It is possible to lose money by trading forex, even though it’s a legitimate way to earn money.
In the past few years, the foreign exchange market has become more popular. More investors are flocking to this concept. Many people with little or no forex experience have become interested.
With the rise in popularity of forex trading, there are also many scams.
These forex scams can be attractive to beginners and people who are looking for quick money.
Don’t worry. I’ll tell you about the most common forex scams below, and give you some tips on how to spot any red flags prior to investing any money in trading.
Table of Contents
What is Forex Trading?
Forex Trading Example
What types of forex scams exist?
Forex Trading Scams: How to Spot Them?
Avoiding Forex Trading Fraud
What is Forex Trading?
Forex trading is a simple concept: You exchange one currency for another. Every day, currency exchanges take place all over the world. Without it, international commerce, travel, and trade would be impossible.
Foreign currency
Imagine that your favorite sushi restaurant must exchange USD into JPY in order to purchase fresh fish at the Tokyo markets, and your favorite merino sweater maker has to pay the sheep farmers in AUD in order to import the wool.
You can’t get poutine in Canada without exchanging USD into CAD, or paying an extra fee for your credit card provider to do the exchange for you.
There are millions of transactions like these that occur every day. Recent reports show that the average daily volume of forex trading is more than $5.1 trillion. This makes it the largest asset markets in the world. How do people earn money by trading currencies?
Forex Trading Example
The majority of trading takes place on the spot markets. Currency pairs are traded, such as USD/JPY or EUR/CAD.
Say you are trading USD/CAD. You will pay $790 if you buy 1000 CAD with a USD/CAD rate of 0.79. If the rate increases to 0.82 later, you can sell your 1000 CAD at $820 and make a $30 profit.
This example may seem simple, but forex trading can be complex. The global economy, interest rates, geopolitical events, and supply and demand all influence currency exchange rates.
It’s easy to lose money on the market if you do not understand what you are doing.
Contrary to rumors, forex trading does not involve a pyramid scheme. You can make money by trading currencies on the spot markets.
There are many legitimate success stories, but also plenty of false information. You must be able to tell the difference between legitimate forex opportunities and scams if you are interested in trading.
Can you make money by trading forex?
If you have the money to invest, are a professional currency trader, or work for a hedge-fund, forex trading can be a lucrative business. Forex trading is not for everyone. It can be a difficult path and result in substantial losses.
What types of forex scams exist?
The foreign exchange market, while not a pyramid or scam scheme, is vast and largely unregulated. Unfortunately, this leaves plenty of room for scammers to lure unwary investors into their schemes.
You’ll have to be alert to avoid the scammers, who are ruthless and clever. If you’re offered 6-figures or 7-figures and promised easy money, that should raise your first red flag.
Let’s look at five of the most common forex scams.
- Signal sellers
Be wary of anyone or any company that promises to provide you with all the information you need to win the forex market and make a lot of money for a monthly fee. Signal sellers are the people who do this.
Single sellers will claim to be able to tell you when you should buy or sell a particular currency based on “proprietary algorithms” and “deep insider information.” However, most of the time you won’t get anything in return for your money.
Signal sellers have a knack for presenting themselves to be experts, displaying huge profits, and sharing glowing customer reviews. Do not be fooled. All of these things can easily be faked or misrepresented, and there are many scammers on the internet who do this.
- Robot trading systems
Everybody wants to believe that there is a secret formula which will make you rich and wealthy without any effort. Scammers take advantage of this desire to make easy money, promising an automated robot trading software that will automatically buy and sell the right products for you.
You only need to put in your money and the robots will do the rest!
These robot trading systems are not backed by any legitimate agencies. A computer cannot reliably predict the changes that will occur in a market like forex, which is heavily dependent on global events as well as subtle political and economic signals. Say no to automated forex trading systems.
- Broker frauds
You need a foreign exchange broker to give you access to the trading platform.
Brokers can be honest, but they are not all the same. Some will take your money without doing anything and others may charge you exorbitant commissions for their trades.
Do thorough research before choosing a broker. Make sure that their operations are transparent, and they are associated with a reputable regulatory body or governing body.
You can start by visiting the Background Affiliation Status Information Center website (BASIC). When opening an account, you should read the fine print of any disclosures and documentation.
- MLM Forex Scams
Forex scams involving multi-level marketing (MLM), have contributed to the association between forex trading and pyramid schemes. There are many MLM businesses that focus on forex trading.
Forex MLMs offer daily trading advice and forex training material, but also charge a monthly membership fee and encourage members to recruit by offering them commissions. You earn more money if you can recruit more people to the MLM.
Forex MLMs are not for the novice forex trader. The goal is to get as many people to sign up and pay the monthly fee, rather than to teach you how to become an expert.
Avoid these MLM scams if you are serious about forex trading. They are not worth your money and you don’t even need them.
- Fake Forex Funds
Scammers use fake forex funds as a way to lure individual investors who prefer the idea of mutual funds. The funds promise huge returns and are hard to walk away from.
Repeat with me: 99.99% of time, if something seems too good, it is. This 0.01% does not warrant the risk. Instead, invest in index funds or mutual fund.
There are also many other investments that offer a much higher return.
Forex Trading Scams: How to Spot Them?
How can you spot forex scams sooner rather than later, now that you are familiar with some of them? Here are some signs that you should be aware of.
Profits and success are guaranteed
It is a red flag for anything you do. This is a red flag when it comes to forex.
There are no guarantees on the forex market. It is volatile. Anyone who promises specific results may be a scammer, or just looking to take advantage of you.
Vague Background
By omitting key data points and time periods, it’s easy to falsify results or alter charts or statistics.
Ask for details on the profits and losses before you buy a product, or follow someone’s advice. If they cannot or will not provide this information, you should walk away.
Spam marketing that persists
Scammers will often create a false sense of urgency in order to get you to buy something quickly, before you can think.
Also, they may ask for personal information in order to sell it or use it as part of identity theft. Avoid anyone who is rushing you to take a quick decision or asking for your personal information.
You can be confused by using fancy words
Faux forex experts use fancy words to impress their audience and show off their expertise. You might think that their clever acronyms and phrases are proof of their expertise, but they’re just a show.
It is not easy to trade forex successfully, but the concepts and terminology aren’t very complex.
Experts communicate their advice in a transparent and easily understandable manner. Do not be fooled by the way a scammer uses words.
Trading software that requires payment
Ask yourself this question if you are tempted to purchase a “professional’s” software for forex trading: If he really is an expert, why would he try so hard to convince me to buy it instead of using the software to make a fortune?
The majority of forex trading software marketed towards beginners is unproven and unregulated. It’s not worth the money.
Avoiding Forex Trading Fraud
Forex trading is a real business and it’s possible to make money, but this is not for the weak-hearted. It’s easy to be scammed by forex.
Personal, I believe that 99% of people would be better off investing their money in real estate, the stock market or a side business.
If you’re interested in forex trading, there are a few important things to consider:
Research and do a lot of it
Speak to a financial advisor or wealth adviser you trust
Forex scams: Don’t fall for them
You should know how much you are willing and able to risk.
