Forex scams are everywhere, like cockroaches scampering around in the darkness when you turn on the light and turning invisible when under scrutiny.
They occasionally crawl out of their hiding places to try and scam some innocent victims looking for a profitable investment instrument.
Forex scams look so harmless and friendly enough at first glance, but when you get close enough, they’ll try to suck your wealth away with them where you will never see them ever again. ( both my ex-girlfriends AND forex scams.)
The thing is – even though global financial regulators such as CFTC/FSA/FINMA/SEC already put stringent regulations, it seems that there are still some ways scammers can use to promote their scammy products.
Before taking any decision to invest in anything, do some background check first! Here are the most common forex trading scams.
Commissions and currency pairs
Forex brokers tend to offer a wide variety of pairs to choose from because they know that the more choices there are for their customers, the better chance they have at making money off them.
Forex brokers also make money by charging commissions every time you place a trade on your account with them.
By offering lots of currency pairs, they could probably encourage you to trade as much as possible and rack up those commissions quickly!
However, all these extra pairs come at a price because it will be more complicated for you to know which pairs are most likely to give you the best results.
They will most probably suggest that you pick 2-3 currency pairs and spend all your time trading them instead so that they can earn commissions off of you!
Forex brokers provide clients with leverage to trade in large quantities.
But once things go wrong, it becomes much easier for them to trick their clients into losing money because they only need to move the price by a few pips (the smallest unit in forex pricing is called ‘pip’) for their customers’ accounts to be wiped out.
Brokers also provided this advantage because they believed that most people would not handle trading in such large quantities, and they would end up losing everything.
There is no such thing as a free lunch! If you were guaranteed to make money without any risks, there must be something wrong.
No one can promise you guaranteed returns because if they do, it means that something fishy is going on and that someone or several people will be profiting from you at your loss!
Remember: there isn’t anyone who could give me 100% risk-free returns every month consistently!
Anyone who claims so should not be trusted, period. If Warren Buffet can’t do so, it means that no one can!
Expert Advisors and Robots are automated trading software that could generate many signals that then need to be manually executed by the trader.
The truth is, they do not use this software themselves! It is pretty simple for anyone to create an EA or robot with some programming know-how.
Many forex shops claim to have a good collection of EAs and robots, which they will sell you at a premium price and charge commissions on top of that.
How greedy can they get?
This is just plain deceiving because anyone can easily create a fake profile, take someone else’s pictures/videos, record themselves in front of a background that suits them and then post it on their website.
It doesn’t always have to be celebrities or models either.
You could even see your family members/friends posing as one!
So please do not take any testimonials for granted, especially since most forex websites provide NO contact information whatsoever for you to verify if they are actual clients (because they probably aren’t).
No license or bad Licenses
Ever wonder why some forex shops are still around when other brokers go out of business?
That’s because many of them provide “bad service,” but they have a license from the government to conduct their business.
In other words, people might not complain much about their services, and they will pretty much do whatever it takes for you to stay as long as possible on their platform.
Now that’s just something that I don’t understand! If there is no license or a lousy license, why aren’t the authorities fined for allowing these companies to operate illegally? Why would anyone play along with such things?
It doesn’t make sense. Why should I care if the foreign exchange market is not regulated by authorities anyway?
Don’t people understand why a broker would offer you a deposit bonus?
It means they will give you $1,000 with NO money upfront! This is probably the biggest red flag for me.
Why? Because it is so apparent that brokers and traders can easily abuse it by giving away such an amount of free cash, I bet many people will take advantage of it instead of using it properly.
It may happen you deposit your money into the account, and suddenly, your money is gone!
The reason is that they want to attract new traders by giving away free money!
The problem with this is that it will only attract inexperienced traders who are just starting, which means they are more likely to lose their money much faster than usual because they are not used to trading Forex.
Even if you are experienced at trading, never invest money you cannot afford to lose.
I have seen it happen to traders who have been around for years and know everything about trading. It is a harsh reality that we cannot always control.
Fake review websites
I sometimes come across sites like: forex-trading-reviews.com and forextradingverdicts.com (fake), eforrex (fake), etc.
These were some of the more famous names too! You know that these things are usually a red flag, and sometimes, it could be downright fraud.
Do you think any real forex trader would make their real name public? I highly doubt so because we all want to protect ourselves and our privacy.
This scenario happened to me before I quit retail foreign exchange.
A friend of mine told me about a website with some pretty good reviews, so I decided to check it out and see if there was any truth behind the forex review.
As instructed, I opened up an account with $117 then deposited $5000 into my account using my credit card, one of the most common scams in the world today, but most people are too naive to think about it! Why would someone want to deposit $5000 when only $117 was required?
It’s because they want more money from commissions/withdrawing fees, or they want you to waste your time on their platform so they can stop paying you.
Bonuses without deposit
Nowadays, it is pretty common to have bonuses given with no deposit or even just tokens, but they never match up to the ones promised with a deposit.
Don’t fall into this trap, as it is just another marketing gimmick that will entice you into depositing your hard-earned money on their platform with false hopes of earning more profits.
I have fallen for this before, but it didn’t last long because I had no money to lose anyway.
These are just some of the most popular red flags that you should look out for when choosing a forex brokerage firm.
Remember, good ones provide top-notch services, but many people don’t know how to tell them apart from the bad ones.
That is probably why very few forex shops get any genuine reviews, so chances are they will keep slamming everyone with their marketing schemes/tactics until further notice.
High winning percentage on trades
The website offers you a particular currency pair which usually has a high winning percentage.
They want to turn you into a gambler so they can make money from the commissions of every trade you make.
For this business model to work, you would need to make thousands of trades per month to gain any substantial amount of money from this platform.
How much do you think you will be losing each month if you are losing money with most of your trade? Yes, that’s right.. all of it! No matter how long you have been trading for, this is how it works.
Forex pyramid scheme scams
There is an ongoing forex craze fueled by multi-level marketing schemes that promise to earn you passive income on the side and, even crazier, financial freedom.
These scams are designed to take advantage of inexperienced traders by luring them with the promise of quick money. All you need is a credit card and your account funded! It sounds too good to be true, right?
Because it is.
If it sounds too good to be true, then the opportunity usually will not last long enough for you to realize that you have been taken advantage of.
These schemes are PYRAMID SCHEMES which are explicitly designed to benefit the few at the top regardless of how many people they hurt on their way up.
Learn from my past mistakes.
I am sure that most of you have already heard about Forex trading and how it can be a very profitable market for you if all the trades are handled by a REAL company, not some scam operation.
There is no doubt that many people make lots and lots of money on Forex, and I envy those who got in early enough to make their wealth.
Still, the majority of traders out there will tell you that they cannot make any consistent profits from this market for various reasons:
Too many risks involved
First and foremost, as I mentioned before (and as many other people have as well), it is too risky to invest/trade in this market.
We all know that the primary goal of trading is to make money, but most people don’t understand that it can also be used to hedge your investments in other markets (stocks, commodities, e.t.c).
Too many “Gurus”
It seems too easy these days to become a forex guru with just a couple of YouTube videos and some forums postings!
Many online marketers are probably selling courses on how they made 2% per day or even more. Still, it would help if you remembered that successful Forex traders are very secretive about their “secrets” because it usually involves hiring an expensive mentor.
Who would give away their secrets for free? I am pretty sure not all of the forex “gurus” are long-term profitable traders!
Too many pumps and risky movements
Even though I have already mentioned that Forex is a very risky market, this is also one of the reasons why it can be so challenging to make any profits.
What do I mean by pumps?
When you are “pumped” up about some news/events that affect the market, and the price has suddenly reversed.
This usually results in large losses for many people who bought too much while others got rid of their assets at ridiculously low prices.
If you decide to invest/trade in this market, I recommend following the trend!
Remember, leverage is not your friend! Always remember the 3 M’s: Market, Manipulation, and Money.
Another reason why this market is risky is that many banks directly influence the price movement.
The real problem starts when you find out that some banks or even countries can create money at will to influence traders with their actions, manipulating prices up and down without consequences.
Most common forex pyramid scheme scams
I have been researching forex scams for the past couple of days or so, and I wanted to share my findings with you.
Now, I know that many people are interested in getting into Forex due to all of the earning opportunities, but please do not fall into any scams and PYRAMID SCHEMES!
There are a lot of websites out there that claim that they can teach you how to make $100 per day by simply using your $250 deposit.
They show you their “testimonials,” which include outrageous claims like: “I earned $9,000 without depositing even a single penny!”
These testimonials were either faked or edited to get more clicks which means more money.
Some of these websites are pretty impressive too!
They have suitable graphics, convincing sales tactics, professional support staff, and live chats.
But why would they be offering you to deposit with no minimum deposit amount? There is usually a hidden agenda behind many of these things that are most likely going to end up being a PYRAMID SCHEME.
Do you know what that means? A pyramid scheme works like this: You pay your $250 joining fee, then you get 2 people under you, each person pays their fees ($250), and so on.
This works perfectly if enough people join, which isn’t very hard considering how many greedy traders/amateurs are out there looking for a quick buck.
The problem with this is that there will be a point in time where the pyramid runs out of people to pay for.
This is why they have something called a “buy-in,” which means you have to repurchase your way into the scheme to continue getting paid.
That is precisely what happens when these websites ask you to deposit if you want to earn more money. They get your money, and then they get 2 other people under you, everyone pays their fees ($250), and so on until it runs out of people again.
Then a few months later, a message pops up asking you to deposit again! This cycle repeats itself repeatedly until one day it all comes crashing down, and you end up losing all of your money.
It is sad because this happens to many people, and it makes me sick to my stomach because I know that these websites’ primary purpose is only to make money off their affiliates, which means you as well.
China forex scams buying spree
A few years ago, the Chinese government decided to spend billions of US Dollars to prop up its currency which was being affected by massive capital outflows due to investors moving their funds outside of China.
The Chinese Central Bank decided to do this by buying US Dollars, which directly added even more supply to that currency while increasing demand for their currency.
As you can see in my example above, they could increase the value of their currency simply by spending billions on it!
This is an example of how a country can manipulate asset prices without consequences.
I hope that you understand why I want to share this information with you.
Knowing how the market works is your best defense against falling for any scams or pyramid schemes.
Please do not forget to share this article with your friends and family members that are interested in Forex trading.
Miguel Casal was born in 1989. He is a well-known entrepreneur and business management professional with over fifteen years of experience in the industry. He has been involved in many successful ventures, including founding and running several businesses that have grown into international corporations.