No pot of gold at the end of the forex rainbow

Posted by: Aaron Pressman on May 9, 2007

Here’s an ancient investing insight that remains as true as ever: if it sounds too good to be true, it usually is. But a lot of folks are forgetting that maxim when it comes to an age-old scam that’s showing new vitality. Regulators at the Commodity Futures Trading Commission in Washington, D.C. had to issue a warning this week on foreign currency trading scams. Some of these schemes, which promise huge returns with no risk using highly-leveraged strategies, are outright frauds. Others are mislabeled risky plays that benefit a broker. You don’t have to go far to encounter one of these scams, either. Just type “forex” into a web search engine and mixed among the legitimate sites are offers promising 5000% returns or 170% a day and so on.

Regulators have a list of tip-offs, all pretty obvious, that you’re in danger of being scammed. Even some of the more reasonable-sounding offers may be a mistake, however. The National Futures Association has set up a web site to check out the reputation of any firm and it’s worth a look. You can search by firm name or the name of an individual. The database lists everybody properly registered as well as records of regulatory actions.

Another good resource is the web site of the North American Securities Administrators Association, run by a group of state securities regulators. They published a list of the most popular investing scams last year that’s still a good place to start if you hear an offer that sounds to good to be true.