Illegal Forex Trading Strategies to Avoid

Illegal Forex Trading Strategies to Avoid

If you want to participate successfully in the foreign exchange market, it is very important for you to be wary of illegal trading strategies and scams. These illegal dealings are circulating all over the web, and if you’re not careful, you can easily become a victim and suffer from terrible investment losses. Now that retail foreign exchange is offered on the web and individual investors can participate in currency trading easily, illegal brokers and dealers are quick to take advantage of inexperienced investors. Successful and profitable forex trading does not only involve reading the trends and finding a strategy, you should also choose the right foreign currency dealer and broker.

Signs that a forex trading strategy is illegal

An illegal brokerage service provides investors with illegal forex trading strategies, so you need to be able to read the warning signs early on before jumping into the bandwagon. The CFTC has taken serious regulation measures recently, protecting forex investors from scams, frauds, and back-listed brokerage service providers. The CFTC stands for Commodity Futures Trading Commission, a federal agency in the United States that provides rules and regulations on trading activities connected with foreign exchange. This agency also takes crucial and timely action against brokers or dealers who have been found to have operated illegally. A reliable forex broker is one that has been regulated by the CFTC and registered at the NFA, or National Futures Association.

A dealer that promises investors of low or no financial risk is most probably a scam. One of the clear signs that a trading strategy used by a forex dealer is illegal is if it promises huge returns with very minimal or no risk at all. Many of these illegal foreign currency dealers may go as far as making highly compelling sales pitches, selling foreign currencies and broker services not only on the web but even through radio, telemarketing, and newspapers. These dealers make promises of huge returns even with very little investment amount or trading effort made by the investors. If you have the slightest doubt as to the legitimacy of a currency dealer, then don’t place any amount as an investment.

Of course, forex brokering companies will try to entice investors by helping them attain trading profits, but any firm that makes promises of massive profits deserves to be examined a bit further. Beware of brokerage companies that require you to trade via the interbank market. Many of these fraudulent companies often have firms set up outside of the United States, especially in Russia or in the Bahamas. This is why forex retail investors are discouraged from making bank wire payments to a foreign currency dealer that is not registered with the NFA. It pays to look into the licenses of these brokerage firms first to see if their licenses have been revoked by the NFA.

Another important sign that the forex brokerage firm uses illegal trading strategies is if the agency refuses to show you their trading background and track records. It is important for anyone planning to invest in the foreign exchange market to look carefully into the past performance of each forex dealer. Foreign exchange frauds use a number of strategies to lure investors, and without the right knowledge and foresight, any investor could easily get trapped.

Examples of illegal trading strategies

One of the most common illegal trading strategies used by forex dealers is to set up a firm in South Florida, specifically in Boca Raton. In 2000 in fact, South Florida was known to be the telemarketing fraud capital of the world, coming from CNBC. Most of these firms will tell you to make bank wire transfers to a foreign currency dealer that has not been registered at the National Futures Association. Also, many brokerage firms demand their investors to make payments to an FCM located offshore, specifically in the Bahamas. As there are no known registered foreign currency dealers based in the Bahamas, you are most likely looking at a forex fraud. Aside from South Florida, many of these frauds are based in southern California as well as in countries out of the United States, such as in the Bahamas and Russia.

Another example of an illegal trading strategy used by most fraudulent forex dealers is sniping or hunting. This strategy involves buying or selling prematurely near predetermined points so the broker can increase his or her profits. In many cases, these brokers do not admit to doing the deed, and more often than not, these practices are not duly reported to the regulating agencies. If you want to avoid these types of brokers, it pays to seek advice from more experienced foreign exchange traders.

Possible penalties for those caught using illegal strategies

In the United States, the CFTC is responsible for the regulation of forex currency trading, as well as the regulation of commodity futures and options contracts in the country. The CFTC can take necessary action against any firm who has been suspected of selling foreign exchange currencies as well as commodity futures and options illegally. The Commodity Futures Trading Commission has the power to investigate into the operations of suspected forex frauds and prosecute them accordingly.

Any firm, which has been suspected of illegal strategies, may be disciplined by the National Futures Association or the Commodity Futures Trading Commission. Although some charges of fraud have been resolved and a number of suspected forex firms have been able to resume business, there are those that have been permanently blacklisted in the industry due to the gravity of their charges. Under the Commodity Exchange Act, the CFTC also has the power to discontinue the operations of any unregulated firm that transacts with foreign exchange retail customers.

Every forex retail customer should determine, first of all, the background and reliability of their dealer. You expose your investments to greater risk if you choose an entity that has not been regulated. As a retail investor, you can request such information from the dealers themselves, or you can make an independent investigation by getting the assistance of the NFA and the CFTC.