The Financial Crimes Recovery Agency (FCRA) urges the public to conduct thorough research before engaging in over-the-counter foreign exchange (“forex”) trading, especially when dealing with potential fraud. As part of our commitment to consumer protection, we emphasize the importance of verifying the registration of dealers and their employees with all relevant bodies. This includes scrutinizing disciplinary histories through the National Futures Association (NFA).
Why Registration Matters with Regulatory Oversight
Registration with the regulatory oversight signifies:
- Comprehensive background checks for principals and associated persons.
- Compliance with specific financial requirements.
- Verification of addresses and contact information for primary and branch locations.
- Submission to examinations and regulatory supervision.
- Adherence to disclosure requirements and conduct standards.
While registration alone may not offer absolute protection, it is a crucial step. Most frauds in the market are perpetrated by unregistered entities. Our financial requirements, examinations, and adherence to state and federal laws enhance the likelihood that a registered dealer fulfills its obligations, a vital consideration when the dealer is the sole counterparty in the market.
Insights into Forex Trading You Might Not Know
- Trading Dynamics: In forex trading, you are actively trading against the dealer. Even on a regulated exchange, it’s an over-the-counter (“OTC”) trade. Your dealer’s profitability is linked to your trading frequency, losses, or fees.
- Loss Statistics: Statistically, two out of three forex customers at regulated forex dealers lose money, factoring in all credits, financing charges, fees, and expenses. Only about one-third of customers at registered OTC forex dealers made a profit over the past year. Well over 95% of all forex customers at unregulated forex dealers lose money.
- Platform Control: Dealers control the trading platform, influencing the information you see on your screen. Unregistered offshore dealers may use popular trading software to appear legitimate but manipulate trade data to deceive customers.
- Limited Position Management: Your ability to close or offset positions is confined to your dealer’s offerings, given that you trade against the dealer on its platform.
- Deposit Protections: In the absence of protections, if a dealer disappears or goes bankrupt, retrieving your money may be challenging. Fraudulent dealers might demand undisclosed commissions or fees before allowing withdrawals.
- Leverage Risks: OTC forex trading involves margin, amplifying both gains and losses. You may be required to add more funds or close positions if the market moves against you.
- Hidden Sales Conflicts: Salespeople may have undisclosed conflicts, and relationships between the dealer and influencers may not be transparent. Investigate thoroughly, especially if statements contradict the risks outlined in disclosures.
- Social Media Cautions: Many frauds initiate on social media. Be wary of unsolicited discussions about forex trading, promises of outsized returns, and directions to unregistered dealers.
If you suspect fraud, submit a claim now
This article is prepared by the Financial Crimes Recovery Agency’s Office of Customer Education and Outreach. It provides general informational purposes and does not offer legal or investment advice. Consult with a legal advisor before acting based on this information. References to non-FCRA websites are for informational purposes, and the FCRA does not attest to their accuracy. Mention of organizations does not constitute endorsement by the FCRA.