What are the most popular Forex Scams?
As of April 2022, over $6.6 trillion was traded each day in the spot forex market, as well as currency options and futures contracts. Forex scams offer unscrupulous operators the possibility to make fortunes in limited amounts of time due to the enormous amount of money floating around unregulated spot markets that trade instantly, over the counter, without accountability. Due to enforcement actions by the Commodity Futures Trading Commission (CFTC) and the 1982 formation of the self-regulatory National Futures Association (NFA), many old scams have ceased, but some new ones continue to exist.
A classic point-of-sale scam from the past
The bid-ask spread was manipulated by computers in an old point-spread fraud. Bid-ask spreads reflect the commissions paid to brokers for back-and-forth transactions. Currency pairs typically have different spreads. Scams occur when brokers’ point spreads differ widely.
For example, some brokers offer spreads of seven pips or more in the EUR/USD rather than the usual two-point to three-point spread. ( Pip refers to the smallest price change made by an exchange rate based on market convention. As most major currency pairs are priced to four decimal places, the last decimal point is the smallest change.) Depending on how the forex broker structures their trading fees for trading, any gains resulting from a good trade can be eaten away by commissions, which can be four or more pips per trade.
Over the last decade, this scam has diminished, but be wary of offshore brokers who are not regulated by the CFTC, NFA, or their country of origin. When confronted with action, firms are quite easily able to pack up and disappear with the money. The manipulations of computers led to many serving jail sentences as punishment. In the past, it has been United States-based companies that have committed the majority of violations, not offshore companies.
Today, signal sellers are one of the most popular scams. An individual trader, a retail firm, a pooled asset manager, a managed account company, or a managed account company that offers a signal seller a system that identifies favorable times to buy or sell a currency pair based on expert recommendations that will make anyone wealthy—for a daily, weekly, or monthly fee. Moreover, they display testimonials from people who attest to the person’s long experience and trading abilities, and the vast wealth the person has earned for them as a trader and friend. To receive trade recommendations, an unsuspecting trader only has to pay X dollars.
There are many signal-seller scammers who simply collect money from traders and disappear. It is not uncommon for some traders to recommend a good trade from time to time, hoping to keep the signal money flowing. Scams like this are slowly becoming more widespread. Despite the fact that some signal sellers are honest and perform their functions as intended, caution is a wise move.
“Robot” forex scams in today’s market
The forex trading system development industry is plagued with scams, old and new. The scammers claim their system can generate automatic trades that earn you vast wealth while you sleep. Nowadays, the process is fully automated by computers, hence the term “robot.” Unfortunately, many of these systems have not been subjected to formal review or independent testing.
The parameters and optimization codes of a forex robot must be tested. A system that generates random buy and sell signals is one whose parameters and optimization codes are invalid. The result will be that unsuspecting traders will do nothing more than gamble. Before putting money into one of these systems, forex traders should do some research.
Factors to consider
Trading systems have traditionally been quite expensive, sometimes costing upwards of $5,000. Scams like this are not uncommon. Today, a proper trading system (like Telegram.forex) shouldn’t cost more than a few hundred dollars. A system seller who guarantees phenomenal results should be especially cautious. Instead, look for legitimate sellers who have tested their systems thoroughly to earn potential income.
The commingling of funds is another persistent problem. Individuals cannot track exact investments’ performance if there is no record of segregated accounts. As a result, retail firms can use investors’ money to pay exorbitant salaries, buy houses, cars, and planes, or just disappear with it. Fund segregation was addressed by Section 4D of the Commodity Futures Modernization Act of 2000; what happens in other countries is another matter.
It is always important to be skeptical of promises or promotional material that guarantee a high level of performance when choosing a broker or trading system. Brokers who refuse to allow withdrawals from investor accounts or trading platforms with problems are other scams and warning signs. If there is volatility in the market after an economic announcement, can you enter or exit a trade? You should see warning signs if you are unable to withdraw money. The trading platform should flash warning signs again if it fails to meet your liquidity expectations.
Here’s the bottom line on forex scams
Visit the Background Affiliation Status Information Center (BASIC) created by the NFA to conduct due diligence on forex brokers. As a result of numerous changes, crooks and old scams have been driven out and the system has become legitimized for the many good companies. Nevertheless, be cautious of new forex scams. Scammers will always be attracted to this market because of the temptation and allure of huge profits.