How to Prevent Futures Fraud
Regardless of what type of futures contract you may be involved with, there are steps you can take to protect yourself against fraud. These steps will include reporting fraud to the regulators and using smart contracts to make sure that you’re getting a fair price.
During the global financial crisis of 2008, spoofing became a law-in-action crime. The law prohibits spoofing by name on exchanges. But how has the law been applied? Are there general boundaries between spoofing and legitimate trading?
Spoofing is a form of market manipulation. It can be achieved in several ways, ranging from adding a big bid to the order book and then cancelling it to using algorithms to signal an intent to cancel. It can also take the form of an aggressive “flipping” attack.
Spoofing is an act that attempts to fraudulently influence the price of a futures contract. It can be used as a money-making strategy. A spoofer might bid to drive up the price and then sell at a profit. Alternatively, a spoofer may try to steal personal information.
Before Dodd-Frank, spoofing was treated as a bit of a gray area. Some traders informally recognized that spoofing differed from other forms of electronic trading. But spoofing became more widespread as electronic trading became commonplace.
Using smart contracts to prevent futures fraud is an intriguing concept. The technology aims to automate payments and other processes between multiple parties. They can be programmed into a decentralized blockchain or integrated into digital exchanges and payment mechanisms. Depending on the business case, smart contracts can save companies resources and reduce operational expenses.
The key to implementing a smart contract is having the proper legal framework. There are two primary legal structures that must be in place to make it work. The first is the Uniform Electronic Transactions Act (UETA) and the second is the Uniform Commercial Code (UCC).
A smart contract has a number of key benefits. It automates business processes across multiple organizations, which reduces costs, increases efficiency and improves processing speed. Its advantages include a reduction in the need for third-party management and collection costs. In addition, it can be a means of verifying winning bidders and automating order placement.
Another potential benefit is that it can reduce costs associated with accounts payable. If a vendor is late in making a payment, he or she may be suspended from using Internet-connected devices or software. A smart contract can automate the process and deduct the late fees automatically from the customer’s account.
Reporting fraud to regulators
Fortunately, there is an organization that has been around for more than a decade whose mission is to protect the ol’ boys and girls who invest in futures and options contracts. The National Futures Association, or NFA, is headquartered in Chicago and is supported by industry fees. In January, NFA announced an extensive list of recommendations.
The National Futures Association has long been overshadowed by the more well known market regulators. However, in recent months, the organization has made some headway. Aside from its infamous Peregrine Financial Advisors snafu, the organization has been tasked with the duty of keeping a pulse on the futures trading industry. Specifically, the organization has been tasked with surveying members. It has also commissioned a study into the aforementioned aforementioned.
The organization has also launched an Internet Crime Complaint Center. According to NFA, the ICCC has a long list of high-profile criminal complaints against brokers, introducing brokers, and other members of the industry.
Scammers who claim to earn thousands of dollars a day or month for life
Thousands of people lose money to scammers every year. The Federal Trade Commission estimates that Americans have lost $1.2 billion to fraudsters in the past three years.
The scammers pose as representatives of legitimate companies or government agencies. They offer a variety of investment opportunities. The scammer may request that you pay a deposit or up-front fee.
Usually, scammers try to get personal information. The information may be used for identity theft. If you have given out personal information, it is important to report the unauthorized charges to the authorities.
Scammers may also claim that you owe taxes, have missed jury duty, or have failed to pay your rent. The scammer then asks you to wire money back to them. Unless the money is from a legitimate financial institution, you should not send money to a stranger.
Another popular scam is the unexpected prize and lottery scam. You may receive a phone call, email, or text message claiming you have won a prize you never entered. This prize could include tropical holidays, electronic equipment, or money from an international lottery.