The forex market is a legitimate trading market where the world’s currencies are traded. It is not a scam in-itself. Without the forex market it would be difficult to trade the currencies needed to buy imports, sell exports, to go on holidays or do cross border business. However, with high leverage positions which, in theory, have the potential to make traders a lot of money and because there is no centralised/regulated exchange, scammers take advantage of the situation and the inexperienced traders desire to enter the market.
The forex market is a ‘zero sum’ market, which means that for the trader to make a profit, another trader will need to make a loss, the forex market does not in-itself add value to the market. Because a lot of the currency movements are directed by large well financed corporate institutions and banks, who are also better informed about the market as a whole, the undercapitalised trader is always likely to lose. Institutions and large banks trade in forex on a daily basis, to make a significant profit a considerable learning curve is involved.
Forex scams
The following forex scams list documents the scam type that have been involved in forex frauds in some form in the past.
Signal sellers
The signal seller scam is a scam which works by a person or a company selling information on which trades to make and claiming that this information is based on professional forecasts which are guaranteed to make the inexperienced trader money. They usually charge either a daily/weekly or monthly fee for this service but do not offer any information that helps the trader make money. They will usually have a slew of testimonials from allegedly legitimate sources in order to gain the trader’s confidence yet in reality do nothing to forecast profitable trades.
High yield investment programs
High Yield Investment Programs (HYIP) are (a lot of the time) a form of Ponzi scheme in which a high level of return is promised for a small initial investment into a forex fund. However, in reality the initial investors are only being paid back by the money generated by the current investors and once there are no more investors in the scheme the owners usually close it down and take all money remaining.
Manipulation of bid/ask spreads
These types of scams have decreased over the years yet they are still around. This is why it is important to choose a forex broker who is registered with a regulatory agency, for example the CFTC and the NFA if in the USA. These type of scams would normally involve having spreads of around 7-8 pips instead of between 2-3 pips which is the norm.
Scams through software
Forex robot scammers lure novices with the promise of big gains from little effort or knowledge. They may use of fake or misleading figures to convince customers to buy their product. Their promises are flawed as no robot can adapt and thrive in all environments and markets. Software is generally used by professionals only to analyse past performance and to identify trends. All software should be formally and independently tested but caution is required when trusting the reviews themselves as these can be paid for. If their product did exactly what they claimed, then they would not be selling it but instead using it exclusively themselves.
Managed accounts
These can be a type of forex scam and there are many examples of managed accounts where they are. These involve a trader taking your money and basically using it to buy all sorts of luxury items for themselves. When the trader eventually asks for their money back there is not enough money left to repay.
Ponzi or pyramid schemes
This is a very common form of affinity fraud. They promise high returns from a small initial investment up front. The early investors usually do gain some sort of return on their money and motivated by this success they then recruit their friends and family into the scheme. However, the truth is that the ‘investment opportunity’ does not actually exist and their initial return is being funded by money paid in by other members of the scheme. When the investor numbers start to drop the scammers close the scheme and take the money.
Boiler rooms
This type of scam involves the scammers usually getting people to buy shares in a worthless private company on the promise that when the company goes public their shares will increase substantially. However, the company doesn’t really exist and may have a fake telephone number, office and website. Once the scammers have made all the money they can they will disappear with everyone’s investments.
How do I look out for forex scams?
The single most important thing a trader can do to avoid being scammed is to learn to trade on the forex market properly. The difficulty in this however is finding trustworthy brokers/teachers of forex that can be trusted. The amateur must know that the broker has actually made the money he/she says they have, due diligence is the key here. The forex market is not a casino but a very serious market where trillions of currency units are traded daily. Use demo accounts and learn to make long term profits first before trading for real. Be aware that like any professional skill, it can take years to master the forex trade properly. Any claim that says ‘you can make money quickly’ should be avoided.
Do not take at face value the claims that are made, take the time to make your own analysis. An inexperienced trader should be critical in their approach, analysing statistics and making their own functions that they have tested and had success with on a demo account first. This will take time to achieve but will serve the inexperienced trader better than trusting an automated computer program.
Other things a trader might want to check is the authenticity of the company making the claims or selling the expertise/course. To do this check the location/jurisdiction where the business is registered, as a lot of forex scammers will trade from a location where they believe the local law will make it hard for them to be prosecuted internationally.
What do I do if I have been scammed?
If you have been scammed report the scam to us. We will do what you need.