Forex is big business. Approximately $5 trillion worth of currency is traded each day mostly by large banks and financial institutions. In the past, you needed to have a finance related degree from a high ranking university in order to work as a trader.
As a result, most people were ‘locked out’ from the profitable world of forex trading. Now you can trade forex from a smartphone anywhere in the world.
Private individuals account for approximately 7% of currency trading. This is worth hundreds of billions of dollars. Wherever there is that type of money, you will find scammers. We will be taking a look at the most common forex scams and how you can avoid them.
High yield investment programs (HYIPs)
A “millionaire” forex trader invites others to invest in his fund. He shows fake screenshots and testimonials showcasing his consistent run of results.
There is always a ridiculously large interest rate. As people get the returns promised word of the scheme spreads like wildfire through word of mouth.
The scammer uses new signees to pay old ones. The scammer waits until the scheme reaches critical mass and then disappears with the money. This is a classic Ponzi scheme modified for the forex industry.
It is straightforward to assume an identity online, and video testimonials can be bought. Don’t assume that just because someone poses in a mansion or supercar that it is theirs.
Mansions can be rented on Airbnb for a few hundred dollars and so can private jets. Any forex trader with the skills to get consistent results won’t need to invite random strangers to invest.
They would simply take a loan from a bank at a low-interest rate or form a company and invite angel investors. Big companies conduct due diligence before investing.
Launching a legitimate looking brokerage is incredibly easy and inexpensive. Freelance graphic designers and copywriters to give it that “wow” factor.
Would you deposit money into a bank which is yet to obtain a licence? Of course not, so why invest with a broker which isn’t regulated.
Regulatory bodies do more than just award certificates. They audit forex brokers wherever necessary to ensure that the investments of customers are protected.
Plus, they also record the owners and verify that their identity documents are valid. Scammers don’t like to be tracked.
Therefore, they create fake badges or recreate regulatory websites in order to appear legitimate. Another common way they try to bypass is to create sites which have similar names and designs to well-known ones.
It is incredibly easy to find out if a broker is regulated. Each country or region has its own regulatory bodies. Here are a few:
The National Futures Association – U.S.A
Financial Conduct Authority – United Kingdom
Australian Securities and Investments Commission – Australia
Many forex brokers prefer to base themselves in Cyprus or Gibraltar due to the minimal taxes on offer. Another way to verify if a broker is genuine is to type the domain into Whois.
Check to see if the domain is registered by a company. Alarm bells should ring if it is registered by an individual or the registrant details are masked.
Managed forex accounts
This involves a trader telling you that they can fully manage your account, and make you wealthy. All you need to do is send them money. A majority of forex traders never turn a profit.
As a result, such an offer can seem like an answered prayer.
The scammer simply takes the money and vanishes. Generally speaking, forex traders are only focused on their accounts. Therefore, why would they offer to help you run yours?
Outrageously priced training programs
I am yet to meet a top forex trader who can attribute their success to a particular course. There is so much free training available. You don’t have to give someone a large sum of money to be trained as the next “forex millionaire”.
There are some great coaching programs out there; however, much of what you will learn can be found in a few Google searches. Plus, this takes away money you could be using to trade with.
I get it, Forex can be challenging; therefore, a course taught by a “millionaire” guru can seem like a shortcut. The most effective training strategy is to start off with a demo account and implement strategies you find online.
There is no risk because you aren’t trading real money. You can then develop a profitable trading system and trade with real money.
How to easily detect forex trading scams
The forex industry is a lucrative playground for scammers. New scams are created on a daily basis; however, they all share similarities. Here are 5 things to look out for:
1) “Everyone can do it”
In order to get more victims, they will suggest that anyone can make money from their scheme. And the truth is most traders don’t have the focus and commitment needed. This is why 96% of forex traders don’t turn a profit.
In an attempt to increase revenue, most scammers will ‘reward’ you for referring more people. In most cases, there is no product or service. You only make money with successful referrals.
This is a classic Ponzi scheme. You are likely to lose relationships with family and friends. Plus, Ponzi schemes are illegal, and you can end up in court for participating.
3) Selling a lifestyle
People are attracted to success. And hope is always in demand. Therefore, scammers are experts at selling the illusion of success. They create a persona in order to make you jealous and motivate you into buying. They spend more time talking about how easy their program is, and the riches it “will” bring. As a general rule, there is no easy way to wealth. You need to be exceptional, and that takes hard work.
Forex is filled with opportunities. Unfortunately, it also attracts criminals. Therefore, you need to be selective and vigilant. Just to recap, here are the key points covered:
- Be wary of unusually high returns on investments.
- Unregulated brokers can easily disappear with your money and there is little the authorities can do about it.
- As a general rule, wealth doesn’t come easy. Be careful of those who claim that anyone can make money using their system.