Forex Scandal Rocks Global Banking System

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A businessman holds his head in frustration while sitting at a desk with a laptop and financial charts.
Credit: pexels.com, A businessman holds his head in frustration while sitting at a desk with a laptop and financial charts.

A scandal of epic proportions has rocked the global banking system, leaving many wondering how such a massive scheme could have gone undetected for so long. The Forex scandal has revealed widespread manipulation of currency exchange rates by major banks.

The banks involved in the scandal, including Barclays, UBS, and Citigroup, have been accused of colluding to rig currency exchange rates, resulting in billions of dollars in losses for investors. The scandal has sparked a global investigation, with regulators and law enforcement agencies working to unravel the complex web of deceit.

The Forex market is a $6 trillion market, and the manipulation of exchange rates has had a significant impact on the global economy. The scandal has also raised questions about the integrity of the financial system and the ability of regulators to prevent such schemes.

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Investigations and Inquiries

A lack of criminal prosecutions of banks and their leaders fueled a public outcry over the perception that Wall Street giants are “too big to jail.”

Credit: youtube.com, The FX scandal now and later

This perception is not limited to the financial sector, as it has also been observed in the context of the Forex scandal, where a lack of accountability has led to widespread distrust.

The public outcry over the perception that institutions are "too big to jail" is a result of a lack of criminal prosecutions of banks and their leaders.

This phenomenon has significant implications for the integrity of the financial system and the rule of law.

Rigging and Scams

The point-spread scam was a classic example of rigging in the forex market, where dishonest brokers artificially inflated the bid-ask spread to increase their commissions.

This scam was particularly prevalent in the EUR/USD pair, where some brokers offered spreads of seven pips or more, compared to the normal two-point to three-point spread.

The scam was often perpetrated by offshore retail brokers that were not regulated by the CFTC, NFA, or their nation of origin, making it difficult for victims to get their money back.

On a similar theme: Punjab National Bank Scam

Credit: youtube.com, Forex fixing scandal: banks fined $6 billion for rigging foreigh exchange - TomoNews

Factor in four or more additional pips on every trade, and any potential gains from a good trade can be eaten away by commissions.

Signal sellers are another type of scammer that preys on unsuspecting traders by offering a system that claims to identify favorable times to buy or sell a currency pair.

These services often tout their vast trading experience and unique trading abilities, but the worst of them simply collect money from traders and disappear.

Some signal sellers will occasionally recommend a good trade to keep the signal money flowing, but it's essential to be skeptical and do an extra layer of due diligence when choosing such a service.

The lack of regulation and oversight in the forex market has created a hot-house for bad behavior, with little in the way of rules or policing.

The main body involved in regulating the market is made up of a group of senior traders, some of whom have been suspended for bad behavior, which raises questions about their ability to effectively regulate the market.

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Other Factors and Issues

Credit: youtube.com, Forex Scandal Breakdown

High-priced trading systems and services can be a major red flag, with some sellers charging exorbitant prices justified by guarantees of phenomenal results. Be wary of such claims and look for reasonably priced sellers with a verifiable track record.

Commingling of funds is another problem, where clients' funds are not segregated and can be misused by retail firms. This can lead to funds being used for exorbitant salaries, luxury items, or even disappearing altogether.

Be skeptical of promises or promotional material that guarantees a high level of performance, as this is often a warning sign of a scam.

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Other Factors

Be wary of high-priced trading systems and services, as the exorbitant price tag itself can be a major red flag. Many systems cost thousands of dollars, and sellers often justify the price with promises of phenomenal results.

Commingling of funds is another issue to watch out for. Without a record of segregated accounts, clients can't be certain their funds aren't being misused, such as paying exorbitant salaries or luxury items.

Scorched banknotes scattered on a dark wooden table, symbolizing financial loss.
Credit: pexels.com, Scorched banknotes scattered on a dark wooden table, symbolizing financial loss.

Be skeptical of promises or promotional material that guarantees a high level of performance, as this is often a sign of a scam. The Commodity Futures Modernization Act of 2000 addressed the issue of fund segregation in the U.S., but not all jurisdictions take it seriously.

If a broker or trading system won't allow you to withdraw funds from your account, it's a major warning sign. You should also be concerned if the trading platform doesn't operate smoothly during volatile market action, such as after an economic announcement.

Monopolies; Commission

The global currency markets are worth over £5 trillion a day, making them the world's biggest financial market.

More than 40% of the trade takes place in London, and over half of it is dominated by just four players: Citi, Deutsche Bank, UBS, and Barclays.

These four banks have a significant influence on the market, with only about 100 people really mattering in this market.

Credit: youtube.com, Other People's Data: Monopoly and Discrimination | America's Monopoly Problem

About 30 of these key players have been either placed on gardening leave or fired from their position in the last year.

In the currency markets, traders use a mix of financial jargon and slang, often referring to each other as "numptys" or using phrases like "you getting betty on the mumble still".

Traders use strategies like conducting deals outside of accepted channels or skewing trades to consolidate influence, which were described as "taking out the filth" or "leaving you with ammo".

The large banks didn't have systems in place to monitor the chat rooms where traders coordinated market fixing, and when concerns were spotted, they were often overlooked.

Key Takeaways

Forex scandals are a thing of the past, or so it seems. While tighter regulations have reduced the number of scams, some problems still exist.

Be cautious of brokers with wide bid-ask spreads on certain currency pairs, making it difficult to earn profits on trades. This is a traditional scam that's still going strong.

Credit: youtube.com, Banks fined $3.4bn in forex probe

Offshore, unregulated brokers are a no-go. They're often unaccountable and may not have your best interests in mind.

Some trading services promise the world but deliver nothing. Be wary of signal sellers or robot trading systems that don't yield profitable results.

Commingling funds or limiting customer withdrawals are red flags that something fishy is going on. Don't be afraid to investigate further.

Here are some key things to look out for when choosing a broker:

  • Check if the broker is a member of NFA’s Background Affiliation Status Information Center (BASIC)
  • Be on the lookout for unreasonable pricing or promises of unrealistically strong results

Frequently Asked Questions

Is forex trading money laundering?

Forex trading is not inherently money laundering, but its decentralized nature and high volumes make it vulnerable to illicit activities. Learn more about the risks and regulations surrounding forex trading to ensure you're using it safely and responsibly.

Aaron Osinski

Writer

Aaron Osinski is a versatile writer with a passion for crafting engaging content across various topics. With a keen eye for detail and a knack for storytelling, he has established himself as a reliable voice in the online publishing world. Aaron's areas of expertise include financial journalism, with a focus on personal finance and consumer advocacy.

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