Converting one currency into another in order to make a profit is known as Foreign exchange or, in short, Forex. Traders trade currencies with the help of the global financial market. In the system of foreign exchange, traders profit by making correct predictions of when the value of a currency will be stronger.
Some people prefer trading in Foreign exchange rather than investing in stock markets, as it is hard for scammers to influence the value of a currency. Still, some scammers find other ways to perpetrate forgery. It is important for forex traders to educate themselves about forex scams.
Some of the common forex scams are discussed here,
- Unregulated Brokers,
- Illegitimate Websites,
- Blacklisted Brokers,
- Rookie Traders,
- Forex Robot Scams,
- Signal Scams,
- Pyramid Scheme,
- Ponzi Scheme,
- Refusal in Withdrawal,
- Managed Account
A forex broker can be trusted when they are officially regulated. It is because the regulatory bodies make sure that the brokers regulated by them follow specific guidelines. Also, if someone makes any allegation against the brokers regulated by them, they look into the matter. They are also responsible for issuing a license for the brokers. Some fictitious brokers may claim that they are officially regulated when in reality, they are not. One should ask these forex brokers which regulatory body and license number they are registered into and simply search on those regulatory websites. If they are registered to the regulatory body, their names and license numbers will be visible there; if not, there might be a possibility that the broker you are dealing with is a scammer.
Some fraudulent brokers who are intended to run away with their clients’ money create websites that are identical to the websites of a legitimate, registered broker. They copy the domain names of the websites and even the logo, with slight changes, to make them look similar to the website they are mimicking. Sometimes they provide a license number of a registered broker so that scammers can deceive people who may try to find them in the local regulatory body. This is how some corrupt brokers trick people by impersonating legitimate sites.
There are many brokers that are blacklisted for their wrongdoings. There are many organizations that keep a record of these brokers. One can easily find them on the internet, on the organization’s website. It is advisable to look for the name of the broker or license numbers on one of these websites before dealing with them.
Inexperienced rookie traders have always remained the primary target for brokerage scammers. Scammers lay their traps for the traders who are imprudent. So if you are new in the field of trading or have never dealt with the foreign exchange before, it will be wise to be skeptical about every step you take while dealing with a foreign exchange broker.
Forex Robot Scams:
Forex robot is a software program that suggests traders with a time when they can exchange currencies for a profit, on the basis of foreign exchange market price movement. Traders can buy these automated trading systems from the internet. However, forex robot scams occur when traders pay the trading robot sellers in order to purchase them, but the seller runs away with the money without fulfilling their promises, or when the forex trading robots cannot provide the service properly, which they were intended to.
Many traders subscribe to notification alerts that signal them to trade at certain times when traders can make a profit. Sometimes traders pay a lot to subscribe to these notification alerts on a monthly or weekly basis but do not get the proper service. Sometimes traders get signals that are not based on market analysis but are set as default by the service provider. They do that to garner money and fool traders.
Sometimes fictitious foreign exchange brokers resort to pyramid schemes to fool traders. In pyramid schemes, scammers lure investors into being part of them and convince the members to bring in more people in order to generate profit. In this scheme, scammers ask the joiners to make a one-time deposit at the time of joining. Initiators take a portion of the money they collect from every new joiner and pay off a part of it to the other members who were promised returns. As the primary mode of income in this scheme is every new paying member, it fails in the long run. Foreign exchange traders need to be wary of these schemes. Not only is the scheme unsustainable, but it is also illegal.
In this scheme, the director persuades the investors to make one-time deposits by offering them high rates of returns at low risk. The initiator makes the investors believe that they are harnessing profit from their foreign exchange investments, but the truth is they pay the older investors from the deposits of more recent investors. However, forex scams occur when the initiator of the Ponzi scheme lures the investors through a fake foreign exchange expert.
Refusal in Withdrawal:
Sometimes foreign exchange brokers freeze the investors’ trading accounts or refuse to process withdrawals for the money that investors have in their accounts. These circumstances are also considered Forex scams. In addition, brokers decline traders’ withdrawal requests and refuse to reply to traders’ calls or emails when they try to contact them.
Illegitimate brokers who perpetrate Forex scams may suggest you invest through a managed fund. Traders have less control over their money when they invest in a managed account. Brokers persuade them to do so as they can exploit traders’ funds for extra benefits. Sometimes brokers do not even allow the traders to track their money.
Precautions a trader needs to take to prevent Forex scams
Scams have become more prevalent in the field of Foreign exchange these days. To stay ahead of the threats posed by Forex scammers, traders need to be skeptical while trading in foreign exchange. Furthermore, researching before trading on this platform can save you from bankruptcy.
Here are some of the things a foreign exchange trader should be wary of,
- Noticing a sense of urgency in tonality,
- Unavailability of contact details on websites,
- Lack of information,
- Look for reviews,
- Deal with local brokers,
- When offers sound too good to be true,
- Hard to comprehend,
- Patience is the key
Noticing a sense of urgency in tonality:
An illegitimate broker is very likely to rush you to join their foreign exchange platform or programme. They create a sense of urgency by proposing limited-period offers and deadlines. They do so as they intend to run away with our money and are only willing to give us limited time for research, keeping us from sniffing anything suspicious. Therefore, it is advisable for traders not to rush while trading in Forex.
Unavailability of contact details on websites:
Websites of illegitimate foreign exchange brokers always lack contact details and other information. While their aim is to disappear with traders’ money, they make sure that the traders cannot contact or track them quickly, after they’re gone. At the same time, a legitimate broker keeps this information easily accessible for their client’s convenience. Therefore, a trader should make sure that the brokers they are dealing with are easy to contact, before opting for them.
Lack of information:
The site created by an illegitimate broker will always lack other information, such as the license and name of their regulatory body. A fictitious broker is less likely to register with a regulatory body and therefore does not possess a license. Brokers without a license cannot be trusted as they are not compelled to follow certain guidelines imposed by the regulatory bodies. Some brokers may also claim to have a license when they do not. Always search with the license number and name of the broker on the regulatory websites they claim to have registered to. If it does not appear on the list of registered brokers, chances are high that you are dealing with a scammer.
Look for reviews:
There are many organizations that list fake and corrupt brokers. One can easily find their websites on the internet. To bolster your security, go through these lists before you decide to trade with a foreign exchange broker.
Deal with local brokers:
It is easier to locate the money you lost in forgery when the broker you are dealing with is local. The money you lose offshore is harder to track.
When offers sound too good to be true:
Many brokers resort to advertisements to promote their websites and organizations, but when a foreign exchange broker makes offers that sound too good to be true, the possibility is high that the broker is a scammer. This is because the market of foreign exchange is very volatile, and no one can guarantee profits that are unbelievably true.
Hard to comprehend:
Unregulated, corrupt foreign exchange brokers sometimes make their procedures hard to understand for rookie traders. They aim to escape with all the money and doing so only eases the process for them. When the policy is too complex to comprehend, imprudent traders miss out on the loopholes the brokers create for their convenience. Thus, scammers run away with traders’ funds, leaving them helpless.
Patience is the key:
Have patience while dealing with foreign exchange. Take your own time before you opt for a forex broker or make any investments. Research before you make any decision.
These unlawful forex scammers wreak havoc on the traders’ financial conditions. To stay ahead of these threats, foreign exchange traders need to deal with everything with a skeptical approach. Independent analysis provides the traders’ insight into the nature of the schemes owned by the scammers and helps them to avoid potential danger.