Spotting a forex trading scam is no easy feat and can be a considerable challenge, especially for newbie traders.
A decentralized system of money and free entry and exit from the global market comes with ups and downs. As a result, the forex market is susceptible to some FX trading scams. Newbie traders often fall victim to these scams due to exposure to fake brokers who are inexperienced. This article will look at what a forex trading scam is and how to spot it regardless of the disguise.
What is a forex trading scam?
A forex trading scam is a foreign exchange trading window that promises significant returns while expecting urgent execution from traders. Usually, the brokers who pose as the middleman between the trader and the market are fraudulent. They charge higher spreads, causing the victim to lose massive capital in the process. And enrich themselves at the victim’s expense.
Why forex trading scams thrive
The existence of an unregulated market is the main reason behind most FX trading scams. As a result, there is an enormous circulation of huge funds with minimal regulations. Therefore the low barrier of entry into and exit from the forex market creates flooding with traders. Furthermore, because there are many fake brokers, their evil activities cause losses to the victim traders.
How to spot a forex trading scam
Sporting a forex trading scam requires a certain level of exposure, experience, and information.
Additionally, it would be difficult to spot a scam that you are unaware of; Therefore, the easiest way to detect shady forex moves is by knowing the various forms these scams present.
If you are relatively new to forex trading, here are a few fx trading scams and their features.
Some Forex trading scams and how to identify them.
It is one of the oldest scams in the forex market. It works by manipulating the bid-ask spread electronically. This manipulation is such that the difference between the bid and sell spread increases by four decimal places. In contrast, the usual spread is to two decimal places. Therefore the increased pip due to the sizable bid-ask spread enriches the broker. However, this type of forex trading scam is no longer In vogue in the US. However, some offshore brokers might still be able to pull this off.
This type of trading is also called automated trading. It was initially designed to aid new or beginner traders. Robots are a product of artificial intelligence and place trades automatically. They do not require human effort and are easy to use. However, robot trading requires extreme care because of scalping. In scalping, the robots place so many trades at random with minimal profits. Most traders do not realize the downside of robot trading, where scalping is a disguise to create many profits. Additionally, a sudden increase in lot size can end the trading account, thus creating a massive loss for the trader.
Most retail traders, especially inexperienced ones, do not know when to place a trade. That is where signal sellers profiteer. By offering a system to notify traders when to set up a business and when not to through trading signals. The demerit of subscribing to signal sellers is that most provide fake alerts, while others offer signs at exorbitant commissions.
Often, fake brokers are not outright scammers. Instead, they are usually incompetent or not as good as they may present themselves to be. Because they are equally human, they make a couple of mistakes that can cost the trader his entire account. Some shortcomings of fake brokers include but are not limited to the mixing of funds and price slippage. Sometimes, it could be that the broker does not have enough money to cover the trades.
How to self-insulate against a Forex trading scam
Having identified how some of these scams operate, Self insulation becomes the next step. Here are the two most effective ways to protect your account.
1. Watch out for warning/danger signs
Every trader needs to be well informed about some danger signs in their trading journey. Examples include:
- Profit claims that seem too good to be true. Because, if it is too good to be true, it most likely is.
- A display of historical data rather than live trading data as proof of trading success
- Unverified location and identity
2. Use copy trading for automation
A copier trading software like Telegram Forex is one handy tool, especially for beginners. It is an EA app that connects to all your Telegram channels and replicates any signal. This is great because it lets you know who exactly you are copying. Their track record and history.
Additionally, it grants you access to pro-trading tips from professional traders.
You can also copy trade Expert Advisor trades with its powerful Telegram Forex MT4 trade copier software. It automates your transactions and eliminates the possibility of a forex trading scam.
FAQS: Is it possible to get scammed by forex?
Is it possible to get scammed by Forex?
Because of strict security and global financial regulations, most scams from the FX market are not as prevalent. However, many traders still fall victim to such scams, especially those resulting from a high bid-ask spread.
What is the safest way to protect yourself from FX trading scams?
Besides learning about how these scams are present, it is essential to understand the warning or danger signs for the lookout. Ultimately, the most effective protection is to master how to trade for yourself and trade more professionally.
How do I know if a forex broker is legit?
Every legitimate broker should have a valid and verified site with a track record of positive reviews. Also, it would help if you researched the broker to figure out information concerning liquidity, negative thoughts, live trading records, and withdrawal ability. In addition, you should also never begin trading with a huge amount until you are convinced. It is a great way to be safe from any forex trading scam.