What Are Forex Scams?
Foreign exchange trading is all the rage at the moment. Users from across the globe are scrambling to get in on the action and make their fortunes. So are the operators of forex scams.
But what is forex trading and how do you protect yourself from becoming a victim of forex scams?
The Foreign Exchange Market
The foreign exchange market is a localized international market for the trading of global currencies. In simpler terms, it’s where you trade pairs of currencies, like buying US dollars with British pounds. A recent survey indicates that roughly $6.6 trillion passes through foreign exchange markets each trading day.
Know Your Broker — Regulated vs. Unregulated
Forex trading first became available to retail traders as early as 1999. Since that time, many fake trading platforms have popped up online. They are forex scams. And they bring a wave of devastation upon their unsuspecting victims.
Scam brokers are international criminals with no moral compass. They have no problem leaving their victims penniless and destitute. The sites they operate are unlicensed by reputable national financial regulators. To make it hard for anyone to identify them, unregulated brokerages generally base themselves in safe havens offshore. The most popular destinations to conceal their operations are generally Eastern European countries and small, isolated island states. Their modus operandi is to create the illusion that clients are trading, but, in fact, no trading takes place. Only when clients decide to withdraw their funds do they realize something is not quite right.
Types of Forex Scams
There are many types of forex scams. Below is a list of the most common ones:
- Signal seller scam companies or individual traders who claim, based on so-called “expert” recommendations, that they can identify the best times to trade. They draw their victims in by misrepresenting their knowledge, abilities and success through fake testimonials and endorsements. Once a victim deposits a significant amount of money, the scammer disappears without a trace and cannot be contacted further.
- Forex trading robots, which use trading programs with complex algorithms to signal when to enter and exit a trade. Many of these systems are not tested by independent third-parties. As a result, invalid parameters and optimization codes generate unreliable signals. Since reliable systems do exist, traders should do their due diligence before signing up even with any broker.
- Managed accounts scams, in which victims put their trust in the hands of a “professional trader” who trades their capital in exchange for a percentage of the profits. The problem, of course, is that unsuspecting victims are trusting total strangers simply due to the allure of financial success. These managed accounts often turn out to be scams. The “professional trader” ultimately disappears along with the invested capital.
How to Spot a Forex Scam
The best advice is to use common sense, do your research and due diligence. Do not fall into the trap they set by promising quick wealth and grandeur. Follow your instincts and do not base your decisions on emotion alone.
Ensure that the company is a registered and regulated brokerage in your country. Look for customer feedback on independent review sites. It is also important to ensure that the company has a verified track record and trading history.
Be wary of companies advertising on Facebook and other social media platforms. Offering profits, rewards or bonuses for opening accounts is a red flag.