How To Avoid Forex Scams

Unfortunately, there are forex scammers out there who are targeting inexperienced traders with unrealistic promises and outright fraud. Whilst the forex industry gets a bad rep at times due to these unscrupulous scammers, it doesn’t mean that everyone should be tarnished with the same brush.

Believe it or not, there are actually honest professionals within the forex industry who have the best intentions of traders at heart. They are being let down significantly by forex scams that bring a shame to the forex industry on a regular basis.

In this guide we will take a look at the types of forex scams and how to avoid them in an effort to try and help traders protect themselves from becoming another victim.

Types of forex scams

Scam brokers

This is perhaps one of the most obvious forex scams, often associated with unregulated or outright fake brokers. That is not to say that every unregulated broker is a scam because that wouldn’t be fair. There are genuine unregulated brokers its just that they cannot offer the same protection that a regulated broker can.

Where the line should be drawn is where a broker is deliberately unregulated so that they can breach rules such as not segregating client funds, using client’s funds for personal gain, deliberately manipulating trading conditions, stop hunting, delaying execution, investing on client’s behalf, aggressive marketing, etc. If they were to go out of business then clients may not have any recourse to get their funds back.

Then you have “fake” brokers which basically mimic the operations of a genuine broker such as their website and trading platform. They will even go as far as to lie about their regulations and are known to be very aggressive with their marketing, including cold calling and pressuring traders to deposit funds with them. Once they have conned enough people out of their hard-earned money or get caught, they usually just close down which leaves innocent traders out of pocket.

There are many dodgy brokerages out there and they continue to open and close on a frequent basis. I would usually only choose to trade online with an established, well known and regulated broker. It can be a good idea to verify a broker regulation with the relevant regulatory authority.

You can see my forex broker reviews for more information.

Investment funds

These are a basic forex scam where a fund manager promises gains if you invest in their fund. Sometimes the fund does not even exist or the manager has no experience and doesn’t know how to trade. Scammers can use faked documents to show returns that didn’t actually happen in order to entice investors in. Once they have your investment, they may withdraw it for their own use or pay returns to other investors similar to a Ponzi scheme.

It is imperative to do your due diligence and never ever risk what you cannot afford to lose. I would certainly always be cautious of anyone who can “guarantee” a specific amount of profit as one thing I have discovered in my many years of trading is that there are certainly no guarantees.

Forex signals

Forex signals have grown in popularity primarily due to social media which has enabled influencers to pretend that they are successful traders. These forex signal providers can again make false promises in order to get you to pay for their signal service only for you to be left disappointed when you either don’t get any signals or they do not live up to the unrealistic expectations sold to you.

Again, this is not to say all signals providers are scammers, but I would be wary of anyone trying to offer me signals that guarantee “x” amount of profit. Successful forex trading can take many years of practice to master.

Forex robots

Perhaps one of the most controversial aspects of online forex trading, forex robots often disappoint users by not living up to expectations. Whilst I do not feel that this is always deliberate, there are of course people out there who do not care about the quality of the forex robot as long as someone is willing to pay for it.

However, there are genuine developers out there who work very hard to create forex robots and thoroughly test them to ensure their robustness. That being said, as with any forex system manual or automated, there are no guarantees.

I would always check that a forex robot has been around for a while and has a real verified account to check its historical performance. I would also want to make sure it has been back tested with 99% modelling quality using real tick data, variable spreads, commissions, swaps and slippage.

If a forex robot developer is promising returns and has no verified trading accounts or back testing data to refer to, I would avoid at all costs.

Forex Scams Summary

In a nutshell, I would personally avoid any forex service or product that guarantees profits. Do not feel pressured to put your money where you don’t want to and always conduct your own due diligence.

I do find it slightly harsh when a genuine broker or developer is under attack just because a trader has had some bad trades through their own fault. I wouldn’t blame anyone for any losses that I made through my own trading activity. That is part of trading, there will always be an element of risk involved.

Whilst not everything in forex is a scam, hopefully this article has made you more aware of what to watch out for.

Go careful and as always, happy trading!