved 2007-10-30.
  3. ^ McKay, Peter A. (2005-07-26). “Scammers Operating on Periphery Of CFTC’s Domain Lure Little Guy With Fantastic Promises of Profits”. The Wall Street Journal (Dow Jones and Company). Retrieved 2007-10-31.
  4. ^ North American Securities Administrators Association, accessed January 12, 2008
  5. ^ “Regulators Join Forces to Warn Public of Foreign Currency Trading Frauds”. U.S. Commodity Futures Trading Commission. 2007-05-07. Archived from the original on 2007-11-05. Retrieved 2008-03-18.
  6. ^ “CFTC establishes task force on currency fraud”. Washington Post. 2007-08-11.
  7. ^ The Federal Register Section E. The Commission’s Proposed Rules
  8. ^ 978-0-89930-499-1.
  9. ^ SOFTWARE VENDOR CHARGED CFTC News Release 4789-03, May 21, 2003
  10. ^ CFTC complaint Forex Advisory Firm and Trade Risk Management Firm Charged With Fraud
  11. ^ Fraud charges against multiple forex Firms Commodity Futures Trading Commission (CFTC) Release: 4946-0
  12. ^ Foreign Currency Fraud Action Commodity Futures Trading Commission (CFTC) vs. Donald O’Neill
  13. ^ FOREX Advisory Commodity Futures Trading Commission’s FOREIGN CURRENCY TRADING FRAUDS
  14. ^ Forex Information Commodity Futures Trading Commission (CFTC) Forex Information for investors
  15. ^ National Futures Association (NFA) NFA launches learning program
  16. ^ Karmin, Craig; MICHAEL R. SESIT (2005-07-26). “Currency Markets Draw Speculation, Fraud”. The Wall Street Journal (Dow Jones and Company). Retrieved 2007-10-31.
  17. ^ “Top Forex News”. Forex News. Retrieved 17 july 2012.
  18. ^ Garnham, Peter (2006-05-17). “FX gamblers geared to win (or lose)”. Financial Times (The Financial Times Ltd). Retrieved 2008-03-10.
  19. ^ NFA Forex Training
  20. ^ Finnish Police News Release
  21. ^ Helsinki Times Over 700 criminal complaints on WinCapita -Finnish police, August 13, 2008

This article uses material from the Wikipedia article foreign exchange fraud, which is released under the Creative Commons Attribution-Share-Alike License 3.0.

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