There are considerable risks involved with trading the market if you are not well-versed in Forex. One of the most substantial risks is the high propensity of Forex trading scams within the Forex marketplace.
How do you avoid Forex scams? To avoid Forex scams, practice caution with the following tips:
- Do your research.
- Work with a trusted Forex broker with certified verification.
- Avoid them altogether by keeping your investment national, but not international.
- If it looks too good to be true, realize it probably is.
As a type of highly liquid investment, the Forex marketplace experiences daily trading of up to five trillion dollars. Use this quick read to understand Forex scams, warning signs to look out for, and steps for avoiding a fraudulent Forex broker.
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Is Forex Trading a Scam?
No, not all Forex investments are scams. Whether you are a trader or an investor, the Forex market is similar to other markets. The only real change is that the currencies are different; therefore, algorithms are needed to evaluate differentiating currency values. There are hundreds of reputable Forex brokerage companies globally that offer expertise in the complex trading of opposing currencies.
What you need to understand as a potential Forex investor or trader is that, as with anything mathematically complicated, people will have an easier time swindling you. Since the topic of trading is already beyond many people’s capacities, foreign exchange is simply another layer added to the numerical complexity. This intricacy makes it very easy for a scammer to have their way with your funds and why you should be very careful with Forex investments.
As John Russell states in his 2019 article for The Balance, ‘Reasons Why Forex Traders Lose Money:’
A commonly known fact is that most Forex traders fail. In fact, it is estimated that 96 percent of Forex traders lose money and end up quitting.
Although trading the Forex market is legal in most countries, it is still known for being incredibly risky, based on the reasons explained above. So even if you have a reliable Forex broker, you should not assume your accounts will be lucrative because the Forex trading requires hard work.
How to Avoid Forex Scams?
If you are interested in Forex trading, it should be done with prudence, in-depth research, and an understanding of where your funds will be moving next.
Only by understanding the process can you avoid those with deceptive motives. The steps we’ve cultivated for avoiding major Forex scams are as follows:
Do Your Research
You should not hand over your money blindly or after the first engagement with a new potential broker. This is a big step that should be taken with careful examination and inquiry into your chosen brokerage firm.
Our tips for researching each Forex brokerage firm to determine if they are authentic include:
- Talk to people – Ask around the company and look at the LinkedIn or professional profiles for employees within that firm. Read the descriptions and determine if it sounds reliable and secure.
- Seek out reviews – In the modern age where everyone shares their opinions, you can use this valuable source as a voice of reference. You can only know what the experience is like from those who have already lived through it. Determine if the reviews all sound the same, in which case, they are likely fake or created by bots.
- Ask Google – Type in the name of the individual broker or the firm’s name, followed by the word ‘scam.’ If tons of results come up with scam literally written all over them, you have your answer.
- Find proof – Look for any kind of evidence that makes it evident that this firm is serious, legitimate, and regulated.
Work with a Trusted Broker with Certified Verification
This will, again, come from research, but to offer you recommended legitimate Forex brokers, here are our top choices:
You can also check our guide on the best Forex brokers for beginners.
Researching each initial that you see to determine if it’s a fake is also useful in determining Forex scams. Frauds realize you’re looking for these kinds of factors, so they can just as easily add fake initials to their name, too. The subsequent initials don’t always mean that they are regulated, but it is often better than no initials.
We also recommend trying demo accounts with these brokers before going all in. If they are reputable, you can often sample them in a demo to determine if they seem legitimate and can accomplish what you’re seeking to do.
If It Looks Too Good to be True, It Probably Is
We all know this to be true. If it looks too ideal for you, ask yourself what the providers are getting out of it. There will be companies that reach out to get your money in exchange for massive ROIs.
Some essential indications to look for are:
- Extremely low or high buy-in rates
- Foreign currencies or exotic places you’ve never heard of
- Avoid Signal Scams that are commonly used with Forex scams. Signal Scams are (or just signals as they will call them) a tool that indicates forecasts of future account performances and triggers an action in investors. The broker will tell you that the projections look amazing and probably advise you to increase your investment, only to disappear with your money shortly after.
In the article ‘Forex Signal Seller Scams: How to Avoid Them,’ the following is stated about signal scams:
“Forex signal seller scams are a little more difficult to spot because there are worthwhile, non-fraudulent providers in the mix. A sure-fire way for a trader to reduce the risk of a signal seller scam is to question and scrutinize every trading opportunity and work out whose interest it truly benefits.”
Remember that there is no easy money, so if it sounds too good to be true, it probably is.
Forex Trading Scam Warning Signs to Look for
A few indications that you are looking at fraud will be:
- Deterrence from the data. They will try to distract you from trustworthy information because they don’t have any.
- Fluff that does not appear useful or related.
- Lots of hyperbolic phrases such as ‘You’ll make millions!’ and ‘Prepare to be richer than ever before!’
- Lots of promises – A professional Forex broker won’t make promises, only try to sell you on the possibilities in a realistic fashion.
- No mention of the risks involved – A professional Forex broker will walk you through these risks. A fraud will try to distract you from them with money talk.
Final Tips for Investing in the Forex Marketplace
If you do plan to work with a Forex broker, here are a few final tips to keep yourself safe:
- Beware of Commingling, which is commonly practiced in the Forex marketplace. Commingling means that securities are pooled together into a single fund. It includes lower fees and can be very lucrative, but only if done accurately by a regulated professional.
- Some traders will say the only way to enter this system will be with a starting investment of $5K+—many view these expensive initial investments to be scams in themselves. You should start with a low-capital investment and start small. You do need to invest something substantial even to see the real changes, but don’t go too far. $1K is a great place to start that shouldn’t end in disaster.
- A common tactic for scammers is when your broker suggests doing a ‘wide bid-ask’ on currency pairs. A wide bid-ask may sound as if it’s ‘widening your fishing net,’ but it’s actually making your reach too broad, and you’ll likely come up with no catch or bait. Your broker realizes this and is utilizing shady business tactics to retain more of your investment.
- Control the amount of leverage your brokerage is taking.
- Keep up with all tax regulations and implications as you invest.
- Avoid all unregulated Forex brokers.
- Avoid all offshore Forex brokers unless they have a wealth of evidence, regulation verification, and proof for their expertise.
There are many reputable Forex brokers, but scammers tend to get more and more skillful each year in this digital playground. The temptation for innovative scams will always be present, so you must protect yourself and your assets. No one else will.
We won’t tell you what to do, but the above statistic of 96% of people losing money on Forex investments should be enough to deter you. Realize that not everyone is looking out for your best interests. You can work with a certified and regulated broker if your intuition and research tell you so.
However, don’t rush into anything that feels compromising. Hold onto a small ounce of skepticism for your own good and diversify within national accounts, not solely international Forex accounts.