Introduction to forex scams
Since more than $5 trillion are traded daily, the Foreign exchange (Forex) market is the biggest financial market globally. In addition to central banks, corporations, speculators can also trade all 24 hours, 5 days weekly. It is very easy to trade online with hundreds of currencies and currency pairs, like the Euro, US dollar, British pound, Russian ruble, and Japanese yen. Though trading appears lucrative, it is also risky, and so the Forex trader should be well trained, and manage risk well. Additionally, there are a large number of scammers trying to cheat Forex traders and some tips to avoid losing money in a Forex scam are provided below. This spot forex market (with its enormous amount of money floating around) has not only created potential profit-making opportunities for the traders but also it has even opened up the possibilities of making forex scams by unscrupulous operators.
Forex scams represent every kind of manipulation on the foreign exchange market (forex rigging) or any action that misleads traders (advertisements may tout high-return, low-risk investment opportunities in foreign currency trading). Forex scams can be divided into two groups. The first one is the forex trading scam or forex rigging or forex investment scams when parties conspire to fix or inflate currency prices to achieve higher profits at the expense of the consumer. The second one is the promotion of get-rich-quick schemes in the forex industry which mislead traders, convincing them that they can expect to gain a high profit by trading in the foreign exchange market.
About forex rigging, we talked in our previous article.
Let us talk about something that is much more common, forex trading scams that mislead traders.
How to spot a forex scam?
Let us identify a Forex scam.
One of the easiest ways to detect a Forex scam is that it will promise extremely high profits with no risk or extremely low risk. However, in reality, there is no guarantee of making a profit. If it was possible, the traders would share this information with others. Many of the beginner Forex traders find these offers attractive and lose money. There is a lot of difference between what the scammers promise and the reality of Forex trading. Some rules which traders can use to avoid scammers are:
- remaining safe and avoiding offers which are unrealistic
- avoid using software which claims to have found a secret moneymaking formula
- do not install software, which may be malware or spyware, causing computer damage
The scammers will not register with regulatory authorities while genuine Forex brokers can provide details of their registration. If a Forex trader is suspecting a particular Forex broker, they can contact the relevant regulatory authority, who will usually provide a list of regulated companies, and the cases filed against these companies. This can help the trader avoid problematic Forex brokers.
Individuals who are involved in Forex and other scams are always looking for new methods to exploit gullible new traders. There are three main categories of forex scams in which people lose money. Understanding how they work is one step in avoiding them.
Still, the unscrupulous operators often end up making a luring scam for you so that you can easily get persuaded into it. But, no worries anymore! Please keep reading and you will reveal a detailed overview of the common forex scams and also know how to spot it in the first place.
Forex scams types
1. Spread bid-ask manipulation or point-related forex scam
Forex scam known as spread bid-ask manipulation is manipulation where unregulated brokers offer several times bigger floating spread and they directly increase the chances of their client losing investment.
This is one of the oldest forex scams which is based on the computer manipulation of bid-ask spreads. The spread varies between the currency pairs. Note, this scam can typically occur when the point spreads differ a lot among the brokers.
To be more precise, you may find some brokers who may not offer the standard two-point or three-point spread in USD/EUR. Rather, they may offer you spreads of seven pips or even more. Due to these additional pips, you may end up losing the potential gains from a winning trade.
Over the last ten years, the scam has quieted down a bit. Nevertheless, the possibility of a point-spread scam still exists especially if you are dealing with offshore retail brokers that are not regulated by the NFA and CFTC. Also, make sure to validate the nation of origin of these brokers before you deal with them.
Historically, it has been found that mostly United States-based companies have been the source for the point-related forex scam.
2. A false fund manager or the false single seller scam
This one can be categorized as a modern-day forex scam. It’s based on the single sellers. Do you know about the single sellers? Well, False fund managers or false single sellers are the pooled asset managers, retail firms, individual traders, and managed account companies that offer you a system with a claim to offer you favorable times to sell or buy a currency pair-based on professional guidance and recommendations. These platforms boast of having long-standing experience and unique trading abilities.
Especially, if you are a novice trader, they will trap you very easily and eventually disappear with your traded money. For example, they will claim to offer you some privileged trade recommendations and ask you to place your bets. After a while, they will disappear with all of your money. Unfortunately, the single seller scam is becoming a wider and more serious problem nowadays.
It’s true that there are many honest single seller systems available. However, a vast majority of them is a scam and they are following deceptive business practices. So, please beware.
3. Forex robot scamming or expert advisor manipulation
Expert advisors represent coding script that can analyze trades and automatically initiates and executes trades according to preprogrammed instructions. Very often, Expert advisors sellers use get-rich-quick schemes ads, unrealistic promote their product, and mislead potential customers.
So, by definition trading program that uses computer code/algorithms for opening and closing Forex trades is called a Forex robot. Some forex robots are legal, they are built using expert advisers (EA) feature of the Meta-trader trading platform. Online research can provide a list of forex robot-related scams. Some of the features of these scams are
– The marketing messages do not have any results as proof and are not realistic.
– very high returns in percentage, in a few years. It is advisable to check the statistics, in some cases, only incomplete statistics may be provided.
– Scalping strategies that are not diversified. Many forex robots are trading for small profits using a scalping system. This can help the trader make a profit regularly if market conditions are favorable. Yet if there is a change in the forex market, the same robot could make losses, wiping out the profits
– Unregulated brokers: Some Forex robots are showing good profits with unknown unregulated brokers yet if a Forex trader opens an account with these brokers, the commissions, spreads will be more, reducing the profit to a great extent.
Usually, well-optimized expert advisors show excellent past performance results because they are overfitted in some small-time range. In live trading, those robots show bad results.
Robot scamming has been a persistent forex scam. It typically occurs in certain types of forex-developed trading systems. These systems talk about a robotic code that can generate automatic trades. Irrespective of whether you are sleeping or you are busy with some other work, these systems will trigger its automatic code and help you earn your profits without a hassle.
These claims may sound quite lucrative but these are some absolutely fake claims. Most of these systems are not verified or formally reviewed. To be more precise, they have not been tested by an independent source.
Hence, before a system claims that it will trigger its automatic robot code to generate profits for you, please make sure to test whether its trading system’s parameters and optimization codes are fully reviewed and verified or not. If these optimization codes and parameters are invalid, the system will then generate random buy and sell signals.
Please do not fall into the trap of these robot scamming systems. Please do some research before putting your money into these platforms.
4. Trading system subscription scam
When you’re subscribing for a trading system, make sure to check for its pricing. Many trading systems offer exorbitant pricing. For example, they can cost you $5,000 or even more. This can be a possible scam.
Trading system developers, quantitative traders develop new trading systems every day. Usually, successful companies do not sell forex signals – they trade, manage other people’s money. Forex signals are not forex scam but false forex signals advertising and quick rich schemes promotion are a scam.
So, by definition, the Forex signal seller is an individual who is providing trade ideas related to a particular currency pair, trade director, stop loss, entry price, and target levels. Some tips on avoiding these scams are listed below:
– Subscription fees: Though these sellers show excellent results for forex trading without proof if the trader wishes to get access to these trades, the subscription fee demanded is very high. Subscription service is not a scam but false advertising and unrealistic results presentation makes bad reputation.
– Signals linked to broker: Some signal sellers will send their trading signals only to Forex traders who register with a forex specified broker. These signal sellers may be getting a commission from the broker they recommend even if the trader is making a loss. However, some of these sellers will try to ensure that the trader makes a profit so that he continues trading, and they receive their commission, which is the indirect payment for the service. It is important to verify the forex signal results, checking the proof, otherwise, they cannot be relied on. It is important to do due diligence before investing in any kind of money.
Commingling of funds is another persistent problem where the individual traders can not properly track and determine the exact performance of their investments. Commodity Futures Modernization Act of 2000 and its Section 4D have been issued to overcome the problem of fund segregation.
Another example of a common forex scam is the restriction in withdrawing money from investor accounts. Some brokers won’t allow you the withdrawal of money from your investor accounts. When you will try to withdraw money during a volatile market situation, it may flash warning signs. Beware of these systems and avoid them always.
Forex trading scam risks mitigation
Forex trading scam risks include the possibility of losing some or all of the original investment because of a lack of information or fact that actual gains will much differ from an expected outcome or return.
So there are a few main rules :
How to avoid forex trading scam risks:
1) Stay away from trading opportunities that sound too good to be true even in communication even in reading advertising material.
2) Avoid companies and persons that predict or guarantee large profits, that promise little or no financial risk
3) Invest money only in regulated forex brokers.
Forex scam recovery trader can do only with the help of a regulatory body. So if the scammer is from the UK you can contact FCA (UK Financial Conduct Authority) and ask them for help. Or for example, if you know for forex scams in Singapure than you can contact The Commercial Affairs Department (CAD) of the Singapore Police Force and Monetary Authority of Singapore (MAS). These organizations will help you to report forex trading scams in Singapore.
If you work with regulated brokers and organizations in the forex industry – you will always have protection.
Forex scams advertising
There are a large number of advertisements promoting Forex trading investment and Forex investment funds which may be fake. These slick ads promote results, which cannot be verified. They falsely claim that the investor will get excellent profits without any work after making an initial investment. Many people who send their money, get nothing since the company claims that it has not received the money. Another fraud is how these companies open an account with an unregulated broker. After a few trades, all the money is lost, and the company will blame the market conditions. Yet in reality, the money goes to the forex broker, who is unregulated, so the investor does not get his money.
Importance of Forex education
Since forex trading is risky, most traders will make some losses. The unskilled Forex trader is gambling his money. Retail traders are almost always undercapitalized and do not use leverage properly. In reality, most of the losses of the forex traders are because of incorrect trading strategies, not because they are cheated by their brokers. Unskilled beginner forex traders should spend their time trying to formulate better trading methods so that they are aware of the risks involved and avoid losses.
– Forex Trading Systems Without Proof: Many scammers are marketing forex education, trading systems, yet they are unable to provide any kind of proof of the trading history, the profits. In some cases, the scammers offer systems without any services or a trading room.
– Email spam requesting personal information: It is not advisable to provide personal information like name, phone number, home address to someone you do not know. Brokers should provide a written statement for risk disclosure and it should be read thoroughly
Avoiding investment and forex scams
The most effective way to avoid investment scams is by spending time doing research to determine the advantages and disadvantages. For a forex broker, it is advisable to search for more information using search engines, and check review sites, especially scam sites. Legal records, forums should also be checked for complaints, and people complaining should be contacted. A thorough background check reduces the risk involved. It is also advisable to avoid schemes which offer massive profits without much work since in reality, a lot of time is required for education, monitoring the forex market and decisions have to be taken quickly
Additional steps for protection
The terms on the forex brokers’ website should be compared with the regulations specified by the regulatory authority to find inconsistencies. Those who do not have the time or are inexperienced should contact a financial advisor for help. Business registration details should be verified before choosing a broker. It is important to read the fine print, at the time of account opening, since the terms may be used to block fund withdrawal. It is advisable to withdraw money at the earliest for a new account, to check the broker. A legit broker will usually offer a demo account. All terms and conditions should be specified in writing to avoid disputes at a later date.
You can easily avoid them if you are alert. Always be careful of offshore and unregulated brokers. Beware of automated robot trading and signal sellers. These systems are full of fake claims, they are not fully verified, and they do not yield profitable results.
If a forex broker is limiting customer withdrawal options or dealing with commingling funds, then it indicates a possible sign of shady and fishy practice. Another shady practice is a point-spread scam that some forex brokers oftentimes create.
The scammers are always trying to find new ways to cheat Forex traders. There are different types of investment scams, some like the Ponzi scheme have derived their name from their creator Charles Ponzi. Usually, uneducated traders and beginners are targeted by Forex scammers. Hence it is necessary for the trader to understand the Forex market well, before investing. The scammers understand that inexperienced traders do not have sufficient knowledge, are optimistic and fearful. Experienced traders are not duped by these Forex scammers easily since they know that the offers are not realistic.
Beware of all these forex scams. Also, be wary of the new forex scams. Before dealing with them, make sure to check if they are validated by the BASIC rule (Background Affiliation Status Information Center), created by NFA.