When you do a quick search on forex scams, you will find an astonishing amount of reports claiming it’s a scam. And with the number of money scams on the internet, the worries of many are justified.
What Is Forex?
The foreign exchange market, commonly referred to as forex or FX, is a global financial market where the currency is traded daily. Currency traders purchase currencies in the hopes of selling them at a higher price in the future. Simply put, you purchase a currency that you think can be stronger than another one, and you make a profit if you are right.
The market fluctuates regularly because the exchange rates change every second. Most of the currency transactions in the foreign exchange market are based on hypothetical grounds, which can make it unstable and the perfect breeding ground for scammers.
According to the BIS Triennial Central Bank Survey report, forex trading volume reached $6.6 trillion per day in April 2019, with the US dollar being on one side of 88% of the trades.
Is Forex A Scam?
The forex market in itself is a legitimate trading market. It makes it easier for us to exchange currencies to import and export goods, do business in foreign countries, or go on yearly holidays abroad.
However, even though the forex market has become more regulated over the years, there are plenty of scammers out there hoping to take advantage of inexperienced traders. They often claim that their strategies, knowledge, or software will bring the beginner customer success.
In addition to that, an inexperienced trader is likely to lose because a good deal of the currency movements is managed by well-informed corporate institutions.
According to DailyForex data, 72% of forex traders have no trading experience in other markets before trading forex. This just goes to show how many people could fall into the hands of a scammer.
How to Identify and Prevent a Scams
The most valuable thing you can do to avoid scams is to learn how to trade correctly. The forex market is not the same as playing the lottery or betting on an online game. It is a serious market where knowledge is key. It can take many years to master the art of trading, especially when you are doing it on your own. This is why many turn to mentors and brokers. Finding one that you can trust is not an easy task, but you can take plenty of preventative steps:
- Look for reviews. Never skip this step because even a quick search on Google could provide you with the necessary information on the broker you are considering.
- Read the fine print in all agreements. It’s no secret that many companies hide tricky details in the fine print. Reading through every single word with a magnifying glass is of vital importance.
- You don’t want to find yourself in a situation where you have no access to your funds.
- No response from your broker. Needless to say that if the broker is not responsive, you won’t be able to solve issues that can come up.
- Start small. Once you have made a decision to go forward with the broker, deposit a small amount to start. After a month or two of trading, try to withdraw some funds. If the withdrawal fails, you can contact your broker. If you receive an unsatisfactory response or no response at all, it’s safer to move on.
Types of Forex Scams
Let’s just start by saying that when generating money from trading in the forex market is described as ‘easy’ and ‘fast,’ the phrase “if something seems too good to be true, it probably is” comes to mind. Trading is a complex process that requires a lot of research, knowledge, and discipline. As tempting as those ads might sound, they can also be a red flag. There is a variety of scams that are actively used in the forex market, and here are a few:
Fake Signal Sellers
The fake signal service is a scam, where the company or a seller will tell you when and which trades to make. They will guarantee to make you money because everything will supposedly be based on top-notch professional predictions. To convince you, they will have many testimonials to show, which are fake.
In these scams, a money manager will usually be involved. Now, there are two ways this can go wrong.
Firstly, the manager can actually be a successful trader, but he will earn profits from your account.
Secondly, the professional trader will invest your money into their personal items instead of the market. So by the time you ask for your money to be returned, there won’t be enough to do so.
This is a typical form of fraud that you might have even heard of before. You will be promised big gains from an upfront investment on your part. Here’s how it works. As you start out, you will receive returns on your money. This will motivate you to continue and maybe even refer a friend or two because it’s unbelievably easy. In reality, the return is financed by others involved in the scheme, and eventually, the scammers take the money and close the scheme.
It’s no surprise that in this day and age there are plenty of automated software scams waiting for a novice to fall for them. They will try to coax you with promises of tons of money even if you have zero experience and knowledge. You will see plenty of fake numbers allegedly proving their past success. Keep in mind that there is no software that can predict outcomes without mistakes.
The forex market in itself is not a scam, but the lack of regulations allows dishonest people to take advantage of novice traders.
Prior to opening an account, a trader must conduct thorough research on a potential broker, always read the fine print, and never make large initial deposits to avoid getting scammed.
Disclaimer: The Content is an opinion and is for information purposes only. It is not intended to be investment or financial advice nor does it constitute an offer to buy or sell or a solicitation of an offer to buy or sell shares or any other assets. Seek a duly licensed professional for investment or financial advice.