The Forex market (FX) is the world’s largest trading market, dwarfing the Stock Exchange in size with nearly US$5 trillion traded daily. The market is open 24 hours a day, when trading closes in New York it starts again in Tokyo and Hong Kong. Currencies are always traded in pairs, for example the US$ with the UK£ or the US$ with the EURO. With constant price fluctuations this tumultuous market can make Institutions, companies and some individuals a great deal of money.

Most of Forex trading happens in the spot FX market, which is different from the futures market, in that currencies are physically exchanged in real time when a transaction is made. Whereas in the futures market the date the trading price is determined and the date the currency is exchanged are different. When a holiday-maker goes to their bank to exchange currencies they are participating in the spot FX market.

Legal Law Administration’s banking and financial lawyers point to the following features of the Forex market that make it susceptible to Forex trading scams and Forex frauds:

• There is no regulated centralised exchange.
• Currencies are traded via computer networks between one trader and the next, often referred to as over-the-counter (OTC).
• The Forex market is a high leverage market. This is basically a loan by the broker to the trader allowing the trader to trade at a margin. A typical margin ratio will be around 50:1, 100:1 or 200:1 depending on the amount of currency being traded. At 100:1 the trader only needs to put up £1000 to cover a £100,000 trade. The reason brokers provide such high leverage is because currency fluctuations in the Forex market are not usually more than 1% during any trading. However even with small fluctuations, high leverage attracts inexperienced traders who may think the Forex market is a get rich quick market.

The Forex market is a legitimate trading market where the world’s currencies are traded. It is not a scam in itself. Without the Forex market it would be difficult to trade the currencies needed to buy imports, sell exports, to go on holidays or do cross border business. However with high leverage positions which, in theory, have the potential to make traders a lot of money and because there is no centralised/regulated exchange, scammers take advantage of the situation and the inexperienced traders desire to enter the market.

The Forex market is a ‘zero sum’ market, which means that for the trader to make a profit, another trader will need to make a loss, the Forex market does not itself add value to the market. Because a lot of the currency movements are directed by large well financed corporate institutions and banks, who are better informed about the market as a whole, the undercapitalised trader is always likely to lose. Institutions and large banks trade in Forex on a daily basis; to make a significant profit in this market takes a considerable learning curve.

Legal Law Administration has found that scammers take advantage of the complexities around the Forex market, maliciously withholding important information about market realities from their unsuspecting novice victims, claiming their scheme, information or software robot will bring success.

The following Forex scams list documents the scam type that have been involved in Forex frauds at present and in the past.

Signal sellers

The signal seller scam is a scam which works by a person or a company selling information on which trades to make and claiming that this information is based on professional forecasts which are guaranteed to make the inexperienced trader money. They usually charge either a daily/weekly or monthly fee for this service but do not offer any information that helps the trader make money. They will usually have a slew of testimonials from allegedly legitimate sources in order to gain the trader’s confidence yet in reality do nothing to forecast profitable trades.

High yield investment programmes

High yield Investment programmes (HYIP) are frequently just a form of Ponzi scheme in which a high level of return is promised for a small initial investment into what is in fact a Forex fund. However in reality the initial investors are  being paid back from the money generated by the current investors and a constant flow of new investors is required to keep the funds flowing, once there are no more investors in the scheme the owners usually close it down and take all money remaining.

Manipulation of bid/ask spreads

These types of scams have decreased over the years yet they are still around. This is why it is important to choose a Forex broker who is registered with a regulatory agency. These type of scams would normally involve having spreads of around 7-8 pips instead of between 2-3 pips which is the norm.

Scams through software

Forex robot scammers lure novices with the promise of big gains from little effort or knowledge. They may use of fake or misleading figures to convince customers to buy their product. Their promises are flawed as no robot can adapt and thrive in all environments and markets. Software is generally used by professionals only to analyse past performance and to identify trends. All software should be formally and independently tested but caution is required when trusting the reviews themselves as these can be paid for. If their product did exactly what they claimed then they would not be selling it but instead using it exclusively themselves.

Managed accounts

These can be a type of Forex scam and there are many examples of managed accounts. These scams often involve a trader taking your money and instead of investing it they use it to buy all sorts of luxury items for themselves. When the victim eventually asks for their money back there is not enough money left to repay.

Ponzi or pyramid schemes

This is a very common form of affinity fraud. They promise high returns from a small initial investment up front. The early investors usually do gain some sort of return on their money and motivated by this success they then recruit their friends and family into the scheme. However the truth is that the ‘investment opportunity’ does not actually exist and their initial return is being funded by money paid in by other members of the scheme. When the investor numbers start to drop the scammers close the scheme and take the money.

Boiler room scams

This type of scam involves the scammers usually getting people to buy shares in a worthless private company on the promise that when the company goes public their shares will increase substantially. They depend on using “urgency” – suggesting that an opportunity will be lost if they do not act quickly which prevents the target from being able to research the opportunity properly. However, often the company doesn’t really exist and may have a fake telephone number, office and website. Once the scammers have made all the money they can they will disappear with everyone’s investments.

How do I look out for Forex scams?

The single most important thing an individual can do to avoid being scammed is to actually learn to trade on the Forex market properly. The difficulty in this however is finding trustworthy brokers/teachers of Forex that can be trusted. The amateur must know that the broker has actually made the money he/she says they have, due diligence is the key here. The Forex market is not a casino but a very serious market where trillions of currency units are traded daily. Use demo accounts and learn to make long term profits first before trading for real. Be aware that like any professional skill, it can take years to master the Forex trade properly. Any claim that says ‘you can make money quickly’ should be avoided.

Paul Belougour, managing director of a retail Forex trading company has gone as far as to say, “if this is money you have worked hard for – that you cannot afford to lose – never, never invest in foreign exchange.”

Do not take at face value the claims that are made, take the time to make your own analysis. An inexperienced trader should be critical in their approach, analysing statistics and making their own functions that they have tested and had success with on a demo account first. This will take time to achieve but will serve the inexperienced trader better than trusting an automated computer program. Do not be rushed into a “too good to be true” investment.

Other things a person might want to check is the authenticity of the company making the claims or selling the expertise/course. To do this check the location/jurisdiction where the business is registered, as a lot of Forex scammers will trade from a location where they believe the local law will make it hard for them to be prosecuted internationally.

If you have been scammed report the scam to the appropriate authority. For the UK go to https://www.fca.org.uk/consumers/scams/report-scam.

As well as this it is a good idea to tell your story to the Forex community so that other individuals do not fall foul of the same scam.

Legal Law Administration is a leading mid-size international law firms with a team of experienced lawyers specialising in Forex fraud. Legal Law Administration assists traders in civil and criminal actions against unregulated Forex companies, online internet fraudsters and pyramid schemes created on a Ponzi-style structure. Legal Law Administration also specialise in legal actions against Binary Options trading companies.

Legal Law Administration forex lawyers have recently been involved in:

Retrieving more than £1.5 million from the Traders International Return Network (“TIRN”)

TIRN promised high yield returns of between 9% – 22% by using “professional money managers” investing in the forex market. Yet in reality none of the trader’s money was invested in the market and TIRN’s operators misappropriated around US$15 million for their own personal benefit.

Legal Law Administration advise investors in Finanzas Forex

Legal Law Administration forex lawyers have been advising investors from Italy, Spain, Portugal, Malta, Scandinavia, Latin America (Brazil, Argentina, Columbia, Equador and Mexico) who have been victims of Finanzas Forex and the related Evolution Marketing Group (“EMG”). Finanzas Forex is now in liquidation and Legal Law Administration are continuing to help traders recover funds from this scam.

Legal Law Administration forex lawyers are also representing traders and investors in collective legal actions in relation to Telexfree, AGF Markets, LBinary, NRGbinary and others.

Legal Law Administration makes the process of starting your claim straight forward

All that a Forex victim has to do to start a claim is to complete an online claim form and send it back to Legal Law Administration.

You will then be contacted by a forex lawyer who will advise you on how to proceed.

Legal Law Administration continues to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

If you are a victim of online fraud / scam or have lost funds with a Forex broker through no fault of your own, please contact our Client Relations Team to arrange a discussion with a lawyer in the Forex Trading Litigation team. Our international lawyers are able to provide assistance in English, French,  Italian, Spanish, German, Arabic and Chinese.