Forex is the largest financial market worldwide, with over $6 trillion traded daily. It allows corporations and central banks to trade with one another or tourists to visit new places, but it also allows speculators to profit from a market that operates 24 hours a day, five days a week.
There has never been an ideal time to gain access to a global forex market. You could be trading on the Euro, British pound, Japanese Yen, US dollar, or even the Russian Ruble with the click of a button! There are various options of currency pairings to trade, so you should have no trouble finding the ones that pique your interest.
Many people wonder, “Can you get rich trading forex?” While the financial gains from trading the forex market appear lucrative, they cannot be described as simple. It is a must to have a solid trading education, a properly funded trading account, and an understanding of risk management techniques.
Unfortunately, many unscrupulous individuals attempt to defraud individuals through forex trading scams. Forex scams will be there as long as the forex market does. Scammers are always nearby, trying to steal your money as schemes evolve. But is there a way to solve this problem?
Investment scams come in a variety of shapes and sizes. Some forex scams, such as the infamous Charles Ponzi scheme, are even named after their creators. Forex scammers typically prey on inexperienced or uneducated traders. Before you enter the markets, the best way to avoid being a victim and being scammed is to get a good forex trading education.
Forex scams frequently present “too-good-to-be-true investment opportunities” to persuade you to part with your money. Swindlers will try to exploit your optimism, fears, and lack of knowledge if you lack trading experience. Learning the markets means you’re no longer straightforward prey.
It is not just to call directly that trading forex is a scam. Those who face actual scams cry on social platforms, and those who have lost a lot of money for their mistakes also spread terrible words to the brokers. So there is a need to differentiate, and it is necessary to find out whether or not you are.
Since traders may blame brokers for their losses, brokers are not always to blame. Before opening an account, a trader should thoroughly research the broker. If the research turns positive, a small deposit should be made, followed by a few trades and a withdrawal. If everything goes well, a larger deposit can be made.
If you are already suffering, you should confirm that the broker is engaging in illegal activity (such as churning), try to get your questions answered, and report the person to the FINRA, SEC, or another regulatory body that can take action against them.
When looking for a potential forex broker, traders must learn to distinguish between fact and fiction. For example, when confronted with numerous forum posts, articles, and disgruntled comments about a broker, we can conclude that all traders fail and never make a profit. Traders who lose money post content on the internet, blaming the broker (or some other outside influence) for their failed strategies.
One common complaint from traders is that their broker was deliberately attempting to cause them to lose money by making statements like,
“The direction of the market reversed as soon as I placed the trade” or
“The broker, stop hunting my positions.”
“I always had slippage on my orders and never in my favour.”
These kinds of incidents are common among traders, and it is sometimes certain that the broker is not to blame.
New forex traders may fail to trade with a tried and true strategy or trading plan. Instead, they make trades based on psychology (for example, if a trader believes the market must move in one direction or another) and have a 50% chance of being correct.
When novice traders enter a position, it is often when their emotions are at their lowest. Experienced traders recognise these junior tendencies and intervene, taking the trade in the opposite direction.
This perplexes new traders and gives them the impression that the market—or their brokers—is out to get them and steal their profits. Typically, this is not the case. It is simply a failure on the trader’s part to comprehend market dynamics.
Losses are sometimes the broker’s fault. This can happen when a broker tries to rack up trading commissions at the client’s expense. Brokers have been reported to move quoted rates arbitrarily to trigger stop orders when other brokers’ rates have not moved to that price.
Fortunately for traders, this is an outlier and unlikely to occur. It is important to remember that trading is not always a zero-sum game, and brokers primarily profit from increased trading volumes. Overall, it is in the best favour of brokers to have long-term clients who trade regularly and thus maintain or profit.
Behavioural economics is frequently blamed for the slippage problem. Inexperienced traders frequently experience panic. They are afraid of missing a move, so they press the buy key, or they are afraid of losing more, so they press the sell key.
The broker cannot guarantee that an order will be executed at the desired price in volatile exchange rate environments. This causes abrupt movements and slippage.
The same can be said for stop or limit orders. Some brokers guarantee filling stop and limit orders, while others don’t.
Even in more transparent markets, slippage occurs, markets move, and we do not always obtain the desired price.
When communication between a trader and a brokerage firm breaks down, real problems can emerge. If a trader does not get responses from their broker or the broker provides vague answers to a trader’s questions, this is a standard red flag that the broker is not looking out for the client’s best interests.
Issues of such nature should be resolved and explained to the trader, and the broker should also be helpful and maintain good customer relations. One of the most damaging issues between the two parties is the trader’s inability to withdraw money from an account.
Brokers who are paid commissions for buying and selling securities may succumb to the temptation to effect transactions solely to generate a commission. Those who do this excessively risk being charged with churning, a term coined by the Securities and Exchange Commission (SEC) to describe when a broker places trades for reasons other than the client’s benefit.
Those found guilty of this face fines, reprimands, suspension, dismissal, disbarment, and, in some cases, criminal sanctions.
Regulatory authorities regulate retail forex and CFD trading in some parts of the world. The UK has the Financial Conduct Authority (FCA), Australia has the Australia Securities and Investment Commission (ASIC), Cyprus has the Cyprus Securities and Exchange Commission (CYSEC), South Africa has the FSCA, Kenya has the CMA, and so on.
However, because retail forex trading is unregulated in many countries, any forex broker operating in unregulated areas must obtain a foreign licence from mostly offshore regulators.
According to a Safe forex Brokers UK study, forex trading is unregulated in most of Africa and Asia, but many foreign CFD brokers still accept clients from this region. These brokers not only accept but actively promote unrestricted forex trading.
While some reputable forex brokers have a track record of being well-regulated in multiple regions, most brokers in such regions are not regulated by any regulatory authority.
Unlicensed brokers also run brokerage firms and provide trading platforms to the public, and when a trader deposits money into an account, he cannot withdraw it.
Before opening an account with any forex broker anywhere in the world, go to the relevant regulator’s website and examine the list of licenced forex brokers in your country.
If CFD or forex trading is prohibited in your country, you should avoid trading with foreign brokers. If there is a grey area, like a lack of regulation, but it is not illegal, and you still want to trade, avoid any brokers who are not multi-regulated.
Always check the broker’s authorisation and legality on the regulator’s website.
Some con artists sell trading signals and robots that tell a trader when to enter a trade or close a position. These forex robots are better used to assist you in technical analysis but should not be relied on to predict the overall market.
The signal providers may claim that their signals have a 98% success rate and demand a fee from the trader. After the fee is paid, the trader begins to receive email notifications whenever a new signal is released, and the trader uses this signal information to open a position.
The problem arises when after parting with money, the scammer usually sends a few email signal notifications before cutting off communication with the trader. Furthermore, there is no guarantee that these signals will work.
These scams primarily target inexperienced traders looking for a passive technique that guarantees success and is in a hurry to make profits.
Many forex brokers’ Standard Accounts are spread-only with no commissions, but they make up for it in the spread. The spread is the difference between a currency pair’s bid and asks prices.
Due to their high volume, major currency pairs such as EUR/USD have tighter spreads, whereas emerging market currency pairs have wider spreads.
When the price is manipulated, major currency pairs, such as the EUR/USD, have wide spreads.
The broker may claim that their spread is higher than what other brokers offer due to the bank with which they deal on the backend, among other reasons. Traders should inquire with other brokers about the spreads available for the currency pair in question.
Is the broker prone to price manipulation?
Furthermore, a currency pair’s bid and ask rates can change when a trade is placed and when it is properly executed. This is known as slippage.
It could be due to a network problem that slows trade execution speed, or it could simply be a currency risk that a trader is exposed to in a volatile forex market.
Are there too many slippages?
A rogue forex broker may exploit this by refusing to execute trading orders on time until the conversion rate of a currency pair fluctuates.
It forces the trader to cut his losses and sell the currency pair at the next available price, which the broker purchases at a discount.
To avoid this, some brokers offer guaranteed stop-loss orders (GSLOs), which a trader can purchase at a refundable premium to hedge against slippage risk.
Traders should always prefer online App stores and read user reviews about their broker’s App to see if users have complained about price manipulation or other illegal activity. This visit should be done regularly.
High Yield Investment Programs (HYIPs), also known as Ponzi schemes, pool resources from the unsuspecting public to invest in forex trading or other indices with the promise of profit sharing among all contributors. They function similarly to funds, gathering capital to invest on behalf of clients.
They also promise very high returns and start paying returns on investment to the original contributors.
Their victims are drawn in because Ponzi schemes recycle money from initial contributors and use it to pay new contributors, giving the impression that the scheme is legitimate.
When investors see their capital grow, they are more likely to invest more money in the scheme.
After collecting large sums of money from their victims, the Ponzi scheme managers close shop and fled.
Forex scams like this are prevalent in African countries. For example, an MBA forex scam primarily targeted Nigerian investors.
Forex pyramid schemes and multi-level marketing are typically based on a forex company with a trading platform. Because they need to attract more traders to their platform, they use the pyramid technique to incentivise traders.
An individual at the top of the pyramid recruits two people who will be below him on the pyramid. Those two people beneath him recruit three people, and the pyramid continues to grow.
The person at the top receives a paid commission for each recruitment, and so on. The higher you climb the pyramid, the more commission you receive.
A scammer uses a scheme like this to entice victims to patronise his company, sell them signals, forex videos, and materials, and then vanish with their money.
The most liquid forex pairs - The majors, minors, exotics? — 2023Initial HYIP benefactors may have their earnings clawed back when investigations begin, so it’s best not to give try to get lucky and avoid these HYIPs entirely.
Investors should always ask, double-check, and confirm whether the company they are dealing with is licenced to operate in their country and offer investment advice. Are they required by relevant regulatory authorities to accept public funds for investment?
Forex markets are highly volatile, and margin trading is fraught with risk. As a result, major regulators require brokers to post risk statements on their websites to inform the traders about the risks of trading forex and CFDs.
This is a red flag if a broker is seen promising bonuses such as a $50 bonus upon account opening, risk-free trading, or 80% returns on purchasing trading signals.
These rewards promises are designed to divert the trader’s attention away from the necessary due diligence. Most regulators forbid brokers from making any offer.
A forex trader who is inexperienced or too busy to trade can open a trading account and delegate trading to a professional account manager. These professionals are compensated for their services.
Scammers have also taken advantage of this, offering to manage traders’ accounts and then defrauding them. They may make trades that are not in the client’s best interests or simply steal the client’s funds.
Traders must investigate the account manager’s history to determine his past success rate, as well as their risk management strategy and past drawdowns to determine how efficient the fund manager is.
The appropriate authorities must also licence the account manager.
Most motivational forex videos and advertisements trending online usually show luxury yachts, cars, and so on to make the viewer believe the speaker/guru acquired all of those items through forex trading profits.
These so-called gurus do not discuss the disadvantages of trading and instead emphasise the advantages. Some of them operate or collaborate with unlicensed brokerages, defrauding investors.
Market regulators have ordered forex brokers to post risk disclosure statements on their websites. This statement emphasises the risks a trader faces while trading and some regulators have gone so far as to require brokers to display the percentage of people who lose money trading with them. This is generally located near the bottom of the broker’s website page.
The regulators have even limited the amount of leverage CFD brokers can provide to retail traders.
Social media gurus do not meet this regulatory requirement because they claim their programmes are almost risk-free, which is not possible. They wouldn’t be sharing the so-called winning formula if it were true.
Don’t take social media advice too seriously. Forex trading risks are hard to manage, and margin trading is hazardous.
The ideal way to avoid investment scams is to take due your time. Don’t rush your decisions, and make sure to weigh all of the pros and cons first. Finding a quality forex broker is not easy, but you will benefit in the long run if you put in the effort. When you come across a forex broker, the first thing you should do is Google their name.
Look for customer feedback on reliable websites. If there are none or they appear fake, you should avoid that service provider. You can also read scam reviews to see if a forex broker is as trustworthy as claimed. Also, determine if the broker is the subject of any pending legal proceedings.
You can, for example,
Visit forex forums to see if there are any complaints about fund withdrawals, and if there are, contact the user who posted the complaint and request more information.
Perhaps the user was incorrect or confused, but it never hurts to inquire. A thorough background check will reduce your risks.
Easy money? No way! Don’t believe the one who tells you it’s simple to make money with a “20% gain per month.” It’s nonsense because profitable forex and CFD (contract for difference) trading requires much screening time, education, patience, and quick wits. There is no way easy money to be had here; however, if you devote your time and learn how to trade correctly, you may be able to supplement your income.
Compare the regulatory authority’s regulations with the terms on the broker’s website to identify inconsistencies and anomalies in their terms. Consult with a licensed financial advisor if you don’t trust your judgment or simply don’t have the time.
You can also request proof of business registration before registering with a broker. When opening an account, make sure to read all of the fine print. When it comes to withdrawing funds, scammers will sometimes use account incentives against the trader.
As an example:
Remember, when you start live trading, always trade a small volume for a short time before attempting a withdrawal. If everything goes well, it is safe to deposit additional funds. Another indicator of a good or a bad broker is the availability of a Demo account. If you are not offered this option or are discouraged from demo trading, you are dealing with a forex scammer.
Remember that you can ask questions. A few questions tell you whether you’re dealing with a reputable broker or a forex con artist. Check the company’s registration and business background, and make sure you understand your rights. Remember that any information you receive from a potential new broker must be in writing. Never rely on promises made over the phone or in oral statements.
Ask yourself these questions:
While traders may blame the brokers for their losses, there are times when brokers are to blame literally. Before opening an account, a trader should conduct thorough research on the broker, and if the research turns up positive for the broker, a small deposit should be made, followed by a few trades and then a withdrawal. If all goes well, a larger deposit can be made.
However, suppose you are already in a bad situation. In that case, you should confirm that the broker is engaging in illegal activity (such as churning), try to get your questions answered, and report the person to the FINRA, SEC, or another regulatory authority that can take action against them.
Here is a list of forex trading tips that can help you avoid potential scams.
You can obtain the Retail Foreign Exchange Dealer (RFED) number from the broker. You can also contact the National Futures Association or the Commodity Futures Trading Commission.
