Because of the huge potential for profits in Forex trading, the Forex world is riddled with scams and unscrupulous individuals looking to make a quick buck.
But is Forex trading itself a scam?
Forex trading is not a scam. It’s a legitimate way of making money, and a lot of it if you know what you’re doing.
Are there scammers in the Forex trading world? Of course.
Unfortunately, there are more scammers than legit people.
In this post, you’ll learn about some of the most common Forex scams, how to avoid forex scams, and how to best make money through currency trading.
What is forex trading?
Forex trading is when people buy and sell different types of money. It’s a little bit like going to a physical currency exchange and trading in your dollars for euros.
Forex traders try to make money by guessing which way the value of a currency is going to go and buying or selling accordingly.
For example, if they think the value of the euro is going to go up, they might buy a bunch of euros. If it does go up, they can sell the euros for more dollars than they paid for them and make a profit. If it goes down, they will lose money.
Best way to avoid Forex scams
The best way to avoid Forex trading scams is to do a little bit of research and to use your common sense.
Contrary to what people may promise, Forex trading is not a get-rich-quick scheme.
In fact, when done irrationally, Forex trading is a lose-money-quick scheme.
Mastering the Forex market requires a lot of patience, fortitude, and self-control. As you start trading the Forex market, you’ll have periods of ups and downs.
Losing streaks will weigh down on you very heavily, and scammers are waiting to prey on your weakness and offer you a silver bullet.
Remember: the foreign exchange market will pay off dividends in the long run if you start with a small account.
Here are some tips on how to spot a Forex scam:
1. Use common sense. If something sounds too good to be true, it probably is. Promising profits of 50-100% per month is just not practical and the amount of risk you’d need to take to achieve those kinds of returns would eventually blow your account.
2. Look for verified third-party reviews from reputable sources, such as TrustPilot or YouTube.
3. Be wary of promises of high returns with no risk involved. This is a red flag that the broker may be operating a scam.
4. Always use a reputable, regulated broker. Look for brokers who are members of the National Futures Association (NFA) and the Commodity Futures Trading Commission (CFTC).
Common Forex Scams
No substantial proof or background information
Forex scammers often over-promise and under-deliver, so they’ll have lots to say but very little proof to show for it.
Any proof they do have will probably be very thin, and you’ll almost never know who the real people are behind the scenes.
They’ll also ask for payment using untraceable and irreversible methods: crypto, most likely!
Before you part ways with your hard-earned money, make sure to do your research and see if the vendor in question is genuine and has proof for what they say.
One of the best ways to see whether a vendor is legit or a Forex trading scam is if they show their true face!
Also, look for a large or dedicated community – this indicates that the sellers truly care about their customers and the customers are helping each other out, too.
Related: Are prop firms scams?
A guarantee of success and/or large profits
If there’s anything certain about the Forex market, it’s that unusually high returns are a one-off event and anyone who promises ridiculously high returns month over month is probably trying to scam you.
Guarantees of success are usually associated with trading systems, where an unscrupulous seller will try to sell you a trading system that you just have to blindly follow and make massive returns.
The truth is that even the best systems are susceptible to failure, and the only way to really make money in the Forex market is actually to learn how currencies move. More importantly, you need to learn how to manage your risk and profits.
More than the entries you take, your risk management prowess is what will determine how much you make as a Forex trader.
Forex Robot Scams
Another common scam is someone selling a “trading robot” that purportedly will make you a lot of money.
The reality is that most of the time, the people selling trading robots are not traders themselves – they’re internet marketers who have no idea about trading.
Trading robots can work, but they usually require a lot of practice and knowing how and why the robot does what it does to make sure you don’t end up losing a lot of money.
Many Forex robot scammers tend to over-promise the effectiveness of a robot, only to disappear when you need technical support.
Not all robots are scams, but real Forex robots will generally have strong communities behind them and not overpromise on results.
Also, be aware that backtest results are usually a lot more optimistic than real-time results.
So even though a backtest graph may be up, up, and up, when put on the real market, where there is slippage and irregular ticks, the performance may be a little different.
Signal Seller Scams
Another common type of scammers are signal sellers. Signal sellers provide you with times to enter the market and exit it, promising high accuracy rates and high profits.
The problem with signal sellers is that their signals may be accurate, but they don’t usually provide you with stop loss levels.
That means a trade can go into a HUGE drawdown before turning around in your favor, or worse, if you don’t place the stop loss correctly, it can stop you out early before eventually going your way.
The issue with signal sellers is that they rely on their customers not understanding how the market works.
Signals are a good way to get an idea of where the market may move, but ultimately, it should be your better judgment that dictates whether or not you should take a trade.
Avoiding Forex Broker Scams
One common scam among forex brokers is the manipulation of an asset’s price in order to hunt the stop losses of their traders.
This type of scam is often perpetrated by unscrupulous brokers who are looking to profit at the expense of their clients.
Here’s how it works: a broker will artificially inflate or deflate the price of a particular asset, often through the use of “spoof” orders or other manipulative techniques.
This sudden price movement may trigger the stop loss orders of their clients, who are attempting to limit their losses on a trade. When the stop loss is triggered, the broker will then buy or sell the asset at the artificially manipulated price, effectively profiting at the expense of their own clients.
This type of scam can be particularly devastating for traders, as it can result in significant losses and can erode the trader’s confidence in the forex market. It is important for traders to be aware of this type of scam and to take steps to protect themselves, such as by carefully researching and selecting a reputable broker and using advanced stop loss strategies that are less prone to manipulation.
Traders should also be vigilant in monitoring their trades and looking for any unusual price movements that may indicate a potential scam.
By taking these precautions, traders can better protect themselves and their investments in the forex market.
Fake bonuses and promotions
Another way that some forex brokers may attempt to scam their clients is through the use of fake promotions and bonuses. These offers may appear attractive on the surface, promising free money or other incentives to entice traders to sign up or deposit funds.
However, in reality, these bonuses are often used as a way to increase the trader’s leverage, rather than their actual capital.
In some cases, brokers may use these promotions to encourage traders to take on more risk than they can afford, by offering bonuses that are tied to high volume trading or other risky behaviors.
These bonuses may also come with strict terms and conditions that are difficult for traders to meet, making it difficult or impossible for them to withdraw their funds or access the promised bonuses.
Unusually high leverage
Some forex brokers offer very high leverage, sometimes as much as 1:1000, as a way to attract you to their platforms.
This type of leverage can be appealing if you are looking to maximize your returns on investment, as it allows you to make large trades with a relatively small amount of capital. However, it is important for you to be aware of the risks associated with high leverage.
High leverage can significantly increase the potential for both profits and losses, as it amplifies the effects of price movements on your account.
This can be especially risky in a volatile market, where rapid price movements can quickly erase your capital. It is important for you to consider your risk tolerance carefully and to use leverage responsibly, as overleveraging can lead to significant losses and even the complete loss of your trading account.
What to do if you get scammed?
If you think you have been the victim of a scam in the forex market, you should report it to the authorities as soon as possible. Here are some steps you can take:
- Contact your bank or credit card company: If you have made a payment to the scammer through a bank transfer or credit card, you may be able to get your money back if you act quickly.
- File a complaint with the relevant regulatory body: Different countries have different organizations that regulate the forex market. In the United States, for example, you can file a complaint with the Commodity Futures Trading Commission (CFTC).
- Report the scam to the relevant law enforcement agency: If you have been the victim of a fraud or scam, you should report it to the police or other law enforcement agency.
- Consider seeking legal advice: If you have lost a significant amount of money as a result of the scam, you may want to consider speaking to a lawyer about your options for recovering your funds.
Act quickly if you think you have been the victim of a forex scam, as the chances of recovering your money can decrease significantly if you delay.
Forex trading scams are very common, but that doesn’t mean trading forex itself is a scam. Is Forex trading legit? Most definitely. A lot of people make good money in the currency markets and if you’re willing to put in the work and be patient, you can too.
There are no silver bullets, that’s all.
Frequently asked questions
Is forex good for beginners?
Forex, or the foreign exchange market, can be a good investment opportunity for beginners, but it is important to approach it with caution and to thoroughly educate oneself about the market before diving in.
While the high liquidity and 24-hour availability of the forex market may seem attractive, it can also be volatile and complex. Beginners should be prepared to put in a lot of practice and study in order to become successful in forex trading.
It is also important for beginners to understand and manage the inherent risks of the forex market, as it is not suitable for everyone.
Is forex a gamble?
Forex trading can be seen as a gamble if an investor does not have a solid understanding of the market and the factors that can affect currency values.
Without proper knowledge and risk management strategies, an investor may make impulsive and uninformed decisions, which can lead to significant losses.
However, with proper education and a disciplined approach, forex trading can be a viable and potentially profitable investment opportunity.
Is it worth it to trade forex?
Forex trading can be a worthwhile investment opportunity, but it is important for investors to carefully consider their goals, risk tolerance, and resources before getting involved.
It is also essential for traders to understand the inherent risks and to develop a solid risk management strategy to protect their capital.
With a well-thought-out plan and the willingness to put in the necessary time and effort, forex trading can be financially rewarding for those willing to take on the challenges and responsibilities that come with it.