Forex scam

is any trading scheme used to defraud individual traders by convincing them that they can expect

to gain an unreasonably high profit by trading in the foreign exchange market [1]. This market

would be a zero-sum game were it not for the fact that there are brokerage commissions, which

technically make forex a "negative-sum" game. "The market has long been plagued by swindlers

preying on the gullible," according to the New York Times [2].

These scams might include churning of customer accounts for the purpose of generating

commissions, selling software that is supposed to guide the customer to large profits,[3]

improperly managed "managed accounts",[4] false advertising,[5] Ponzi schemes and outright

fraud.[6] It also refers to any retail forex broker who indicates that trading foreign exchange is a low

risk, high profit investment.[7]

The U.S. Commodity Futures Trading Commission (CFTC), which loosely regulates the foreign

exchange market in the United States, has noted an increase in the amount of unscrupulous activity

in the non-bank foreign exchange industry.[8]

An official of the National Futures Association was quoted[9] as saying, "Retail forex trading has

increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also

increased dramatically..." Between 2001 and 2006 the U.S. Commodity Futures Trading Commission

has prosecuted more than 80 cases involving the defrauding of more than 23,000 customers who

lost $300 million, mostly in managed accounts. CNN also quoted Godfried De Vidts, President of

the Financial Markets Association, a European body, as saying, "Banks have a duty to protect their

customers and they should make sure customers understand what they are doing. Now if people

go online, on non-bank portals, how is this control being done?"

The highly technical nature of retail forex industry, the OTC nature of the market, and the loose

regulation of the market, leaves retail speculators vulnerable. Defrauded traders and regulatory

authorities can find it very difficult to prove that market manipulation has occurred since there is no

central currency market, but rather a number of more or less interconnected marketplaces provided

by interbank market make