“If something sounds too good to be true, it probably is.” These represent wise words, especially when referring to unscrupulous forex brokers promoting HYIPs or High Yield Investment Programs, and perpetrating other types of forex trading fraud. If you already trade forex or are seriously thinking of getting involved in doing so, then knowing how fraud takes place in the forex market may save you plenty of time and money.

Fraud and scams have existed since the invention of money. Basically, wherever a large amount of money starts changing hands on a regular basis, the situation will often produce fertile ground for con-artists and scammers to thrive in.

Furthermore, as illustrated by the classic film “The Sting”, the scams con-artists use will usually involve taking advantage of people’s greed. Unfortunately, the forex market has become one such place, perhaps because of its nature as a huge and unregulated international market for currency trading.

The Ponzi Scheme

Some forex scams such as the HYIPs are based on the so-called “Ponzi scheme.” Although not the original inventor of the scam, a famous Italian swindler by the name of Charles Ponzi gave it his name. He began operating it through the Old Colony Foreign Exchange Company in the early 1920’s by promising his customers a 50% gain inside of 45 days or a 100% gain inside of 90 days when the banks were offering just 5% annualized interest on deposits.

Ponzi supposedly was going to perform this amazing feat by using an arbitrage involving purchasing discounted international reply coupons (a type of postage stamp coupon) elsewhere in the world and then redeeming them at par in the United States. Nevertheless, this eventually proved impractical.

What Ponzi did in fact was pay the high returns to separate investors from money paid by subsequent investors or from their own money, rather than from any actual profit he had earned for them. By paying repeatedly, his reputation for success grew as did his client base, but his scheme fell increasingly into debt and he was eventually exposed as a fraud.

A famous recent example of a Ponzi scheme was that operated by Bernie Madoff who was sentenced to 150 years in 2009 after losing investors amounts varyingly estimated as between $18 to $65 billion.

Other Forex Scams

In addition to the previously-mentioned "high-yield investment programs" or HYIPs, other scams involving forex accounts might use terms like "hedge futures trading" or “offshore investment" as the con artists seek to sell interests in their schemes to investors under a veil of legitimacy.

They might also claim to have a “secret” forex investment strategy to help hide how the scam works. They can even refuse to take additional money or funds for re-investment. Still others offer forex investment seminars that fraudulently minimize the risks involved in forex trading.

Again, if something sounds too good to be true, take a good look under the proverbial hood of any forex investment plan before you place your hard-earned funds at risk.