Forex Trading Scams 2023: How To Avoid It?
Trading any type of investment comes with inherent risk, and it’s not just about losing trades. There are also risks of being scammed by brokers and other malicious actors looking to take advantage of unsuspecting traders.
Research shows that in 2021, almost 90,00 Americans were victims of investment fraud, with losses totaling almost $1.6 billion.
Scams are especially rampant in the forex market, considering it’s the largest financial market in the world and thus draws many people hoping for easy, quick profits. Unfortunately, this makes them prime targets for fraudulent activities.
On the bright side, there are steps you can take to avoid forex scams and ensure your trading experience is a safe one.
Read More: Best Forex Trading Apps 2023
What is Forex Trading?
Forex trading, also known as currency trading, is the buying and selling of foreign currencies to make a profit. You can trade the world’s currencies in the hopes of making a profit from changing foreign exchange rates.
Central banks, governments, and large financial institutions are the main participants in the forex market. But individual traders can also take part with the help of a broker or trading platform.
What are Forex Trading Scams?
A forex trading scam is any attempt by a scammer to defraud a forex trader of their hard-earned forex fund. This can take many forms, from fake forex robots that claim to make you millions overnight to scam brokers who offer unrealistic returns and manipulate the market in their favor.
How to Identify Forex Scams
There are telltale signs when you’re being targeted for a scam. Remember these red flags so you can better avoid forex trading scams:
No one can guarantee profits in forex, so anyone who tells you otherwise is likely trying to scam you.
Forex scammers will often try to pressure you into making a quick decision or investing more than you’re comfortable with by using high-pressure tactics like deadlines and threats. Don’t fall for it.
Be wary of brokers that are not regulated by any governing body or don’t provide sufficient information about their regulation. This may be a sign of a potential scammer and should be avoided at all costs.
If you’re researching a broker, thoroughly check if they have a legitimate business background. Watch out for fake reviews designed to lure unsuspecting traders in with false promises and guarantees of success.
Most Popular Forex Scams in The Forex Market
To help you avoid forex scams, you’ll need to know what to look out for. The most common forex scams include the following:
Signal Seller Scams
A signal seller scam is a very common forex scam. It involves signal sellers promising to provide reliable signals for certain trades in exchange for a fee. However, these trading signals are usually inaccurate or outdated and can lead to significant losses.
Forex Broker Scams
This type of scam occurs when a scam broker offers an unrealistic return on investment or promises you vast wealth without any risk. It is often done through high-pressure sales tactics and can be difficult to detect.
Forex Robot Scams
These scams involve bots that employ trading systems for automatic trades and promise to make you money without any effort or knowledge on your part. However, a forex robot is often unreliable and can actually lead to more losses than gains.
Managed Account Scams
This forex scam refers to when a third party or “expert” offers to manage your trading account for you. They will then take your funds and invest them in high-risk trades without informing you or giving you any control over the decision-making process.
Ponzi & Pyramid Schemes
A Ponzi scheme, or pyramid scheme, is a fraudulent investment operation where investors are promised high returns with little to no risk. The operators of the scheme will use money from new investors to pay existing ones, creating an illusion of success and stability while actually providing no real profits.
On the other hand, in a pyramid scheme, operators will recruit new investors and ask them to pay for a certain product or service, then use that money to pay existing investors.
The operator will continue to take more funds and make more money from initial investors until there are no more people willing to invest, leaving all but the top few at a significant financial loss.
Tips to Spot Forex Scams
New traders can prepare themselves to avoid fraudulent activities and other scams by doing the following:
- Do your research. Before you start trading, do some research on the company offering it and make sure they are legitimate. Check out its performance history and reviews from other traders and look for signs of a scam, such as promises of huge profits.
- Read the fine print. When signing up for an account, be sure to read all terms and conditions carefully. Pay close attention to details such as fees, commissions, leverage ratios, and withdrawal policies, so you understand what you’re getting into.
- Learn the basics. Before trading forex, it’s important to have a good understanding of the market and how it works. Learn key terms like pips and leverage, and get trade ideas from experienced investors. If available, you can use a demo account to get the hang of things.
- Use a regulated broker. It’s best to stick with a regulated broker or one that’s backed by a legitimate financial authority such as CySEC or FCA. These organizations protect investors by ensuring that their funds are safe and secure.
- Monitor your trades. When you trade forex, be sure to monitor your positions regularly so that you can catch any suspicious activity. If something doesn’t seem right, contact your forex broker immediately and ask for an explanation.
- Skip OTC markets. If you’re a new investor, avoid trading in the OTC (over-the-counter) market. These markets are more susceptible to fraud and manipulative tactics, so it’s best to stay away from them until you have more experience.
- Don’t be fooled by promises. Beware of any brokers who promise profits that are- too good to be true or guarantee that you won’t lose money. As with any type of investment, there is always a chance that you could lose your capital so never invest more than you can afford to lose.
What Should You Do If You Have Been Scammed?
If you think you may have been scammed, act quickly and contact your forex broker to investigate. If they are unable or unwilling to help, then it’s time to take further steps yourself.
You should report any suspected fraudulent activity to the local state attorney general’s office and also notify the Federal Trade Commission (FTC). You may also want to consider filing a complaint with FINRA (Financial Industry Regulatory Authority) if your broker was registered in their system.
It’s important for all traders who have suffered losses to make reports so that the authorities can take the necessary steps to protect other potential victims.
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Forex scams are unfortunately all too common, but the good news is that they can be easily avoided if you know the warning signs.
Doing your due diligence and double-checking any broker you’re considering is the best way to ensure your money is safe. And if you think you may have been scammed, don’t hesitate to contact the authorities and get help.
Frequently Asked Questions (FAQs)
Fake claims are very easy to spot to avoid scams. If someone is promising you unrealistic returns or guaranteeing that you’ll never lose money, these should be huge red flags. In the real world of forex, there is no such thing as a free lunch, and no one can guarantee the success of any trade.
No, forex is not a zero-sum game. While it’s true that there will always be winners and losers in the market, profits or losses are never guaranteed.
The easiest way to spot scam brokers is by researching the company you are considering and looking for red flags. Check reviews, read terms and conditions carefully, look out for hidden fees or charges, and ensure that the company is registered with FINRA.
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Foreign currency exchange (forex) | Investor.gov. www.investor.gov. Accessed March 16, 2023. https://www.investor.gov/introduction-investing/investing-basics/glossary/foreign-currency-exchange-forex
International Trade Administration. Foreign Exchange Risk | International Trade Administration. www.trade.gov. Accessed March 16, 2023. https://www.trade.gov/foreign-exchange-risk
Fraud Advisory: Foreign Currency (Forex) Fraud | CFTC. www.cftc.gov. Accessed March 16, 2023. https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/fraudadv_forex.html
Cyprus Securities and Exchange Commission |. Cysec.gov.cy. Published 2023. Accessed March 16, 2023. https://www.cysec.gov.cy/en-GB/home/
Report International Scams at econsumer.gov. Federal Trade Commission. Accessed March 16, 2023. https://www.ftc.gov/media/70962