The forex market is the largest financial market in the world. In 2013, the volume traded per day grew to about $5.3 trillion, with forex swaps and Spot transactions both peaking at over $2 trillion a day. It is no wonder that scammers proliferate the industry as they seek to get a share of the funds.
“A fool and his money are soon parted.” Ever heard of this proverb? Forex trading scammers are actively preying on traders who are uneducated, desperate and – dare we say it – greedy. These unscrupulous individuals or entities will always be around as long as the forex market exists. Nonetheless, you can make sure not to fall for their underhanded methods, and even be able to spot scammers even from a mile away, by educating yourself on the intricacies of the forex market and trading. Knowledge is power, and in this case, it is also your best weapon against fraudsters.
Serious enforcement actions by the Commodity Futures Trading Commission (CFTC) and the formation of the self-regulatory National Futures Association have put an end to many of the old popular scams. However, there are many forms of forex trading scams still in existence today, with more still emerging. Below are three of the most common ones.
Bogus Forex Investment Funds
Forex management funds have been growing increasingly popular in recent years. There are legitimate money managers in the market, but quite a few of them are scammers. How it works is that these “forex fund managers” claim to be highly skilled forex traders and offer to trade your funds on your behalf in return for a salary or a fixed share of the profits.
The problem with this lies in the fact that you will need to give up control of your money and then hand it over to a person or entity you know very little about. They may provide a website or other marketing materials highlighting exaggerated or even completely false claims of success. You may end up with no profit to show for while the scammer lines his pockets with your funds, and/or uses them to buy luxury possessions.
The Holy Grail of Trading Systems
Be wary of individuals or companies promoting forex robots and touting them as the Holy Grail of trading systems, claiming its ability to generate automatic trades and earn vast wealth for you, even as you sleep or take a vacation. These systems claim to be the superior choice for trading, as it removes the human factor altogether – which includes human errors as well as our tendency to respond emotionally to the twists and turns of the market.
Sellers of these systems reel inexperienced traders in with promises of extremely large profits, no financial risk, and/or consistent gains over many trades, 100% guaranteed – and all you have to do is pay hundreds or thousands of dollars for the system.
Remember that if something sounds too good to be true, it probably is. The truth is that many of these systems have not been submitted and tested by an independent source for formal review, and if you choose to invest in them, you are doing so at your own risk.
Shady Forex Brokers
While most forex brokers are honest, upstanding citizens, there are a few bad eggs who do not deal with their clients fairly. In some cases, these shady forex brokers actually defraud their unwitting customers. The good news is that there are steps you can take to protect yourself from these tricksters.
Make sure the broker is a member of the Natural Futures Association and is registered with the U.S. Commodity Futures Trading Commission as a Futures Commission Merchant and Retail Foreign Exchange Dealer. Honest brokers will always be willing to provide proof of their legitimacy.
Check for reviews and testimonials on the company website, and elsewhere online. Be wary of a company that has no reviews, not even a bad one. Even the best forex brokers will have a few bad reviews submitted by disgruntled traders. On the other hand, be suspicious if a company only gets glowing reviews; it’s not that hard to write fake testimonials these days. Are there complaints from previous clients who have had problems withdrawing funds from their accounts? Contact the complainant if you can and ask them about their experience. Read through all the fine print of documents before opening an account. Remember, the devil is in the details.