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How do I spot a foreign currency trading scam? What are the warning signs?

How To Detect Illegal Operators Of Foreign Currency Trading Scams


These illegal operators/companies normally:
  • Place attractive advertisements to lure others to listen to their convincing but bogus marketing plan

  • Have their headquarters overseas

  • Have impressive offices and IT facilities

  • Conduct training to prospective employees on the principles of foreign exchange trading and hands-on exercises on foreign currency dealing using dummy or fake transactions under an environment controlled by the operator. Normally, all such dummy transactions will result in profits

  • Hire employees based on commission and they are not given a proper employment letter or contract stipulating the employment terms and conditions


Before employees can start dealing, they are required to look for potential investors and collect deposits from them. Otherwise, they risk losing their jobs. In many of the cases referred to Bank Negara Malaysia 1, employees who are not able to get clients will resort to borrowing from their parents or family members to invest.

Warning Signs For Investors


Illegal operators of foreign currency trading scams will try to impress potential investors:
  • With the marketing strategy of the company which promises quick and high returns

  • By portraying a professional and reputable image with smart-looking employees, a high-tech office layout and advanced IT facilities. In some cases, investors are even allowed to operate their account via internet

  • With tools of the trade e.g. a news screen showing movements in exchange rates to give the impression that a professional and legitimate business is being conducted. These facilities are merely cosmetic and do not reflect an actual foreign currency trading office


Investors can either trade using their trading accounts with the company or through dealers appointed by the company. Investors are also required to sign a business contract which is normally entered between the investors and the company.

In most instances, the operators will inform the investors that they will have to send such contracts to its company's headquarters based overseas for signing. However, such contracts are usually left unsigned. As such, in the event the investors are not happy with the transaction, no action can be taken against the company as there is no binding contract between them.

In the cases reported to Bank Negara Malaysia, there are two scenarios on how investors usually lose their money:
Scenario 1:
Investors will usually get high returns on their initial investments. This will convince investors to increase their investments to make higher returns. Eventually they will end up losing everything when the owners of the company suddenly go missing.
Scenario 2:
Investors who have lost their money were told that the market will go up and if they were to increase their investment, they may be able to get back their money. Obviously, this did not happen and they ended up losing everything they had invested.

References
  1. The official website of Bank Negara Malaysia


Reprinted with permission from BankingInfo (A Consumer Education Programme)


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Knowledge Base ID :   1194
Last Reviewed :   April 25, 2014
Source :   BankingInfo
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