One of the most important things to understand about entering into Forex trading is that fraud is increasing.

According to the Commodity Futures Trading Commission (CFTC), there has been a marked increase in complaints of fraud from traders who unwittingly used dodgy offshore FX dealers.

Research into Forex dealers is crucial

It’s absolutely essential that individual investors and those new to the market take the time to properly research any OTC (over the counter) foreign exchange (Forex/FX) dealers before paying out any money. It’s equally important to do so before handing over any personal information.

I would always advise ensuring that the FX dealer is properly verified and registered with the CFTC (in the US). People are often finding fraudulent dealers through social media, whether that’s direct recommendations or through online connections or friendships.

While registration isn’t always 100% foolproof, you’re less likely to be frauded. The reality is that unregistered dealers are more likely to be fraudulent than those that have registered with necessary bodies.

What does the CFTC say?

The CFTC has plenty of information for US FX traders that also applies to those trading in other countries. There are basic tenets to understand before you part with any deposit and/or information.

7 things you need to know about FX/Forex trading

1. You are up against OTC dealer

While you can buy FX futures on regulated exchanges, if you are trading OTC (over the counter/ off-exchange) then you are not operating in an open market. In other words, you are in a private trade with the dealer.

This means that when you sell, the dealer buys and vice versa and that the dealer will make more profit when you trade more often, pay fees, commissions or spreads.

2. A lot of people lose money

The CFTC says that 60% of FX customers operating OTC lose money when everything is factored in. These include all kinds of fees, expenses, credits and charges. Between Q1 2021 and Q1 2022, figures show that just one third of customers registered with FX dealers made any money.

3. The trading platform is controlled by the dealer

Anyone who is trading over a dealer’s website, using an App or via an electronic trading platform, is not connecting to a live exchange. Rather, they are only connecting to the dealer’s information.

The dealer controls all of the information that the customer sees on the screen, including prices. This paves the way for fraudulent OTC dealers to use software that makes it look legitimate, but which is actually stealing from customers through manipulated trade data.

To avoid getting scammed like this, I would advise always comparing the prices you see with third-party legit sources. This will give you the knowledge that you are looking at legitimate fluctuations in price and value.

4. OTC deposits aren’t protected

Trading in this way means that your deposit isn’t protected, and should the dealer proceed to go bankrupt or otherwise disappear, then you will lose that money.

The best advice here is to double check the entire agreement before you open an account with a dealer to fully understand the protections you have. The next thing to do is make sure you understand the requirements for putting money in and removing money from the account. You will often find hidden charges here.

It’s common practice for dodgy FX dealers tor make customers pay expensive charges in order to withdraw money. They might make them pay completely fabricated charges and taxes or force them to invest even more money. Remember that if anyone is asking you to pay out to get your money back, then it’s definitely fraudulent.

5. Don’t lose your margin

OTC FX trading uses margin. This means that dealers demand a certain amount in order to open the position, and this will depend on how volatile the chosen currency is seen to be.

Subsequently, if the margin goes against you then you will be asked to pay more money or lose out. Furthermore, you might end up on the hook for more losses that go far beyond the initial amount you deposited.

6. Third parties may have their own hidden agendas

If the chosen dealer uses any kind of intermediaries in the form of sales people or social media influencers, for example, then the customer may not be aware of them. These kinds of intermediaries may not have any actual experience in Forex trading and are simply being paid for numbers.

To protect yourself, you should always thoroughly research any dealer or platform you’re considering using before you part with money or personal information.

7. Be sceptical of social media

As with many other sectors, it’s common for fraud to flourish online. Be extremely careful if you are approached by FX dealers or ‘experts’ via social media or through any kind of messaging app, emails or discussion forum.

For example, if anyone is urging you to move from a platform to a private chat, promising huge returns, recommending dealers who aren’t registered, only accepts crypto or has a website that has no HQ address, then simply avoid getting involved.

For more information on my experience, click Mankash Jain.