What kind of forex scams exist?
With such a large volume of activity and no centralized governing body, there is ample opportunity for individual traders to fall prey to a forex scam. There are a few that are fairly common that you should be aware of if you decide to trade. Let’s get into them.
Robot trading systems
The promise of earning money in your sleep is alluring. After all, we all want to earn passive income. Well, in the case of forex, there are scammers who will promise trading systems, or robots, that will do the hard work for you. The trade is conducted by computers and automatically makes buy and sell decisions based on specific parameters. The appeal is that you are promised to make money while the robot does all of the work. Needless to say, these systems aren’t tested and vetted by any outside source to confirm it’s legitimacy.
In any case, it isn’t a good idea to fully rely on any system to make decisions about your money and investments. As much as we tend to believe that computers are mistake-proof, they aren’t. Furthermore, no one (not even a computer) can predict world events or other economic signals that will impact the market. So although having a robot trade for you may seem appealing, you may want to avoid them.
Signal sellers
Signal sellers are companies or individuals who charge to provide advice on when to buy and sell a particular currency pair. Typically, these signal sellers require that investors pay some sort of recurring fee in exchange for this information. These people often make guarantees of outperforming the market and have somehow gotten trading down to a science.
The scam is that these signal sellers will collect money from traders without providing any information. Even worse, many aren’t even qualified—through experience or otherwise—to provide advice. In fact, a quick Google search will expose how easy it is to market yourself as a signal seller. It may be hard to identify these signal sellers as scammers, as they often provide rave reviews and quote a history of making large profits.
Multi-level marketing forex scams
The popularity of forex has been perpetuated by the emergence of multi-level marketing (MLM) businesses centered around forex trading. These businesses already come with their fair share of skepticism and it’s no different when it comes to forex. Some popular forex MLMs require members to pay a monthly fee in exchange for daily trade signals and forex educational materials. Members are then incentivized to recruit more people by receiving tiered commissions. With these companies, the emphasis is less on trading and more on recruiting new members.
Broker scams
A forex broker is a company that grants you access to a trading platform to buy and sell currencies. You will need a broker in order to do forex trading. Unfortunately, not all brokers are honest and legitimate—finding ways to take your money or inundate you with fees. Some are even unregulated, which means that they do not answer to any governing body. So, in the chance that you are scammed, there’s not much hope for legal recourse.
It is always a good idea to do your research on any broker that you plan to use. You can do a background check of sorts on the Background Affiliation Status Information Center (BASIC) website created by the National Futures Association.
Fake forex funds
You may come across forex funds that promise guaranteed returns on your initial investment. Fake funds will boast abnormally large annual returns that seem very enticing. But, as the adage goes, if it seems too good to be true, it probably is. Instead, consider less risky and proven index or mutual funds for your investment endeavors.
How do you identify a forex trading scam
As you would expect, scammers do a very good job of trying to conceal their dishonest practices. Nonetheless, there are a few things that can serve as clues that something is a scam.
1. A guarantee of success and/or large profits
2. No substantial proof or background information
3. Unsolicited marketing
The best thing that you can do to avoid a forex scam is to educate yourself. The more you know, the less likely you are to be taken advantage of. Knowledge is the best thing to be armed with. Do your research—learn more about the foreign exchange market, terminology, and the legitimate resources that are available to assist you with trading. Consider setting up a demo trading account with a trusted broker to practice before putting actual money on the line.