Protecting Your Finances: How to Avoid Forex Scams and Frauds

Forex trading is one of the most operative markets globally. According to data pulled from sources in 2022, the global forex market size was $2.4 quadrillion and the forex market daily turnover was $ 7.5 trillion. There are currently 170 different currencies rolling in the market and being traded, can you believe it?

As the size of this market is huge scammers will take advantage of this golden opportunity. They will make a way to enter the system and try to spread their bugs. In this blog, we are discussing about forex scams and methods to avoid them. Ultimately, it is you who have to be highly aware and meticulous about the situation.

What is a forex scam or fraud?

The simple idea behind operating a scam is to target traders or investors via ‘ a too good to be true’ situation such as higher profit, promises of rewards and many more such things. One should stay alert if they are doing forex trading even under the guidance of a broker. As there are many unauthorized brokers in the market, initially you will trade smoothly but later on it will be hard for you to account for your trade.

According to Michael Dunn of the U.S. Commodity and Future Trading Commission, forex fraud has been started in early 2008. These frauds include:

Churning of customer accounts for the purpose of generating commission.

Selling software to entice consumers to get high profits

Errors in managing accounts

False advertising

Ponzi schemes

Outright fraud

Note: All these frauds are applicable to any retail forex broker who indicates that forex trading is a low-risk but high-profit investment. 

How to avoid forex scams?

Certainly, we forget to ask questions and start believing what the other person is stating. A scammer is at an advanced level who has the knowledge to project information in a manner that a layman would easily get trapped. It is nice to hear them and hence they entice us quickly. This is the common mistake that every person does.

Here is the list of questions and answers that you can prepare to avoid forex scams. It will also determine your understanding towards forex exchange and also help to move out of the trap set for you.

Is my broker regulated?

If regulated, how much trustworthy is it?

How do I know about legitimate regulators?

Is the broker offering profits or rewards at the time of opening an account

Is the broker offering a cash bonus while opening an account?

Does the broker offer automatic trades or signals to guarantee profits?

Should the website have any credible information such as history, financials or headquarters address?

Can I verify the awards cited for authenticity purposes?

Should I trust a company based on the sponsorship they are getting?

Here is the set of answers:

Answer 1:

Brokers without regulatory oversight are exempt from reporting requirements. You are out of luck if an unlicensed broker takes advantage of you in any way, whether it be through "glitches" or "malfunctions" that cause slippage in their system or unprocessed withdrawals of money that never show up. Traders who have been duped have few options because unregulated forex brokers are not subject to inspection and are not required to report to any regulatory organisations. Their only real option is to leave a poor review.

Answer 2:

Certain dishonest brokers assert that they are registered and overseen by an authority that neither oversees nor controls foreign exchange firms.  There is a legal part as well as a warning about the disadvantages associated with trading CFDs. You will discover that although the company is registered as an international broker corporation, it is not regulated upon closer inspection of the legal portion.

Answer 3:

Forex brokers can obtain licences from a variety of regulatory authorities, and not all regulatory licences are equal. For instance, registering with the Financial Sector Conduct Authority (FSCA) in South Africa is not nearly as hard, costly, or significant as obtaining a licence from the Commodity Futures Trading Commission (CFTC) to operate in the United States.

Answer 4:

Claims like "make $50 a day from a $250 investment," "make 80% returns on profit signals," and "96% success rate" are frequently made by dishonest brokers. Whether they are being made for binary options, CFDs, or forex, these claims are all scams. No matter how big or small, forex brokers should never guarantee returns. To put it plainly, a broker is running a fraud if they promise to make you money. Posting images of pricey autos up for grabs to courageous investors is another prevalent scam technique.

Answer 5:

You are probably tied up with a scam broker when an unregulated (or less regulated) broker offers an unusually large cash bonus with no specifics. For instance, the fraudulent forex broker 1000Extra is no longer in operation. In a screenshot, they showed promoting a $1,000 sign-up bonus without providing any further information. A well-known scam technique was employed on the broker's website: tricking visitors into clicking on a promotional link that leads to the account signup page.

Answer 6:

Certain dishonest brokers provide automated trading services, implying that their advanced algorithms or "robots" will ensure profits. These brokers assert that their robots make money by using trading signals. These brokers frequently concentrate on novices and target their foreign exchange activities.

Answer 7:

It is probably a scam if there is no information provided about the company's management team, physical headquarters, or phone support. When they inevitably go into difficulties, scam brokers don't want their names, locations, or contact information to be associated with them.

Don't open an account with the broker if you are unable to locate unbiased reviews about them.

Answer 8:

Many fraudulent forex brokers make bold claims about their impressive accolades. The award will often read something like "Best broker 2015." The source is frequently untrustworthy or not visible.

A brand 12Trader did the same under the name of Bloomberg and The New York Times which is obviously fake. As the link attached to it was not clickable and easily available on Google search. Hence, we can say that such activities are red flag.

Answer 9:

Never take a broker's sponsorship of a professional athlete or football team as proof that they are reliable. A company shouldn't be trusted just because it is paying to be a significant sponsor or to have its name on a jersey.

Example: 

The company name is Secure Investment FX, also known as Secure Investment. It is a forex investment scam operated between 2011 to 2014. The company has claimed to provide high profits at low-risk investments. They also attract investors by promising consistent and impressive returns on their investments. They claimed to use a proprietary trading algorithm that could generate substantial losses.

The red flags in this situation -

Unrealistic promises

Lack of Transperency

Ponzi scheme characteristics

Regulatory issues

Conclusion:

Scammers find new ways to scam you and so you need to be smart enough to dodge them. There is no guarantee that these scams will going to stop any time soon but we can improve on our end and be aware of such forex scams. In this article, we have summed up the meaning and understanding of avoiding forex scams.