Forex Trading Scams – Take Notice and Avoid!
Most Forex trading takes place in the spot FX market, which is different from the futures market, as currencies are physically exchanged in real time when a transaction is made. In the futures market the date the trading price is determined and the date the currency is exchanged are different.
Both banking and financial lawyers have pointed to the following features of the Forex market which makes it very susceptible to Forex trading scams and Forex frauds:
- There is no regulated centralized exchange.
- Currencies are traded via computer networks between one trader and the next, often referred to as over-the-counter (OTC).
- The Forex market is a high leverage market.
Is Forex itself a scam?
The Forex market is a legitimate trading market in which world currencies are traded and therefor in itself it is not a scam. Without the Forex market it would be very difficult for traders to trade the currencies needed to buy imports, sell exports, go on holiday or do cross border business. But, because there is no centralised/regulated exchange, scammers do take advantage of the situation and the inexperienced, beginner traders desire to enter the market.
It has been found that scammers take advantage of all the complexities that surround the Forex market by withholding important information about market realities from their ‘victims’ and claiming that their scheme, information or software will bring a trader guaranteed success.
How to Spot and Avoid a Forex Scam?
The most important giveaway of a Forex scammer is usually a guarantee of large profits with little or no financial risk to the trader. There is no such thing as a 100% guarantee and if there was, no trader would willingly share it with other market players. Some of these offers may sound very attractive and too good to be true, especially to beginner traders. The truth is – they usually are. Rule of thumb: if something sounds too good to be true, it probably is.
Here are a few simple rules to follow in order to avoid Forex Scammers:
- Remain safe and do fall for empty promises
- Be especially wary of software which claims to have found a ‘secret formula’
- Do not install any programs until certain they won’t damage a traders’ computer
- Scammers never register with any regulatory authority which Forex brokers to avoid.
The single most important thing a trader can do to avoid being scammed is to learn to trade on the Forex market and understand the market properly. Beginners must ensure that the broker chosen has actually made the money they have claimed and due diligence is the key. Traders should make use of demo accounts and learn to make long term profits first before trading for real. In truth- it is a skill that can take years to master and any claim that states ‘you can make money quickly’ should be avoided. Traders should never take at face value the claims that are made by brokers as the gospel truth and must take the time to make their own analysis. A beginner trader should always be critical in their approach, analysing statistics and making their own functions that they have tested and had success with on a demo account first.
This will take some time to achieve but it will serve the inexperienced trader in the long run. Traders must never be rushed into a “too good to be true” investment.
Traders might also want to check is the authenticity of the company making the claims or selling the expertise/course by checking the location/jurisdiction where the business is registered, as a lot of Forex scammers will trade in locations where they believe the local law will make it hard for them to be prosecuted.
Forex markets trade trillions of dollars a day and multiple traders across the globe are looking for the best broker to trade forex, CFDs, binary options, stocks, cryptocurrencies, etc. With new forex brokers constantly entering the market, determining the legitimacy of a broker can be a real challenge. It is vital to research a company before depositing money to trade.
Different types of Forex Scams
The signal seller scam is a scam in which a person or a company sells info on which trades are made and claim that this information is based on professional forecasts which in turn guarantees to make the most inexperienced trader bucket loads of money. These scammers will usually charge either a daily/weekly or monthly fee for this service. They will usually be backed up with a massive list of testimonials from allegedly legitimate sources in order to gain the trader’s trust but in reality, do nothing to forecast profitable trades.
High yield investment programs
High yield Investment programmes are mostly a form of Ponzi scheme in which a high level of return is promised for a small initial investment, but in reality the initial investors are just being paid back from the income generated by the current investors – once there are no more investors in the scheme the owners usually close it down and take all money remaining.
Manipulation of bid/ask spreads
These types of scams have reduced over the past few years yet they still pop up. This is why it is very important for traders to choose a Forex broker which is registered with a regulatory agency. Manipulation of bid/ask spreads normally involve having spreads of around 7-8 pips instead of between 2-3 pips which is the norm.
Scams through software
Forex robot scammers will lure beginner traders with the promise of big gains from little effort or knowledge by using of fake or misleading figures to convince customers to buy their product.
These scams often involve a broker taking a traders’ money and instead of investing it and they use it to buy all sorts of luxury items for themselves. When the trader eventually wants to withdraw their money there is not enough money left to repay.
Ponzi or pyramid schemes
This is a very common form of fraud and makes promises of high returns from a small initial investment up front. The early investors usually do gain a return on their money and be motivated by this success they then recruit their friends and family into the scheme. In truth – the ‘investment opportunity’ does not actually exist and their initial return is being funded by money paid in by other members of the scheme. When investor interest starts to drop the scammers close the scheme and take the money.
Boiler room scams
This type of scam involves getting people to buy shares in a worthless private company on the promise that when the company goes public their shares will increase considerably. They use “urgency” – suggesting that an opportunity will be lost if an investor does not act quickly which prevents the target from being able to research the opportunity properly and possibly backing out. In reality – the company doesn’t really exist and may have a fake telephone number, office and website and once the scammers have made all the money, they can they will up and disappear with all investments.
Questions a trader can ask to avoid a possible forex trading scam
- Is the broker regulated?
- If regulated, how trustworthy is the regulatory body?
The Most Important Forex Market Regulators include
- ASIC: Australian Securities and Investments Commission
- BaFIN: The Bundesanstalt für Finanzdienstleistungsaufsicht (Germany)
- CFTC: Commodities and Futures Trading Commission (United States)
- CySec: Cyprus Securities and Exchange Commission
- FCA: Financial Conduct Authority (United Kingdom)
- FFMS: Federal Financial Markets Service
- FINMA: Swiss Financial Market Supervisory Authority
- FMA: Financial Market Authority (Austria)
- FSA: Financial Services Agency
- FSB: Financial Services Board (South Africa)
- Financial Services Commission:BVI
- Financial Services Commission (FSC): Mauritius
- IFSC: International Financial Services Commission
- FSP NZ: New Zealand Financial Service Provider
- ISA: Israel Securities Authority
- MFSA: Malta Financial Services Authority
- SEBI: Securities and Exchange Board of India
- VFSC: Vanuatu Financial Services Commission
- UAE: Abu Dhabi Central Bank
The most important forex market regulators cover the jurisdictions where most of the world’s forex brokerage businesses are located.
- Is the broker offering profits or rewards for opening an account?
- Is the broker offering a cash bonus for opening an account?
- Is the broker offering automatic trades or signals to guarantee profits?
- Is any credible information about the company included on its website, such as company history, financials, headquarters’ address, or similar?
- If awards are cited, can their authenticity be verified?
Forex trading is a popular investment opportunity for many traders, but if they are new to trading there are some very important points that a beginner needs to be aware of before the first ‘live’ trade. While there are a large number of reputable brokers which offers their services to traders across the world, but unfortunately there are also those who are looking to make money from unsuspecting victims.
The good news – traders definitely don’t need to be a victim if they know what to look out for.
A new trader may not know what they are looking for or be equipped to recognise a Forex trading scam and this may cause some concern when it comes to investing your money. There are a vital things to look out for in order to ensure that a trader indeed chooses to trade with a genuine Forex broker and avoid subscribing to any of the services that may lead to a scam.
What does a Typical Forex Scam look like?
There are many Forex trading scams which have managed to operate under the radar but others are bold and simply offer their amazing deals in plain sight. While there are many fake “opportunities” operating in multiple countries globally, but there are some that are more common than others.
Among the popular schemes designed to relieve you of your hard-earned cash are fake Forex signal sellers, managed investment funds and the everyday old dishonest scam broker routine which we have discussed earlier in this article. A phoney Forex broker will always be able to talk a good game and they will offer traders amazing spreads, and promise of significant returns, some even going as far as to provide fake testimonials.
What happens when a trader makes a deposit with a fake broker? Well, they can be sure of one thing – they will never see that money ever again. Unfortunately, while the Forex market is subject to a certain amount of regulation, it is not 100% regulated which sadly makes it possible for scam brokers to operate in the main arena without much notice, until it is too late.
Why does Forex Scams Exist?
This is literally the million-dollar question as no honest, hardworking trader could understand why anyone would want to carry out this kind of fraud and deception? Unfortunately, some people will stop at nothing to make a quick buck, even going as far as criminal lengths to defraud millions of investors. Because the FX market is not entirely regulated, just like binary options, anyone – even scammers can set up a trading platform and sell their services and match what all the honest, trustworthy brokers are doing and make traders buy into the lie. If traders are new to trading, it is very likely that they will not know how to spot a scam broker and will see only the promise of good returns and an easier, more lucrative lifestyle.
With no experience, how would traders know what they should be looking for? It is this lack of knowledge which encourages scam brokers to entice new traders to open accounts and deposit their funds. While brokers in most countries are required to operate with a trading license, this unfortunately does not apply to every country.
The first thing a trader needs to understand is that to make a scam attractive, it often appears too good to be true. This is a very clear red flag. As with anything in life, and business, if it sounds too good to be true, it usually is. Other key things that will help traders to stop before signing up with a fake broker is to look into online reviews and feedback. Traders can simply enter the company name into Google and if they are operating under false pretences, traders will be able to discover a lot, including lots of online forums with stories from other traders that have been defrauded of their cash, online. If it is a new scam, this might be a little more difficult, but it is always worth checking before signing on the dotted line.
To check if the broker is indeed licensed it should be as easy as looking at the footer of their website. Traders should be put off by the existence of scam Forex brokers and they don’t need to be a victim. Traders should simply exercise caution when choosing a broker and the company or parent company must be licensed, and they must be regulated.
If traders simply carry out an online research, they can find the most popular brokers that are universally recommended by multiple platforms. Often the best brokers are recommended multiple times as brokers that offer a whole host of benefits. Traders should be careful how they choose a broker as well and just because they are listed in the Google ads, for example, doesn’t mean they are legitimate. Any company can pay for these top spots.
Remember the Top five forex red flags!
- Any notion that traders can become uber successful in a short period of time.
- Any performance that seems too good to be true.
- Systems which claim outrageous winning percentages.
- Managed funds which don’t disclose trading history.
- Any systems which have “limited copies”.
Lastly, if a trader can afford to lose a small amount, then deposit the minimum – in case a wrong broker is indeed chosen, the loss is not that great.