One of the most profitable markets is forex trading. Since the early 2000s, the spread of the internet has connected the entire world, thus attracting more traders. As a result, forex scams have grown ever since.
Many took advantage of the internet and entered the Forex market. As a result, many have now become experienced and are quite successful.
However, the number of scammed traders are rising as the Forex market has gained popularity. As people are opting for alternative sources of income like the Forex market, it is in your best interest to understand how these scams work.
So the question arises, is the Forex market a scam?
Trading in a Forex or FX market is legal. The world’s currencies are traded over here. It would be challenging for people to import, export, go to a foreign destination, or even do cross-border businesses in the absence of a Forex market. Since Forex trade is not regulated, and a huge amount of money can be made due to leverage, scammers take undue advantage of this situation and also many inexperienced traders enter the Forex market.
The FX market is where while one trader makes a profit another trader will make a loss; it is also called a “zero-sum” market. Large, well-financed corporate institutions and banks are better informed about the market situation, and a lot of money is moved in the Forex market. Thus the undercapitalized traders are the ones to lose. Large banks and institutions trade in FX daily.
Learning about Forex scams
As time progresses, scammers try their best to stay with the progress and involve themselves in deceptive schemes. Luring inexperienced traders is their prime objective. Once these inexperienced traders are scammed, it makes these traders lose interest in the market, thus denying the opportunity to trade in future.
Below is the list of scams that are related to FX.
1. Signal Sellers
The broker pulls up this scam by convincing their potential prey that they have information on specific trades that will surely help make a considerable profit. And to avail, for these “tips,” traders need to pay a fee. This information is based on a financial forecast. Inexperienced traders fall for this gag. Since these tips are a forecast, any trader, even an inexperienced trader, can predict after devoting some time to studying the market. If these traders study the market, their chances to maximize profit increase as they can truly predict the market based on market cues.
2. High yield investment programs
These scams are generally just another Ponzi scheme where high returns are promised by initially investing small. However, in reality, the new investor’s money is used to pay the old investor; thus, the money just keeps on circulating from one investor to another. The scheme continues until the money remains in circulation. Once the game is up, the brokers usually run away without a trace, or they make a profit and blame it on a “bad investment” move and remain in touch with the victims until another “lucrative” opportunity comes in the picture, and the show repeats once again.
3. Bid/ask spread manipulation
Although these scams are on a decline, few brokers continue to lure in inexperienced traders. In addition, awareness about this scam has spread throughout the internet, reducing its visibility. One more reason to choose a registered broker with a reputed regulatory authority. These scams are pulled by involving a spread of 7-8 pips instead of recommended 2-3 pips.
These brokers encourage inexperienced traders to make a huge profit by placing their bets on 7-8 pips. The broker mends money irrespective of whether the trader makes a profit or a loss.
4. Scams through software
An FX robot or a bot from a reputed broker is impressive. The broker has invested a lot of money to make a bot that carries out a trade for you. These are tried and tested bots, and their success rate is quite respectable. In addition, several algorithms help narrow down the window of opportunity and help in minimizing the risk of loss. Of course, these bots are not 100% accurate, but their ability to carry out a successful trade is far superior to the trade carried out by an experienced trader.
Impostors who pose as Forex brokers are also market bots. These brokers try to compete with a reputed broker at quite a convincing price. However, there is a glitch. These fake brokers are selling a bot that has not been proven. These counterfeit brokers support the performance of their fake bots, which are pretty convincing. Any inexperienced broker would fall for it since many inexperienced brokers do not have a huge capital to invest.
Since these bots have not been field tested, the broker makes money as the users keep on betting with an unreliable bot. Thus it is an expensive proposition for the inexperienced trader.
5. Managed accounts
These scams are pulled by a fake broker approaching their potential victims through the unsolicited advert and will pitch to manage their accounts and maximize profit for them. Victims believe them and keep on investing when the broker advises them. However, instead of investing money into the trade, these brokers will buy luxurious items for themselves. And when the victim wishes to withdraw their so-called profits, the broker makes excuses to avoid paying them all together or will pay a little of what is left.
6. Boiler room scams
Brokers will encourage people to buy stocks of a worthless private company. The broker assures their potential victims that the stock price will shoot up once this company goes public. Since the company will go public in a few days, it must be bought immediately. As these brokers pitch in the sense of urgency on a good prospect of earning huge returns, the potential victims do not get a chance to do a background check about the company in question. Instead, the broker gives the address to the fake website of the company with an incorrect phone number. Thus, the victims get convinced and put their hard-earned money into it. Just to discover that they have been cheated. The website remains active until the scammers make substantial money and eventually disappear.
Now the question arises how to spot a fake Forex scam?
Instead of going for any broker, it is wise to approach a reputed broker. These brokers do not pressure you into opting for their services. Many have dedicated customer service ready to help you with your queries and any difficulties you might face. Even these customer service agents are quite polite. Many have offered a demo account for you to practice and get the feel of the real deal. Since these brokers have web visibility, they will generally have their registered license number, which can be checked against the regulatory authority of the broker’s country of origin.
If any of the above things are missing, you should not entertain the broker. One thing is for sure, these brokers are fake and are only interested in your money. But, on the other hand, some brokers are smart as they acquire a license in the country of their origin as they may not have stringent regulations to deal with.
