The Forex Market and Fraud: Understanding the Basics
The Origins of Forex Trading:
The concept of forex trading dates back to ancient times when traders started exchanging coins from different countries. In 1944, a postwar forex system was established during a conference held at Bretton Woods, New Hampshire. This system remained intact until the early 1970s.
Changes in the Forex System:
The Bretton Woods conference led to the creation of the International Monetary Fund and an agreement that fixed currencies to gold values or the U.S. dollar. This system was known as pegging. However, in 1971, due to currency rate fluctuations, the gold standard was abandoned, and currencies were allowed to float freely. Since then, the forex market has become the world’s largest financial market.
Structure of the Forex Market:
Unlike traditional markets, the forex market does not have a central exchange or trading floor. It operates electronically among a network of banks continuously for 24 hours. It is considered an over-the-counter market where off-exchange spot foreign currency transactions take place. Banks handle forex transactions from their customers, while investment managers globally trade in currencies along with other instruments like bonds and equities.
Growth and Future of the Forex Market:
According to the Bank for International Settlements, the daily turnover in global forex markets was around $3.98 trillion in April 2010, with estimates of further growth. Retail transactions in the forex market are also expected to increase. With increased regulatory oversight, forex brokers are exploring different business models and offering regulated investment vehicles such as swaps, forwards, commodities, equities, and forex options.
Victims of Forex Investment Fraud:
Investment scams in the forex market target individuals from various backgrounds, including successful professionals, political figures, and hardworking people. Fraudsters use manipulative tactics, promising unrealistic returns and exclusive investment strategies. They exploit the greed and vulnerability of potential investors.
Identifying Investment Fraud:
Financial fraudsters can imitate legitimate investment companies, making it challenging to identify scams. They may contact potential investors directly through telephone calls or mailing lists obtained from subscriptions or indirectly through advertising and the internet. Referral schemes, luxurious office setups, and the manipulation of greed are some common tactics used by fraudsters.
Protecting Yourself from Investment Scams:
To protect yourself, it is crucial to conduct independent research and due diligence. Avoid falling for promises of huge profits and understand that past performance is not indicative of future results. Be cautious of schemes that manipulate your emotions and push you into making hasty investment decisions. Take the time to understand the risks involved and only invest what you can afford to lose. By staying informed and vigilant, you can navigate the forex market and avoid falling victim to fraudulent investment schemes.
