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Forex & Commodity Trading call the Division at (801) 530-6600
Key Questions To Ask Before Investing
 
  • What is the liquidity of the investment?  Most investment funds are long term investments and have various restrictions on withdrawals so an investor cannot withdraw at any given time. Sometimes an investment fund sets up yearly or quarterly windows for withdrawals with certain requirements. investors should be disclosed the withdrawal information in a disclosure document and should review the terms before investing.
  • What is the size of the investment fund? How many other investors does the fund manager or forex trader have? How much money has been collected from those other investors?  Investors should understand how large the fund is to determine the portion of the fund consists of their investment. Investors should also inquire where the money is held and ask for independent confirmation that the funds actually exist.
  • What is the track record of paying investors their interest and principal payments?  Promises and expectations may not always materialize. Investors should verify that the forex investment fund or manager has met their obligations to other investors before investing.
  • Is the forex trader or forex manager licensed with the NFA, SEC or the Utah Division of Securities? Is the forex investment fund registered with the SEC or Utah Division of Securities?  Ivestors should be extremely wary of any trader, manager, or investment fund that seeks to avoid proper licensing or securities registration. Such traders, managers, and investment funds do so either because they are unaware of the laws, rules, and regulations of the industry or they are looking to avoid regulation. In either case, this raises serious concerns about such individuals or companies.
  • How will the forex trader or forex fund manager use the investment funds?  Investors should fully understand how the forex trader or forex fund manager will use their money, the types of investments they will make with that money, and the risks associated with such strategies.
  • Has the forex fund manager or forex trader been involved in any legal proceedings, including civil lawsuits, bankruptcies, or criminal actions?  Clearly, investors should be concerned if the individual or company has a history of regulatory actions, civil lawsuits, bankruptcies, or criminal actions.
  • Will the account be set up in the investor’s name, the forex investment fund’s name, or some other individual or company name?  For forex traders that do no pool investor funds, investors open a forex account with a forex dealer in their own name. Investors then deposit money in their own name. These companies should be registered with the NFA and regulated by the CFTC, but they may also be broker-dealer firms registered with the SEC.
     
    If the forex trader seeks to have investors deposit funds in the trader’s name or in some other company’s name, they are likely pooling investor monies into an investment fund that must be properly registered.
     
    For forex fund managers that pool investor monies, investors will send their money to the company that is named in the subscription agreement and the disclosure documents. The company named in the subscription agreement and disclosure documents is the company with which investors have a contractual relationship; so investors should not send their money to the individual manager, the management company, or any other third party.
     
    When investment funds have money wired or checks written to individual traders, managers, or third parties, it is a red flag that investment funds may be commingled with personal funds or that the investors money will be used in some way not disclosed to the investor.
  • For forex investment funds, will the forex fund provide independently-audited financials of the company? Will the forex fund provide their accountant’s contact information?  Investors should review the financials of the company in which they may invest. Investors may also want to discuss with the accountant the cash flows, investment returns, and expenses of the investment fund before investing.
Investigate Before You Invest
 
  • Perform Your Own Due Diligence
    • Get everything in writing from the person offering the investment
    • Verify the company and person is licensed with either the NFA’s BASIC system or the Division’s Verify a License resource tool
    • Contact the Division of Securities to discuss the investment opportunity
    • Check SEC, CFTC, state securities regulators, and NFA to see if actions have previously been taken against trader/firm
    • Check with courts (federal and state) to see if the trader/firm has been involved in any legal proceedings
    • Seek advice from an attorney, accountant, investment adviser, or another independent third party
    • Simply performing a Google or Bing internet search on the fund manager or forex trader can be helpful in gathering information
  • Common Red Flags of a Fraud
    • The investment is offered by internet or telephone
    • The investment sounds too good to be true
    • Vague or unclear explanations of how the investment will earn money
    • The person selling the investment relies on your relationship or affiliations to build trust
    • Promises of high returns with little or no risk
    • A short disclosure document or no written disclosure document
    • Dismissal of the importance of a disclosure document
    • Unwillingness to put verbal statements or specific terms in writing
    • Unwillingness to provide background information on the investment or managers
  • Other Things to Consider
    • Remember the principle that higher returns entail higher risks
    • Do not invest more than you can bear to lose financially
    • Be wary of using retirement funds or home equity for speculative investments
    • Use common sense when considering the investment
    • There should not be any urgency or deadlines to invest. You should be afforded all the time you need to make an informed decision whether to invest.

Commodities

Commodities include bulk goods, such as foods, livestock, grains, metals, and even financial instruments such as currencies. Commodity trading involves the trading of contracts for a specific commodity, usually through a regulated exchange, whereby an investor agrees to buy or sell a specific quantity of a commodity at a specific price for delivery in the future. Commodity contracts are also known as futures contracts.

Commodity contracts and commodity options are specifically defined as securities under the Utah Uniform Securities Act. Click on the link to see the Definition of a Security.

Forex

The foreign exchange market (commonly referred to as “forex”) is a decentralized market wherein currencies are traded over the counter. Profits and losses are made as the exchange price of currencies increase or decrease. The market is very large and highly speculative, which makes the investment in forex very risky and not suitable for many investors.

Generally, larger institutions, such as banks, large corporations, and governments, are the major participants in forex trading, but individuals can participate as well. For more information on forex trading, including the risks associated, please read the investor Information brochure put together by the National Futures Association.

The Division has seen a dramatic rise in the number of companies and individuals seeking to either: (1) manage other people’s forex accounts or (2) pool investor monies into an investment fund with which they will invest in forex. Both these activities require licensing as an investment adviser or broker-dealer and the creation of an investment fund also requires that the fund meet certain registration requirements since that fund would be a security offering.

In short, if you want to invest in forex through some other person or company, they need to be licensed and their fund needs to be registered appropriately. The Division’s online resources allow you to Verify a License and Check Out an Investment Opportunity, but you can also call the Licensing Section to help you research this information at (801) 530-6600.

Regulation

Commodity trading is regulated by the Commodity Futures Trading Commission (CFTC). The firms and individuals who trade commodities should be registered with the National Futures Association (NFA). You can verify whether a company or person is properly registered with the NFA through their Background Affiliation Status Information Center (BASIC).

If a company or person is not registered with the NFA, they most likely need to be licensed with the Utah Division of Securities as an investment adviser or broker-dealer. You can verify whether a company or person is appropriately licensed through the Division’s Verify a License resource tool.

Forex Fraud

Forex Investment Funds

The Division has seen a rise in the number of forex frauds over the past few years. Often these forex frauds involve the company or individual pooling investor dollars into an investment fund which the fund manager invests in forex.

In many instances, the fund manager has failed to:

  • License the manager(s) with the National Futures Association (NFA), the Securities and Exchange Commission (SEC) or the Utah Division of Securities;
  • Properly register the investment fund as a security with the SEC or the Utah Division of Securities; and/or
  • Adequately disclose: the risks of the investment fund, the history of the manager(s), conflicts of interest, the investment strategy of the fund, the financials of the company, the full trading history, or the compensation arrangements for the manager(s) and solicitor(s).

In some cases, the funds are diverted to other investments, commingled with the manager’s personal funds, or stolen outright.

Securities Fraud

Securities fraud involves the misrepresentation of material facts to investors or the omission of material information from investors. Often fraudsters will misrepresent their trading history, their ability to earn profits in the forex market, and the returns investors will make. Fraudsters often omit the risks involved with their trading strategy and negative information in their past, such as criminal convictions, civil lawsuits, and past bankruptcies. Fraudsters have even created false account statements to hide losses or the theft of funds.

While the Division investigates and takes action against such fraudsters, the money is often gone by the time investors contact the Division. To avoid becoming a fraud victim, investors should use the Division’s online resources and consult with the Division or legal counsel about any private investment opportunities (such as forex trading and forex investment funds) before investing their money.

Investment Advisers Must Disclose Information

Whether the forex trader pools your money, manages it in your own account, or simply provides you recommendations, the Division considers them an investment adviser unless they are properly licensed as a Commodity Trading Adviser (CTA) or Commodity Pool Operator (CPO) with the NFA.

An investment adviser is required to provide a disclosure brochure (often called Form ADV Part II) to all prospective investors. The disclosure brochure outlines all services provided, all fees charged, and any conflicts of interest for the adviser. Investors should request and review this document before investing with the investment adviser / forex manager.

Investment Funds Provide Disclosure Documents

If your money is pooled with the money of other investors, the forex manager is operating an investment fund. Your equity or debt interest in the investment fund is a security of its own and must be properly registered. By offering that security, the forex fund must provide all prospective investors with an extensive disclosure document.

Often called a Private Placement Memorandum (PPM) or Private Offering Memorandum (POM), the issuer of an investment fund should provide a disclosure document to all prospective investors that thoroughly explains all material information about the investment. This document is typically 30 to 60 pages and contains the following information:

  • Detailed information about the investment strategy
  • The risks associated with the investment strategy
  • The use of investor funds
  • Background information about the principals and managers of fund
  • The compensation that will be paid to the principals, managers, and solicitors
  • The fund’s business and operating history
  • The fund’s track record and trading history
  • Audited financials of the fund