Forex (FX) is one of the most well-known and largest global trading markets for exchanging foreign currency. The foreign exchange market quite literally dwarfs the stock exchanges, boasting a turnover of around 5 trillion dollars. The market operates 24 hours a day, meaning that as trading closes in New York, it opens in Hong Kong and Tokyo.
Currency trading is done exclusively in pairs: for example, the dollar paired with the euro or the dollar paired with the British pound. However, it’s now widely recognized that there’s a vast array of scams within the Forex market that one needs to be thoroughly acquainted with.
What is Forex Trading Fraud?
Forex fraud is a specific type of scam associated with currency trading. The schemes presented in the currency markets aim to deceive currency traders and retail investors who believe they can make a high profit by trading on the Forex market.
In doing so, fraudsters may employ a variety of tactics: from fraudulent trading practices to false information provided by foreign exchange brokers or traders. The main goal is to deceitfully “persuade” individuals to invest their own money.
Before investing, it’s wise to familiarise yourself with your legal obligations to avoid falling prey to forex scams. To prevent such negative outcomes, it’s advisable to consult with experienced Forex solicitors who are well-versed in financial crimes and foreign currency trading.
Types of Fraud in the Forex Market
Today, there are numerous fraudulent schemes actively employed in the foreign exchange market. It’s essential to familiarise oneself with the most common and popular types of forex scams that have recently emerged, as well as those that have long been in demand among various swindlers.
Signal sellers
Forex fraud involving signal sellers is carried out by managed account companies or organizations, or individual traders, engaged in selling information. This information pertains to which specific trades should be made to maximize profits in the future.
Most often, a signal seller scam targets inexperienced traders who are particularly in need of “professional forecasts”. The essence of this forex scam is as follows:
- A fraudster offers a trader information for a specific fee – the provision of a full service.
- A fee is charged for the service – daily/weekly/monthly.
- The client receives information that is of no particular use.
To win the trust of traders, such companies or individuals deliberately create fake reviews on their websites. However, in reality, they do not take any action to forecast profitable trades.
High-yield investment programs
HYIPs, or high-yield investment programs, are often likened to the globally notorious “financial pyramids”. The principle behind these investments is as follows: participants are promised significant returns on their initial investments, which serve as a fund for Forex.
Payments are made from the funds generated by investors already involved in the HYIP “scheme”. To maintain the overall amount of money in circulation, a constant influx of new investors is required. When the scheme “runs out” of investors, the forex scammers conclude their scheme, pocketing all remaining funds for themselves.
Manipulation of bid/ask spreads
Forex lawyers are shedding light on another equally prevalent scam – manipulations related to supply and demand. Despite a significant reduction in such forex frauds over the past few years, there are still isolated incidents of these scams occurring.
This type of forex trading scam involves the use of spreads of around 7-8 points instead of the usual 2-3 points, which is considered the norm and standard. To avoid being a victim of a Forex fraudster in such situations, it is advisable to only deal with Forex market brokers who are officially registered with the regulatory body.
Scams through software
This type of financial fraud is associated with Forex robots. More often than not, it’s the novices who have no prior experience with such financial markets that fall for these schemes. The fraudsters offer the chance to purchase their own product – a unique piece of software that is purported to work equally well across all financial markets.
Clients are promised that this software will help them analyze and monitor all results, keeping them ahead in the market and earning the desired profit in online trading platforms. However, such promises remain just that, promises, as none of the robots are capable of adapting to all sectors and markets.
Managed accounts
Managed accounts are another common type of forex scam. These forex trading scams work as follows – the fraudulent forex brokers take the investor’s money, but instead of investing it, they use it to purchase various goods and luxury items for their satisfaction.
When the victim decides to get their money back, they discover unpleasant consequences for themselves – the lack of sufficient funds to repay the debt.
Ponzi and pyramid schemes
Ponzi and pyramid schemes are directly related to affinity fraud. As a result, the client is promised high returns from minimal initial investments. The pyramid scheme presented operates as follows:
- After investing, the initial participants receive profits from their capital investment for further motivation.
- They entice all their friends, relatives, and acquaintances into this forex scam, who see success through a shining example.
However, the real crux of the matter lies in the absence of an “investment opportunity”, and therefore, the initial profit for such investors comes from funding provided by other participants of the fraudulent scheme who were roped in earlier. The scheme collapses the moment the number of individual investors ceases to grow. At that point, the fraudsters pocket all the remaining money for themselves.
Boiler room fraud
These forex scams involve fraudsters “nudging” their victims into purchasing shares from worthless organizations or companies by offering empty promises. The fraudsters claim that this is a brand-new company that will soon become well-known, and therefore its shares are guaranteed to increase in value.
This situation triggers a sense of urgency, where the victim is given a limited time frame: they must quickly buy the offered shares, or else they will miss out on a lucrative opportunity. The sense of urgency leads to consequences where the client does not have sufficient time to thoroughly research the matter, or new information, and is forced to make hasty decisions immediately.
Common Signs of Forex Scams
Correct trading on the Forex market is the main challenge that nearly all beginners face. Spotting fraud in the foreign exchange market involves dealing with brokers. It’s crucial to know and understand that a broker can genuinely earn the stated amount of money and that they have the relevant experience. Therefore, it’s recommended to start with forex trading demo accounts to learn how to generate long-term income independently before moving on to real trading.
Key indicators of fraud:
- A guarantee of profitability is the first sign that you’re dealing with a forex scam – empty promises of “quick and stable money-making”.
- Aggressive marketing tools such as cold calling with offers to invest in unfamiliar companies;
- invitations to follow unfamiliar links with a suspicious address;
- invitations to various groups to which you have not previously applied;
- All manner of payments where the recipient is always a third party.
Our international forex fraud lawyer specializing in the Forex market is adept at handling such issues and problems, offering expert assistance. That will help you verify the authenticity of a dubious company or organization by checking its jurisdiction and location to determine where the business was registered.
In most cases, modern fraudsters opt for trading locations where they believe local legislation significantly hampers their subsequent international prosecution. As such, these fraudsters operate in offshore jurisdictions with minimal regulatory protection.
Penalties for Forex Fraud
Any attempts at fraud involving foreign currencies are punishable. This refers to various sanctions – civil and criminal. It all depends on the grounds that were provided for during the prosecution:
- Civil sanctions. An international forex fraud solicitor specializing in Forex fraud notes the issuance of such sanctions is carried out following the successful investigation of the activities of a specific individual or company. Various financial regulators are responsible for the investigation, including the Financial Conduct Authority (FCA) – which issues fines and bans on further trading activities – or the Serious Fraud Office (SFO) – which deals with the recovery of any funds lost that were obtained through fraudulent schemes.
- Criminal penalties. Under the Fraud Act, the accused can receive a maximum sentence of 10 years imprisonment or an unlimited fine.
A qualified forex attorney provides criminal defense for clients, with experience in pre-trial investigations and Forex litigation. In certain cases, a forex lawyer also handles claims for compensation of damages, such as claims for harm caused. Seek legal advice to swiftly and effectively navigate the complexities of this matter.
Forex Market Fraud Rules
Fraud in the Forex market is considered an illegal operation and activity, thus raising the question of its need for strict regulation.
To ensure stable trade and trust, joint efforts for forex fraud detection are made by two main bodies:
- The FCA is an organization that deals with the regulation of not only financial services but also other companies to prevent the proliferation of fraudulent schemes.
- The SFO is an organisation that deals with the investigation and prosecution of the most serious allegations involving various types of fraud.
The organisations presented are successfully collaborating not only with each other but also with other agencies – both domestic and international, in pursuit of common goals.
What should I do if I’ve been scammed?
If you find yourself having been duped or pulled into various fraudulent schemes related to the Forex financial market, it’s imperative that you immediately contact the relevant regulatory bodies. The list of these authorities depends on the country you’re in. If you’re unsure about which specific bodies to approach and how to properly navigate through all the issues, it’s essential to secure legal support.
Our experienced lawyers specializing in Forex litigation will provide comprehensive advice with step-by-step actions for each client.
Legal experts in Forex Market Fraud
If you’ve fallen victim to fraud on the Foreign exchange market, our international law solicitors can assist anyone who has encountered various fraudulent schemes, regardless of their complexity and other characteristics. Our legal experts possess the necessary knowledge and extensive experience in the field of tax fraud and financial fraud at an international level.
Please write to our forex litigation team if you require urgent assistance and the necessary package of services, especially if you need advice regarding scams in the forex investments market.
