The forex industry, both internally and through outside organizations, has tried to rid itself of the notorious reputation it had of an unsupervised, anything-goes business where people routinely lost money at the hands of unscrupulous brokerages.
While there are dozens of legitimate forex brokerages where customers can have complete faith that their money is secure, fraud is still a prevalent concern for many traders.
The National Futures Association (NFA), a watchdog group for the futures industry, believes the problem is serious enough to warrant an “Investor Alert.” The NFA last issued a forex alert in August 2003, but the dramatic increase in the number of forex traders has persuaded the group to repeat the warnings.
According to the NFA, there are 37 forex brokerages registered with the NFA, responsible for more than $800 million in customer accounts — a substantial proliferation from four years ago. However, there has also been a sizable uptick in the amount of forex fraud.
Since 2001, the Commodity Futures Trading Commission, which has jurisdiction over forex brokerages, has filed 93 enforcement actions against various firms and their employees. Those actions have affected more than 25,000 customers who collectively lost almost $400 million.
The Investor Alert doesn’t contain any new information or insight on avoiding fraud, but it does spell out some basic ideas about what to look for.
For starters, the NFA warns that although registration is mandatory for all forex dealers, it’s not the case for firms and individuals. As of late March, the NFA estimated there were more than 2,000 groups and individuals soliciting accounts, not all of them regulated.
The NFA suggests traders contacted by either a forex brokerage or an individual first ask if that group or person is regulated, and warns that lack of regulation could mean additional risk.
The NFA especially cautions against schemes promising large returns with little or no risk, and warns that because of the high leverage available in forex trading, traders can lose much more than their initial investment.
Lastly, the NFA reminds traders that spot forex transactions are not made on an exchange. As a result, they receive very little consideration in the event the brokerage declares bankruptcy.
The NFA has produced a brochure about trading spot currency and a self-directed, online class that discusses the procedures and risks involved with trading forex. Both are available in the Investor Learning Center section of the NFA’s Web site (www.nfa.futures.org).
Those who believe they are a victim of fraud or who want to report suspicious activities can call the NFA at (800) 621-3570 or visit www.nfa.futures.org/basicnet/Complaint.aspx
Subscribe to:
Post Comments (Atom)
Post a Comment