How to spot a forex scam?
One of the first things you must learn about the forex market is that although it is enjoyable and exciting, there is no magic button that will instantly turn your pennies into millions of dollars.
Shocking, I know!
But it just doesn't happen. There is no such thing.
Even if some shiny websites promise you profit worth of hundred pots of gold with absolutely no risk, remember, there is NO. SUCH. THING.
Forex scams have been around for as long as the Forex market exists and take many different forms
They are everywhere!
So how do you know who to trust? And how do you spot forex scams?
In the blog below, we will teach you about the different types of scams out there, how to prepare yourself, and what you can do in case you encounter one.
Firstly, let's define the term SCAM.
What is a scam?
To me, this is the sale of a product that doesn't deliver on its promise. Like buying a carton of milk and finding it's full of water.
The word scam gets thrown around a lot in forex. Sure, there's some crappy stuff out there, however just because it's poor quality, doesn't necessarily make it a scam with the intention of cheating you out of your money. Consider the intent of the vendor, if all they want is your money without making an effort to deliver, it's a scam.
We have prepared seven most common characteristics that cover 99% of the scams that run in parallel with the forex market. To avoid becoming one of the victims lured in by forex scammers, watch out for the following warning signs.
1. Lack of regulation
The first thing to check when you are approached by, or even considering, an apparent forex trading scheme is whether they're on the Financial Conduct Authority (FCA) register or warning list.
If the business you are dealing with is on the warning list, needless to say, avoid them.
Similarly, if they're not on the FCA register, and therefore not vetted by them, you should question why they would want to avoid regulatory scrutiny.
2. Over-promising & Guarantee of Unexpectedly High Returns
"Buy my 'End of the Rainbow' system and you'll be able to make at least 200,000,000%!!!"
"Nine and a half times out of ten, you'll profit from your trades!"
"Guaranteed profit worth a hundred pots of gold with absolutely no risk!"
"We have found a secret formula that turns you into a winner!"
Blah, blah, blah...
Your alarm bells should be ringing!
No one in this world can give you a guarantee of profit. Losses are inevitable.
If something sounds too good to be true, it probably is.
3. No live track record
Ask for a track record of verified stats from live trading accounts, so you can assess their capabilities for yourself.
If they have one, they'll be happy to send a link to a tracking website, such as myfxbook, which will show you years worth of data.
If they refuse or offer to show you stats from demo accounts, you should be cautious. Even though a demo account might initially seem as good a proof as any for their competence, but it only proves their ability to make or lose virtual money.
Any good trader will tell you, it takes a certain mindset to be successful in a real trading situation.
4. Pressure to put down deposit
Any legitimate company will want you to be entirely comfortable investing with them before you transfer any money or put down any deposit.
As such, they would never pressure you to deposit funds during your first conversation or try to get you to act quickly with 'limited time offers'.
If you feel like you're being pressured, you should terminate your interactions immediately, as it's highly likely they're trying to involve you in a scam.
Advice to not withdraw your money at any time should also be met with similar scepticism.
5. PAMM Account / Forex Mutual Fund
PAMM stands for Percent Allocation Management Module. It is also sometimes referred to as Forex Mutual Fund. This is a new type of scam that is designed to attract technical traders.
In this scam, the broker will offer you the chance to have your forex trades managed by highly-skilled forex traders who can provide unbelievable returns. They will show you that your small account will be linked to another high-value account and you will get a profit percentage according to your investment amount.
To support their statement, they will also show you some fake records on their fake website.
Chances are, they will also show you an attractive profit of 30%-50% on your investment so that you'd feel stupid rejecting the offer.
Remember that the majority of these offers are scams, and you will also lose your capital if you ever believe them. The actual return you can get from a real PAMM account is about 2%-5% per month (if you're lucky).
6. Automatic Robots and EA
This is a highly technical scam that is running in the new generation of forex industry.
You may have heard of automated robots? Except these "work 100% and make you into a millionaire in no time"!
These scammers promote their system's ability to generate automatic trades that can make you reach even while you sleep.
All you need to do is turn it on and wait to collect the cash.
They will promote fake historical data and try to sell you these automated robots for a few thousand dollars.
We are not saying that automated robots do not work, they do work in certain market conditions but they can't make you rich.
You aren't going to own a Ferrari with accompanying bikini-clad blonde from this magical software.
Also, they are not that expensive. In a normal market, the price of a trading robot is not more than $500.
7. Deposit Bonus / Double Bonus
This is the starting of a bigger scam. Any broker offering you a double bonus, or any amount of deposit bonus or any free account balance is most likely a scam.
The fee of brokers is very small, in fact, they profit in penny amounts.
What brokers do profit from is the spread. Now think about it, a 2 pip spread would give them a profit of approx $0.0002 per transaction.
So how and why would they provide you a $100 bonus for trading?
It's a scam.
Who do I contact if I suspect fraud?
There are specific organisations depending on your location. You can find the list below.
For the full list, please click here.
So what have we learned?
Scams ARE real!
There are some really bad people out there trying to make a dishonest living. However, unlucky for them, you are smart!
There is a wealth of information on the Internet so do your research, do some background checks, read reviews on trustworthy websites, steer clear of opportunities that sound far too good to be true, and you'll be just fine.
Don't be shy to also ask around in our forex forums either. It doesn't hurt to get personal opinions.
Remember, there's no such thing as easy money or shortcuts in the forex market so take your time to learn how to trade forex properly.