Forex traders with little experience can be deliberately targeted by unregulated and deceptive brokers, as well as other so-called industry professionals, attempting to fraudulently obtain their money.
Regulation of this relatively new industry is continuing to improve and provide traders with protection and peace of mind. However, there will always be shady operators, setting traps and using tricks to manipulate unsuspecting clients. Traders always need to be on their guard and extremely thorough with their checks before handing over large sums of money to anyone in the industry.
Here are ten common forex scams to look out for.
1. Fake / Unregulated Brokers
Fake, unregulated brokers can lure traders in with promises of high and even guaranteed profits, zero spreads, or other unrealistic offers. As much FX trading is now done online, it is easy for fraudulent companies to put together a high-tech web presence that looks entirely plausible. It is therefore vitally important to perform stringent checks on the broker before entering into any trading agreement.
Traders should check for a company address and verify it; check the website Whois information and make sure it is registered in the company’s name (or their parent company name); and only go for brokers that are authorised and regulated by the relevant industry regulator, such as the FCA in the UK, or CySEC in Cyprus, etc.
The Financial Conduct Authority have a useful tool that allows you to search for a company to see their regulatory status and history.
The regulatory status should be declared on the broker’s website and is an important indicator of whether or not a firm can be trusted. If they are regulated by a reputable regulator in their country of origin, then they are more likely to be legitimate, act responsibly, and be accountable for their actions; as they risk losing their licence and reputation if they fail to act in accordance with the required standards.
Brokers to avoid
Notorious unregulated brokers can be uncovered with a simple internet search. Examples of firms publicly highlighted by the FCA as being unauthorised include:
- AMFX (www.amfx.com)
- Banco FX or Banko FX (www.bancofx.com)
- TFX Traders (www.tfxtraders.com)
- Golden Green FX Limited (https://www.ggfonline.com, https://www.goldengreenforex.com)
2. Clone Broker Firms
Some firms may appear to be regulated at first glance, as they are registered on the regulator website and able to provide a registration number, however further investigation reveals that they are just extremely similar to a genuine, regulated broker. They may have just used a slightly different spelling or a variation of the registered broker’s name. This highlights the importance of carrying out detailed and thorough checks before entering into an agreement with a broker.
3. Clone Regulator Websites
Another way a fake broker may convince a trader that they are legitimate is by publishing their regulatory status on their website and linking through to the regulator web page where their entry appears. Except that it isn’t the regulator website at all, and is actually a clone of the register that they have deliberately set up to appear authentic.
To avoid falling into this trap, be sure to go to the actual regulator website and search the register for the broker from there, rather than trusting a link from the broker’s site.
4. Signal Sellers
Signal sellers can be companies or individuals claiming to be able to identify the best trading opportunities, and when they are fraudulent, they often promise quick and easy profits.
They may allege to have extensive experience and expertise, remarkable technical analysis abilities, or privileged access to news affecting the direction of the markets; and these statements are often backed up by glowing testimonials from numerous traders who apparently have made significant profits from the services. The information is provided for a fee, but of course, there is no way to recoup this outlay if it proves to be bogus. If a trader does want to go ahead and use a signal seller, they are responsible for vetting them and verifying their reliability before proceeding with the transaction.
5. Trading Robot Sellers
Automated systems, more commonly known today as ‘robots’, are also offered by scammers purporting to reward traders with high returns for little effort. They may claim that their robots examine price volatility and other factors in order to assess the best time to enter or exit a market. However, often the trades are simply random and absent of any kind of logic. Again, the sales page is regularly accompanied by numerous fake testimonials from traders declaring how the robot has earned them significant profits generating trades on their behalf. If a trader wishes to use an automated system as part of their trading strategy, then extensive research should be conducted to ensure scam robot sellers are avoided.
6. Forex Ponzi Schemes or High Yield Investment Programs (HYIPs)
Ponzi schemes are still one of the most well-known scams around and alarm bells should ring straight away if a forex investment scheme seems too good to be true. In a typical example, money is diverted from people entering the scheme to pay the exceptional profits promised to previous investors. The cycle continues: word spreads about the extraordinary scheme, and as more people join, more money becomes available to pay the alleged profits. Eventually, the scheme collapses and/or the scammer disappears with everyone’s money.
7. Fraudulent Fund Managers
Trading forex can be intimidating, particularly for those entering into it for the first time, so when a fund account manager comes along promising high returns for minimal risk, it can be a tempting prospect. When investors start to receive additional demands for money as markets did not perform as predicted and the fund manager needs to correct the position, this is inevitably a bad sign. Some people can repeatedly fall for this scam, though, until eventually the penny drops (pardon the pun) and the money manager disappears, along with all the investor’s money.
8. Overpriced Training & Education Programs
Traders should be wary of education programs with a promise of profitable results. These are often sold for inordinate fees and are unable to deliver on their promises.
Whilst training programs can be useful for learning the basic process and guidelines, any course declaring that it can teach someone to become an expert in no time at all is probably worth avoiding altogether.
There is a wealth of free information available that may be just as or even more useful than a costly training program: YouTube videos; podcasts; webinars and demo accounts give a potential trader the opportunity to test their abilities before trading with real money; and so on.
9. Manipulation of Bid / Ask Spreads
This scam relies on the naivety of the trader, as it assumes that they are going to be more concerned with checking market movements than the commission being taken by the broker through their bid and ask point spread. The wider the spread, the more money is being pocketed by the broker, and this reduces any potential profits for the trader. The scam is not as common as it used to be thanks to better regulation of the industry and increasingly savvy traders, but it still exists, particularly with offshore, unregulated brokers.
10. Stop Loss Hunting
Deceitful brokers have been known to manually close a position before reaching the stop loss set by traders in order to gain additional trading commissions. This is not very common and is unlikely with a regulated broker, however, is still potentially something to look out for – particularly when using a market maker broker.