How to Spot a Forex Scam

Forex trading is one of the most popular trading instruments today. Trillions of dollars are being traded in forex every day. And this is done all over the world. And thanks to the trading companies, you can easily engage in forex. You don’t need large sums of money to start trading, and you can trade even if you are a beginner.  

As simple as it seems, forex trading is risky. For one, there is no guarantee of profit. Foreign currency exchange rates change every day, and you can lose money fast. Also, there is no single regulatory agency for forex anywhere in the world. So, you might wonder, is forex trading legit? Or is forex trading a scam?  

Is Forex Trading for real?

If you are wondering: is forex a scam or legit? It is vital to look at what forex is. Forex trading is the exchange of one currency to another foreign currency. This process involves two currencies called pairs, for example, the US dollar and Euro. And because most countries have their money, there are hundreds of pairs available for trading. 

A currency is vital for the economy since it is a means to get products and services internally. And across countries through currency exchange. Import and export of goods, as well as tourism, are key areas that benefit from forex. So, forex trading is legit. 

But not all forms of forex trading are legit. Over the years, people have been victims of forex scams. Some have lost hundreds of thousands of dollars due to fraudulent trading practices. Let us discuss some of the common types of forex scams so you can protect yourself from them.

How do forex scams work?

As we have mentioned, forex trading is legit. But not all the practices used for forex are legal. The objective of forex scammers is to get your money and fast. They will use different tactics to achieve this, especially among new or inexperienced traders. Let us consider four common types of forex scams and how to avoid them.

  1. Forex signal sellers. These are people or companies that give signals when to buy and sell currency pairs. They charge a fee for this service. They promise to provide you information when it is most favorable to buy and sell currencies. At first, it’s like they are helping people who don’t have time to look at trends and market factors. They will share with you their impressive credentials that center on their vast experience in trading, complete with testimonials (these testimonials are paid and staged). And they send signals to the unsuspecting victim through common messenger apps like Whatsapp or Telegram. Very convenient, right? Think again. Once these signal sellers get your cash, they will disappear without giving you any information. 

Some will give you alerts, but you will find these to be unreliable or untrue. Others will provide some helpful advice occasionally but will be a failure for the most part. If you wonder: are all signal sellers a scam? No, there are legit and honest signal sellers that will help you with buy and sell alerts. But most of them are fraudulent, and it is hard to identify the good from the bad ones. So, stay clear from signal sellers to avoid getting scammed.  

  1. Forex robot scams. These are AI (artificial intelligence) powered platforms that automate trading through machine learning. They promise to make your trading investment grow while you sleep. Pretty cool, right? So, you can sip your coffee and do other things and let the computer system perform trading decisions for you. AI and robots do have practical uses in our modern age. And they do make life easier for us in many ways. But forex is not one of them. 

Firstly, forex trading is a high-risk investment platform that is affected by a lot of external factors. Historical data is not a sure way to predict future currency performance and trends as market conditions change rapidly. That is why currency trading is considered a short-term investment asset. 

Also, automated trading systems have not been tested or approved by reputable third-party audit firms. It means that the accuracy and reliability of data predictions done are not guaranteed. While most big stockbrokers have their trading platforms, the decision on when to buy and sell currencies is made best by the individual investor. These trading platforms are helpful tools to assist you in making good trading decisions for yourself.

  1. Ponzi scams. We have all heard about multi-level marketing or pyramid schemes. They are usual money-making activities used by companies disguised by offering new or exclusive consumer-packaged goods and beauty products. Maybe you were even invited to attend one of their seminars. Or you may have heard about them from the news. The idea is to get people to pay for exclusive membership to an organization or program. Then they recruit other people into the organization or club to get a certain amount of money or commissions. The next layer then recruits more people resulting in a pyramid with uplines and downlines. This kind of practice is considered a crime in most countries since profit comes from membership dues. And not from any investment product. Once member recruitment has stopped, the profit and cash flow also stop automatically. 

Sadly, this same scam has entered the forex trading market. The idea is the same as with other industries. Forex traders pay for membership to a company or investment program and then recruit other investors, and so forth. The sure-fire way of identifying them is that they are interested in recruiting people rather than the actual trading of currencies. 

Be careful when you get invitations from other traders to join them or invest in a program that does not involve the actual buying and selling of currencies. It may well be another Ponzi scam in the making.

  1. Scam involving fake broker and fake funds scam. Another scam to watch out for involves brokers and funds that do not exist. Since forex trading is not fully regulated, it is easy for scammers to create a brokerage company. And once they get your money, they will fold up and run away. The same is true for fake forex funds that promise large profits to entice you to give them your money. And then disappear. 

So how do you protect yourself from these fakers? In the case of brokerage firms, check their history and milestones. A company that built its reputation for five years and more will not fold up fast. And it will not run away with your money overnight. Also, check if the company got registered with the Securities and Exchange Commission (or SEC). Or any other regulatory authority in that country or region. But make sure that the registered company name, address, and additional information are the same as the broker you are using. Some scammers have used similar-sounding words as the legal companies to deceive investors. Do not deal with companies that have just been set up and do not have SEC registration. 

Concerning fake funds, the easiest way out is to say no to investment managers who promise guaranteed profits or huge returns. As we have discussed, forex trading is risky. And it is affected by a lot of factors like economic, political, and social developments. So, there is no sure-fire way to predict huge profits.   

Can you get rich by trading forex?

There are two ways to answer this question. For a skilled trader with large sums of money, yes, you can get rich with forex trading. But for the ordinary trader, you cannot hope to get rich in this type of investment trading. Research data shows that 2 out of 3 investors have lost their money in forex trading. What is more, every forex trader will lose money on some currency pair trades. It includes seasoned traders. 

There are a lot of factors that come into play in forex trading. Some are self-inflicted, while others are uncontrollable market forces. The lack of training on forex, use of unproven strategies, and sloppy decisions are rampant among retail traders. These are dangerous as they can lead to rapid loss of your money. 

Forex trading is also not for everyone. It includes most of the population who have low income, are underemployed, and are unemployed. How can you trade if you don’t even have enough money to buy food for your family? As a minimum expectation, you need to have some savings to get started. And this is money that you are willing to lose. Not money for your wedding or home mortgage or retirement. If you have $10,000 that you have no issues losing instantly, then you can consider forex trading as an investment opportunity. 

Remember that forex trading is not the same as gambling. To be successful, you need to develop your trading skills. And this step requires some time to develop. There are no shortcuts and secret formulas to get rich fast. It will take a lot of lessons and training sessions to understand how trading works. You will have to observe good traders and develop your personalized trading strategies. And then, you will need to practice repeatedly to fine-tune those skills. Take advantage of the free demo accounts offered by the trading companies to get better. It takes discipline, hard work, and determination to succeed in forex trading.   

Why forex is a bad idea?

The percentage of currency pair traders who successfully grew their money is super low. If you go to the website of popular stockbrokers, they will tell you that 60% or more of forex traders lose their money. It proves that forex is a high-risk investment instrument. Just by looking at this data, you can conclude that it is a bad idea to put your hard-earned cash in currency exchange. But there are more reasons to avoid this type of investment. Read along to find out more.

  • Forex is very hard to predict. News related to politics and economics can swing the value of a local currency. It can move up or down. But identifying the effect of the news is not an exact science. A good economy does not equate to higher currency, and a politically troubled government will not always result in a weaker currency.
  • Real situations and interventions are not available to everybody. Retail traders are limited in the information they get from news agencies, brokers, and trading platforms. They are often blind to insider news and government interventions that may be happening on the sidelines. If they are made aware of it, it is often already too late to react and trade currencies that will be most favorable to them.
  • Inclusion of the Chinese Yuan as reserve global currency. Since the IMF’s acceptance of China’s currency as a reserve, it is now harder to make predictions on market movements. This is due to China’s secretive government policy that makes it impossible to tell the real financial, economic, and political situation in the country.
  • Forex is a breeding ground for greed and addiction. Using leverage in currency trading allows people to gain profit fast and lose all their money faster. A trader that doubles his money in a few minutes from a 1:100 leverage will aspire to get higher profits, especially since brokers allow 1:500 and higher leverage. Only to lose everything at the end (initial investment and profits combined). And it doesn’t help that trading of forex happens 24 hours a day and 7 days a week. 
  • Trading can become stressful and time-consuming. Serious traders know that to be successful in this investment, you must invest your money, time, and energy. Keeping updated on news, looking at trends, tracking your currency pair performance, and other tasks require a lot of time and effort. It puts stress on the physical health of a person and his family relationships.
  • There are a lot of forex trading scams out there. We have identified earlier the common types including forex signal sellers, forex robot scams, Ponzi scams, and fake broker and fake funds scams. All of these victimizes the innocent and inexperienced who want to make money from currency trading. It also doesn’t help that there is no unified regulation to protect the investors 100%.

FAQ on forex scams

We have compiled some common questions on forex scams and provide answers to keep you aware of the facts.

How will I know if a broker is legit or a scam?

It is best to do research and background check on your broker before you send money or start trading with them. Make sure that the company has been established for at least 5 years already. Also, check with the local Security and Exchange Commission if forex is part of their investment portfolio.

Is forex legit?

Yes. But not all forex trading practices are legit. Beware of scammers and the schemes they use to get your money.

What do I do if I get scammed from forex trading?

Talk to your broker first if you used a legit trading company. If the matter remains unsettled, file a complaint with the regulatory body in your country or region. Some companies specialize in forex scam money recovery that can help you for a fee or commission. Check online for these providers in your area.

Why are forex robots considered a scam when they only look at trends and historical data?

Robots or automated trading systems have not been tested or approved by reputable third-party audit firms. So, the accuracy and reliability of data predictions done are not guaranteed. The trader has to make the trading decision, especially since it involves the real risks of losing your money.