While opportunities abound in the world of trading, sadly the industry is also something of a perfect arena for scammers looking to take advantage of well-meaning but naïve investors.
Forex trading, in particular, seems to attract those with nefarious intent, and it’s easy to see why – this is a market that turns over trillions of dollars every single day, and yet it remains largely unregulated to any considerable level.
Trades can be conducted instantly with little or no due diligence, and so you can see why scammers might consider forex trading to be the ideal venture for them to illegitimately make a quick buck.
Other prevailing conditions also feed into forex scams. We live in a world of fast-moving technology and social media influence, and sadly there are those promising ‘get rich quick schemes’ that, for more experienced investors, truly have to be seen to be believed.
But newcomers to trading, and those that need/want money fast, can easily succumb to these so-called influencers on YouTube and Instagram that claim that making money from forex is easy; as long as you pay for their training course or signals, that is.
When you consider the amounts of leverage available to even the most recreational of traders, it’s little wonder that forex trading is a sector so ravaged by scams and Ponzi schemes.
Common forex trading scams
There are numerous forex trading scams – some quite hard to detect, others as subtle as a sledgehammer.
The most obvious scam to watch out for is an unregulated, offshore broker taking your money and then disappearing into the night. After all, some brokerages can get started with pretty much next to no capital – just a website and a registered address, often on some obscure Caribbean island, is all that is required.
That’s not to suggest that all offshore forex brokers are scams, and there are many benefits to trading with such a firm – you can read a Just Forex review for just one example of that.
Later in this article, we will reveal some handy hints that will help you to spot a scam broker.
Another forex scam to consider is that of so-called managed funds. These are essentially trading brokers that manage your account for you, promising a certain ROI thanks to their experience and skill at spotting market opportunities. Yadda yadda yadda.
But are the skills and experiences of these fund managers all they are cracked up to be? Have they a proven track record in forex trading? And if they are so good at it, why aren’t they trading using their own capital?
Managed funds can also lead to churning. Some firms earn their money through commissions on completed trades, so they will open and close a high volume of positions just to make their money – regardless of whether that is beneficial to your bankroll or not.
You should be able to set your own investing goals when joining a managed fund, so if you opt for conservative, passive income and then your broker starts to invest in all manner of wildly speculative assets and currency pairs, you can be sure that some churning is going on.
The signal seller scam is alive and well – and thriving thanks to new tech and social media. For a fee or some kind of ongoing subscription, they will claim to reveal particular times of the day to buy/sell a currency pair. They will use examples of successful signals as a way of baiting new customers – happily disregarding those signals that were not of any use – and utilize testimonials of traders, who may be real or made-up people, as a way of ‘legitimizing’ their operation.
Remember, you can find your own trading signals from numerous free sources – you don’t need to pay for such a service.
And always be wary of anyone touting a game-changing algorithm or robot trading system. These so often prove too good to be true, and their inventors can make bold claims about their success rate – after all, there’s nobody to verify their record or test the capabilities of the bot.
Again, if these individuals had an automated system that earned them millions of dollars while they slept, why on earth would they want to share it with you?
How to spot a forex scam
Remember, the forex market is a ‘zero-sum game – that means that for someone to make a profit, somebody else has to lose.
That mindset will help you when spotting forex scams because it will help you to see that not all that glitters is golden.
It’s often easy to spot a scam broker – they will be unresponsive to your messages, and there may be issues when it comes to withdrawing your funds. Why? Because the broker has probably not segregated their clients’ accounts from their own bankroll.
Sadly, many of the red flags only appear AFTER you have engaged with a broker or a managed fund account, so the key is not in spotting forex scams but actually avoiding them altogether in the first place.
How to avoid a forex scam
Always test a broker before you sign up for an account – send them messages, pester their customer support, and really get a feel for how responsive and professional they are. You can even create a generic email to send out to numerous brokers at once, and then judge the speed and quality of their replies.
Always read the T&Cs of any documentation, and don’t hesitate to set up a demo account before making a deposit – again, getting a feel for the place before investing is key.
Online reviews, taken with a pinch of salt, can be helpful, and always seek out forex trading firms that have any relevant certification – are they a member of the Financial Industry Regulatory Authority (FINRA), the National Futures Association (NFA), or the Commodity Futures Trading Commission (CFTC), for example?