Much like every other form of trading, Forex trading is open for scammers to take advantage of interested traders. In fact, with Forex trading, scamming is even more likely, due to the fact that this is an unregulated spot market, with 0 accountability. Forex or Foreign Exchange is the global market for trading one currency for another. With $4 Billion of money floating around daily it is easy to see why scammers would chose to attack the Forex traders for a quick payoff. In the next few paragraphs we will go over few of the most common scams and simple things you can do to avoid becoming a victim.
Types of Scams
- The Point-Spread Scam
One of the original scams in the world of Forex trading is the Point-Spread Scam. This method of scamming was based on computer manipulation of the bid/ask spreads. The point spread between the bid and ask determines the commission of a back-and-forth transaction done through a broker. The scam was to change that spread from broker to broker. This allowed the scammers to eat away at your gains and take it as commission. This scam is not as common anymore in last 10 years but it is still worth being keeping an eye out for.
- Signal-Seller Scam
One of the more modern scams, that is still widely used today is the Signal-Seller Scam. With signal sellers, you will have someone from retail firms, pooled asset managers, or individual traders that offer to sell you a system – for a fee that might be daily, weekly or monthly, in return for identifying advantageous time to buy or sell a currency pair. They will use their vast experience, testimonials from happy customers, and their trading abilities to convince people they are trustable and can guarantee large gains. These scammers usually gather up payments from multiple traders and disappear. Remember while there are legit signal sellers who are honest, unless it’s with a company like Metatrader, you are better off staying away.
- ‘Robot’ Scamming
A scam that has existed for a while, with no signs of slowing down is the Robot Scamming. This scam revolves around some types of forex-developed trading systems. By selling traders these untested and unreviewed systems that promised to generate automatic trades continuously. This is where the term robot comes from, the systems’ ability to function automatically. Since these system’s parameters and optimization codes aren’t confirmed they can easily generate random buy/sell signals causing you to gamble your funds on unconfirmed chance-based purchases.
- Phony Forex Investment Management Funds
In recent years, this scam has grown rapidly. These “Management Funds” offer the investor the “opportunity” to have a top-level forex trader, who can provide them with huge gains, control their trades for them. While that sounds great, it requires you to give over control of your money to a stranger. While you are waiting on the returns of your investment, the person you trusted your money with disappears with your funds.
One of the main rules of Forex market is, if the offer sounds too good to be true, it probably is. 100% returns or promise of great wealth usually ends in a loss of 100% on your money. Always take your time to check on any system or method you want to use. Best way to avoid being frauded is to use brokers who also handle stock market trades. These firms face regulations and oversight, and would not risk their license by defrauding its forex customers.