Welcome to our how to spot forex trading scams ultimate guide. We will take you through the most common forex trading scams and how to identify and avoid them.
Forex is the largest financial market in the world and it is strictly regulated. Forex trading involves buying and selling currency pairs, whose prices will vary based on exchange rates.
The existence of forex trading has attracted many retail investors who also trade forex as CFDs. Trading forex CFD carries no obligation of owning underlying assets. Instead, you will simply speculate on price movements of currencies and benefit from both the rising and falling prices.
The reason why most forex retail traders prefer CFDs is because of the attractive leverage they carry. However, leverage can bring about huge losses if you don’t apply it carefully. This means that forex trading is a potentially lucrative venture. You simply need to make the right moves.
There are many brokers globally offering forex trading services. However, not all of the forex brokers are legitimate, and you will still find some unscrupulous ones whose goals are to lure you into committing to them and end up scamming you. So, how can you spot these scams? Let’s find out.
Forex Trading Scams
It’s common knowledge that the forex trading market is decentralised, and no institution or entity supervises the entire market. However, there are financial regulators in various jurisdictions like the Commodity Futures Trading Commission (CFTC), the Financial Conduct Authority (FCA), and more, overseeing brokers’ activities.
You need extensive knowledge, skills, and strategy to trade forex successfully. A suitable broker also goes a long way in improving your trading experience. Therefore, while most traders understand the importance of choosing good forex brokers, others are driven by excellent offers without considering the risks attached.
Note that unethical forex brokerage firms will promise you a lot of profits if you trade with them. While it’s true that traders can actually make profits trading forex, there is also a potential for loss, which brings the need for extensive market research and analysis.
For as long as forex remains a lucrative venture, forex scams should be expected. That is why you need to identify these scams and know how to avoid them in the best way possible.
Types of Online Forex Trading Scams
There are various forms of online forex trading scams that you should be aware of. Some of these scams are common, and you are likely to experience them more frequently. Others are rare, but knowing them will prepare you on how to avoid them when encountered.
Note that while some of these forex scams come from brokers, others do not. To make matters worse, some of the legitimate services are actually exploited by rogue brokers, making it even more challenging to identify a scam.
Let’s take a look below at some of these forex trading scams.
- Expert Advisors or Robot Trading Scams
Trading forex using expert advisors or robots is usually beneficial to your trading activities if trading with a legitimate forex broker. These features automate your trades, but fraudulent forex brokers will convince you that they also generate huge profits.
There are no guaranteed profits in any trading activity, whether manual or automated. That is why we keep insisting to our readers to always be armed with an excellent strategy to have a chance at making profits. That being said, be on the lookout for brokers offering such promises.
- Signal Sellers
Signal sellers are individuals or companies providing advice to traders about when to buy and sell particular currency pairs. Usually, traders will pay them for their services of sharing the information regarding when to trade.
Note that some of these signal sellers are not qualified to extend the services they claim they can. They have zero experience in the field to advise forex traders. They will only convince you with rave reviews and a history of helping traders make huge profits.
Once you pay them and expect accurate information in return, they will either provide wrong information or not be heard from again. This makes you lose even more money than you could have should you have conducted the research on your own.
Identifying fake signal sellers is challenging, and the best way to avoid falling victim is to avoid seeking their services. No matter what they tell you, always stay woke.
- Multi-Level Marketing Forex Scam
Many scammers in the multi-level marketing businesses have decided to join the forex trading markets and gain from naive traders. The goal of such companies is to convince you to pay a monthly fee for daily educational resources and trade signals.
The multi-level marketing companies will then ask you as their member to refer more candidates for a fee. Remember that you have already signed up for a monthly subscription with them, and referring more candidates only increases their earnings without you even realising.
No money will ever buy you a successful trading activity since no companies can predict the financial markets’ volatile behaviours. If you pay keen attention, you will notice that the companies’ primary focus is recruiting new members rather than trading, which was why you joined them in the first place.
- Forex Broker Scams
Forex trading requires a suitable forex broker for your needs in order to increase your profit potential. There are many factors that you need to consider for a broker to be ideal for you. One of these factors is that you should ensure that the forex broker is regulated within your area of jurisdiction.
Whereas there are legitimate forex brokers, unscrupulous ones are also waiting for an opportunity to scam you. They will either take your money and overwhelm you with high fees and hidden charges or find an excuse to sign you off their platform.
Most of these rogue brokers are not regulated in various regions, which means that no financial body or authority oversees their activities. So, in case you get scammed, there is no hope for legal action against them.
- Forex Mutual Fund (PAMM) Scams
The Percentage Allocation Management Module (PAMM) is a legitimate forex trading product that the traditional hedge fund model inspires. Traders are invited to invest small amounts of money in programs that promise high returns.
Such programs rely on currency investors to pay the initial investors. This means that without a constant flow of cash from new investors, the program owner will experience huge losses and disappear with the remaining funds. For this reason, you need to conduct the necessary due diligence before investing.
How to Spot Forex Trading Scams
Scammers are very good at hiding their shady dealings, but you may pick up clues if you pay keen attention. Look out for the following red flag details:
- Guaranteed Successful Trades or Huge Profits
While you can earn profits trading forex, so can you experience losses. Many factors influence the forex market behaviour and you can never be guaranteed profitable forex trades.
If you are approached by any individual promising huge profits or specific trading results, do not entertain them since they are only after your money.
- No Background Information or Proof of Their Success
Scammers will rarely show you their loss history or profit charts from real trading accounts. Instead, they will share the charts from demo accounts, putting more focus on the profits.
If you come across such a scenario or feel that you are being given limited information, do not risk partnering with such individuals. Instead, ask them to provide you with all the information you need to be convinced, including a full chart detailing profit and loss history and background information.
If they do not provide what you require and come up with various excuses, it is definitely a scam in waiting.
- Persistent Marketing
You may find yourself in situations whereby you are being pushed to invest without being fully convinced that it’s suitable for you. If this happens, do not bend to the pressure since it might be an attempt to scam you.
Most of such individuals will even proceed to ask you for your personal information, which is usually used for shady stuff like identity theft. Simply put, if it doesn’t feel right, don’t do it.
- No Credibility Proof
When choosing a forex broker, you want to make sure that they are regulated in your region. Most legitimate forex brokers have listed the regulatory bodies overseeing their activities on their websites.
You can also confirm whether a broker is legitimate from the respective regulatory authorities’ websites. If a broker has no authority regulating its activities, you may want to consider trading with such brokers. Some countries will also find it illegal to trade with unregulated forex brokers.
Ways to Avoid Forex Scams
- Educate Yourself
Knowledge is the power, and it’s the best security that you can arm yourself with against scammers. Learn all the forex trading scams so that you can immediately identify one in case of an encounter.
- Conduct Proper Due Diligence
Conduct thorough research on a forex broker before deciding to trade forex with them. Check customer reviews from various platforms, including Trustpilot, Google Play, and App Store.
Through these user honest reviews, you will be able to know if a broker is trustworthy or not and its performance capabilities. Research also helps you to identify brokers that are licensed and regulated in your region.
- Broker Location
Trading with a broker that is locally regulated should be your priority. Not only do they keep your investment funds in a segregated account, but you are also guaranteed quality trading services as per the authorities regulations. In addition, most countries’ legal requirement is to trade with a regulated broker, and the last thing you want is an encounter with the law.
- Stay Away From the ‘Too Good to be’ True Opportunities
Your inner voice never lies, and if you feel that an offer is too good to be true, take a minute and think it over. Most likely, such kinds of offers are meant to lure you to invest with individuals making the offer. They will then later deny knowing you or being associated with you.
Simply put, avoid easy money when trading forex. Like they say, “Good things don’t come easily.” Take your time to research and analyse forex trading markets, develop a good strategy and improve your chances of earning profits.
- Ask Questions
Remember that you have the right to ask a forex broker or any other forex trading service provider as many questions as you wish until you are convinced that they are the right partners for you.
If you see that an individual is not answering your questions satisfactorily or is cutting you short, it should raise eyebrows. Phone calls should be the best communication channel to gauge such individuals since you will determine their legitimacy from the way they answer your questions.
Some of the common questions to ask include:
- Is there a binding contract, and how binding is it?
- How can its customer service be reached, and at what time?
- Do they have a physical address?
- Is their company registered or licensed?
- Any proof of their success story?
- Is there a performance history to refer to?
- What happens if they don’t meet your expectations?
- Is there a regulatory authority overseeing their activities?
To answer the question, Is forex trading a scam? Well, from our ultimate guide, forex trading is clearly not a scam. Instead, it is a lucrative venture and can earn you a substantial amount of profits if approached with the proper research methods and strategies.
Since forex trading itself is not regulated, many scammers are taking advantage of the market. So be knowledgeable and careful when trading the forex markets and know when to pump the brakes, especially if you feel something is not right.
Remember that when the deal is too good to be true, the chances are that it might be. So, learn more about forex trading scam risks and how to avoid them in order to outsmart a fraudster.