The foreign exchange or forex market is an entirely legitimate decentralized marketplace where national currencies are swapped for one another at a market-determined exchange rate. Trading forex involves speculating on exchange rate movements. Online brokers make trading in the forex market easier and safer than ever, although some scams exist. Read on to get information about the scam warning signs that aspiring forex traders should watch out for.
Forex: Is It a Scam?
Forex trading is not a scam, and you can trade currencies legitimately via reputable and well-regulated online brokers via forex trading platforms. Currencies trade in pairs in the forex market, so each forex transaction involves buying one currency and selling another simultaneously.
Not only is forex trading definitely not a scam, but the foreign exchange market has the largest average daily turnover of any financial market at $6.6 trillion per day. While retail forex trading represents only a small portion of that volume, it can present some fraud risks for the unaware.
Previously Identified Forex Scams
Dishonorable online brokers exist that deliberately aim to mislead you to cheat you out of your margin deposit or the profits you earn trading forex. A rundown of common forex scams you should avoid appears below.
Forex Broker Scam
It’s normal for forex traders to want to select the best brokers to operate through since they want to maximize their trading returns. But those shopping for a new broker should beware of disreputable forex brokers that could take you for a ride.
Be sure to perform your due diligence by researching a new broker and reviewing their reputations with clients and within the industry. A good place to start is by reading the footer of the broker’s website. If it has no information about the broker being overseen by one or more major regulatory bodies or disclaimers about the risk of loss that decent regulators require, it would be prudent to avoid that broker.
For example, an online forex broker overseen by U.S. regulators like FOREX.com would mention its oversight by the Commodities Futures Trading Commission (CFTC) and the National Futures Association (NFA) on its website. The broker should also operate under a valid license number issued by those organizations, as well as fully conforming to their regulations to remain in good standing.
You can also do a quick check on websites like www.forexfraud.com and www.forexpeacearmy.com for forex brokers with a history of negligence and fraud. In general, your chosen forex broker should be well-regulated and have a reputation for treating clients fairly.
Signal Provider Scams
Rather than performing their own technical analysis, some forex traders prefer to rely on trading signals they pay for to help them predict exchange rate movements. This information can be purchased from firms commonly known as signal providers.
You can typically subscribe to signal providers for a weekly or monthly fee. Before subscribing to one of these services, it makes sense to ask for a historical performance chart of their signals to assess the authenticity of their claims.
Most signal providers have a mixed record consisting of some good and some bad tips. This means you can use their performance information to select among them and avoid the more obvious signal forex scammers.
Spread Widening and Off-Market Quotations
The forex market is largely unregulated, so dealing desks have been making money on the margin by widening the dealing spread or showing off market quotations (in their favor) to their clients for decades.
Since there is no centralized exchange where currency pairs trade to provide official market exchange rates or fixed dealing spreads, this industry practice continues unabated. The forex market is becoming increasingly transparent as a result of online trading platforms and client awareness of this common practice, so the profit margins dealing desks can derive from such questionable behavior are narrowing.
Comparing spreads and quotes from different forex dealing desks and also checking them with a reputable online forex broker’s trading platform will help you get the best possible exchange rates and avoid possible losses due to spread widening and off-market quotes.
Forex Robot Scams
A hot trend among forex traders and fraudsters involves using automated trading algorithms or expert advisers (EAs). These forex trading robots scan exchange rate data for one or more currency pairs to identify trading opportunities and then execute entry and exit trades for you.
From slick, high-pressure websites to fake testimonials, trading robot vendors attempt to sell the often unrealistic idea of making great returns trading on autopilot without significant human intervention.
These vendors seek to attract naive forex beginners and retail traders who eventually realize that the robot they bought has traded their account into a loss. While these get-rich-quick robots typically disappoint, this does not mean that you cannot successfully automate your own tried and tested strategy using a suitable online trading platform like MetaTrader 4 or 5.
Take the World in Your Hands
Forex is a transparent and open trading market built for dedicated investors. As an active forex trader, you have a front-row seat to events that shape global economies.
Be wise with your investments, and you can harness the value of international currencies from the palm of your hand. Avoid scams and get started in forex with Benzinga’s recommended online brokers.
Frequently Asked Questions
How can you protect yourself against forex scams?
You must do your homework on the forex brokers and the most common types of scams.
What are the best ways to check on a forex broker?
Check to confirm it is regulated by the CFTC and a member of the NFA
What to do if you get scammed?
If you are scammed, gather evidence and report it to the authorities and your bank. Inform friends and family to prevent further victims and educate yourself to avoid future scams.
Get a Forex Pro on Your Side
FOREX.com, registered with the Commodity Futures Trading Commission (CFTC), lets you trade a wide range of forex markets with low pricing and fast, quality execution on every trade.
You can also tap into:
- EUR/USD as low as 0.2 with fixed $5 commissions per 100,000
- Powerful, purpose-built currency trading platforms
- Monthly cash rebates of up to $9 per million dollars traded with FOREX.com’s Active Trader Program
Learn more about FOREX.com’s low pricing and how you can get started trading with FOREX.com.