If you are wondering how to spot a forex scammer, you must be just stepping into the Forex market and hoping to make profits trading currencies.
We appreciate that you have taken the initiatives to supplement your income, but the bad news is it is highly likely that you could end up losing your capital right in the beginning.
No, we have no intention to discourage you; we are just revealing the truth. We often say that Forex trading is more like a “go-broke-quick” scheme, rather than being “get-rich-quick.”
Even if you keep yourself safe from scammers, you are still dealing with a high-risk venture, which seems a lot like gambling.
A Dailyforex.com survey found that around 85% of individual traders fail to profit and survive in the long run for several reasons, ranging from lack of education to being undercapitalized to greed and a lot more.
So, we said all of this to encourage you to be more careful and learn more about the market before you invest your hard-earned money.
Is Forex Trading Legit?
Do you think the stock market is a scam? The answer is obviously no.
Denying the Forex market’s legitimacy is like declaring that currencies and economies are fraud too.
Here is an example.
Suppose you own a company in the U.S. that imports high-tech products from Japan. You cannot just pay them dollars to complete a purchase because Japan has its own currency – yen.
This is when a currency swap happens. Where? In the Forex market.
In fact, the Forex market is the largest and most active financial market in the world where over $7 trillion trades are executed every day.
Now you know this is a completely legitimate financial market where both institutional and retail traders are involved.
There are many online brokers that allow you access to this vast market with features like live charts and exchange rates, analysis tools, and more.
Starting your trading journey is easy, but making profits consistently and surviving over the long haul is where the challenge lies.
When you are ready to trade, you have to find a reputed broker who will set a trading tactic for you according to your goals, risk tolerance level, and amount of capital.
First, you have to spend a few weeks or even months practicing on a demo account to understand how things work. When you think you are ready, your broker will give you access to your trading account.
Usually, unregulated and dishonest brokers come up with convincing and creative ways to fool beginners like you. There are also many Forex gurus that sell you their ideas and make good money, but those ideas do nothing good for you.
However, you should not give up on your dreams so easily. You can still succeed with the right broker, discipline, risk and trading strategies.
How to Spot a Forex Scammer?
It is actually hard, especially for new and aspiring traders to spot scammers. They are usually very cunning and use unique ways to trick people.
Here are the tell-tale signs of a Forex scammer.
1. No License or Regulations
In order to be legit, a Forex broker has to be a member of the National Futures Association (NFA) and regulated by the Commodity Futures Trading Commission (CFTC). They have strict standards for safeguarding traders and investors.
There are also regulated brokers outside the U.S., especially in the UK, Australia, Singapore, and the UAE. If you happen to come across one of them, you can still trust their services since they are regulated in their home countries.
How do you check the regulatory status of a broker in the U.S.?
First, visit their official website and search for their company location, license number, and other important details.
Now go to fincen.gov/msbregistrant-search and type in the broker’s name and/or license number.
If legit, the regulatory details of the broker will be shown by the website.
This is a crucial step because Forex scammers often use fake credentials or make it difficult to track them down.
2. No Background Information
Naturally, a legit broker is easy to verify and their customer support team is always ready to cater to your needs.
On the other hand, scammers may have physical addresses mentioned on their websites, but you won’t be able to find them on those locations.
There could also be some weird signs. For example, they may claim that they have been in the industry for decades, but their social presence or website might be new.
Moreover, the online space is now full of trading gurus selling education packages with no proof of success. They can be called the “snake oil merchants” of the Forex market. Avoid them at all costs if you do not want to lose your money.
What’s more, Forex trading frauds are known to send unsolicited emails where they ask for personal information, such as your name, address, and phone number for identity theft.
Always check for risk disclosures before you decide to give out such sensitive info, and that too when you are 100% confirmed that you are contacting a legit broker.
3. Proof of Successful Trades but Shown From Fake or Demo Accounts
When trying to show proof of their successful trades, Forex scammers will use slick charts representing consistent profits. However, they use demo accounts for this purpose where no real trades were executed.
Legit traders and brokers, on the other hand, are always eager to explain their strategies, profits, and losses without any hesitation. Since customer satisfaction is their main priority, you can expect this as a prospect.
So, if a broker is not interested in explaining complicated things to you, look for another one.
4. Guaranteed Profits
Forex is a highly volatile market where nobody can guarantee that they will make continuous profits. Even your past trading success does not guarantee that you will keep performing well in future.
Think about it, if there were a guaranteed way to profit from this market, would not everyone be using it? More importantly, wouldn’t those so-called “Forex gurus” keep their secret to themselves for more profit?
In order to be successful, you should have patience, discipline, skill, and eagerness to learn constantly. Legit entities are always upfront about explaining possible risks and avoid making false promises.
Take your time and do your diligence before signing up for any broker. Use a demo account to test your strategies, analyze all data, and do not believe anything without confirmation.
5. High-Pressure Sales Tactics
Steer clear of those “limited-time offers” or the classic “act now or you will miss out on big gains” tactics.
This is nothing but a mind-game to convince you to fall into their trap without having enough time to verify their legitimacy.
Some also play with lot sizes; i.e., they start with small lot sizes e.g. 0.44 to first earn your trust. Then, they slowly increase to larger sizes (say 8 or more) to trick you.
A reputed broker will never opt for oversized lot sizes and risk your capital. In case such a pattern catches your eye, immediately walk away from them.
6. Website Cloning
These days, many forex trading scams build clone websites that impersonate the official websites of renowned brokers to fool unsuspecting traders.
Hundreds of such platforms pop up online every year, and vanish as soon as they make some profit by their dishonest means, making it difficult to track and take prompt action against them.
Some even dare to act as a mediator and claim that they can help you recover funds that you have lost to fraud in exchange for some fees.
Naturally, if you have lost your capital to a scam, you will be desperate to get it back and won’t be in your right mind to verify their authenticity.
It is pretty messed up how they mess with your emotions – hurting you first, then showing up as a hero with a ‘solution’ that costs you.
7. Price Manipulation
In Forex trading, the “spread” refers to the gap between the price you can buy a currency at (the “ask” price) and the price you can sell it at (the “bid” price).
For popular currency pairs like EUR/USD, this gap is usually small because so many people trade them, which makes it easier to make a profit.
But here is a red flag: if the spread on a major pair suddenly jumps – say, from the usual 2-3 pips to 7 pips -something might be off.
Some shady brokers purposely widen the spread on popular pairs and blame it on vague reasons like market conditions. This sneaky move eats into your profits since the broker pockets more with every trade.
Another thing to watch out for is “slippage.”
This is when the price changes between the moment you hit “buy” or “sell” and when the trade actually goes through.
While slippage can happen naturally in fast-moving markets or due to a slow internet connection, repeated slippage is a sign the broker might be messing with prices.
This manipulation forces you to trade at worse prices. As a result, you lose money while the broker gains.
So, you have to keep an eye on spreads and slippage. If they are happening a lot, it could mean your broker is not playing fair.
8. Withdrawal Difficulty
If you have fallen into the hands of a scammer, one of the obvious signs will be you will have trouble accessing your funds. You will be either jumping through hoops or having constant delays.
Even if you manage to get in touch with them and get a reply, they will give hundreds of excuses so you cannot get your money back, from technical difficulties to hidden fees to bonus restrictions to an endless document verification process.
For instance, if you have $15,000 in your account and received a $1000 bonus, they might say the bonus money is what prevents you from withdrawing money. While, in reality, there is enough liquidity to honor customer withdrawals.
9. Bank Transfers Kept Off-Limits
One of the ways scam traders or brokers avoid leaving behind any trace is that they do not allow direct bank transfers.
Usually, they ask their clients to first convert dollars into crypto coins with a legitimate broker and then the coins are then transferred to their accounts.
Unfortunately, there is yet no anti-fraud system available to regulate blockchain transactions. As a result, people often fail to identify scams and by the time they do, it has already been too late to take further action.
Their customer support also does no good when you are in trouble. None of their communication channels will work since they were set up just as a show in the first place.
4 Types of Forex Scams to Be Aware Of
So far, we shared the tell-tale signs of different types of Forex scammers. Now, let us see what tactics they use to deceive people.
1. Signal Scam
This is when agencies or individuals sell “trading signals,” which are buy and sell suggestions. They usually claim that their signals generate amazing profits and are created by industry experts.
In reality, they are there to grab your money and then disappear. Some may not be a fraud, but their bad trading strategies and advice cost you big at the end of the day.
Here is how to identify these types of scammers:
- They guarantee huge profits with no risk at all
- They have no success history or a track record that can be officially verified
- They may show successful trading performances but those screenshots are from demo accounts
- They urge you to sign up for their services as soon as you can
- They build up your confidence showing they have large stop-losses with small take-profit margins
2. Point-Spread Scams
Usually, the “spread” (difference between the buying price and selling price) is small e.g. 2-3 pips for popular currency pairs like EUR/USD. This small gap is like the broker’s fee for helping you trade.
However, dishonest brokers sneakily make the spread much bigger, like 7 pips or more.
Why? So they can collect hidden commissions and leave you with little to no profit even if you are right about the market move. This scam is rare nowadays, but unregulated brokers still pull this trick every now and then.
3. Pyramid Scheme
This is like a fancy club where you pay to get “exclusive” Forex insights. But they soon pressure you to recruit others with the promise that you will earn commissions for each new member.
It looks profitable on the surface because money flows in from these new recruits.
Here is the problem – once people stop joining, the money dries up, and the whole thing collapses.
Those running the scheme walk away rich, while most members lose their money.
This scam feels a lot like MLMs (multi-level marketing), but in this case, there is no actual product, or the product is just useless advice.
If recruiting is the main focus instead of a broker of real trading, that is your red flag to stay far away.
4. Robot Scams
Ever see ads with someone sipping champagne on a yacht and claiming a magical trading “robot” makes them rich?
It is all fake. These scams sell you a dream – an AI-powered bot that promises huge profits with little effort.
In reality, these “robots” either do not work or are rigged to lose. The scammers make money off the fees, courses, or subscriptions they sell, not from actual trading success.
Legitimate trading tools do exist, but they are only offered by trustworthy brokers using platforms like MetaTrader 5 or cTrader.
If it sounds too good to be true, it probably is.
Questions to Ask a Forex Broker
1. How long have you been in the market and how many clients do you have now?
As expected, the longer a broker has been in business, the safer they might be to trade with. You can check different Forex forums like myfxbook, forum.forex, forexfactory, and reddit to ask experienced traders about what options are better for you.
2. Are you licensed? If yes, where are you registered?
You know by now that the Forex market is not strictly regulated compared to other commodities like stocks and bonds. So, if you find a NFA-regulated broker, you should keep them in your priority list.
3. How long do you take to execute an order?
You should expect it within a second. The trading technology is so advanced today that any longer than that is not acceptable since this will negatively impact your trading performances.
4. Do you have any affiliation with a bank or other financial institutions?
You will have peace of mind and enjoy the best trading conditions with a broker associated with a popular bank. The reason is obvious – banks are heavily regulated to protect the financial system, protect consumers, and promote fair competition.
5. What is your brokerage type?
Forex brokers come in many types, such as Market Makers (MM), Straight Through Processing (STP), Direct Market Access (DMA), Electronic Communications Networks (ECN), and Hybrid.
Based on your strategy, lot size, and need for transparency or speed, each type will have its own set of pros and cons.
6. How much do I need to trade?
Nobody wants their position closed because they are short on funds. This is an important question you should not forget to ask.
Also, be aware of those online funding companies. Just like the scam Forex brokers, most of them are running scamming businesses.
7. What are your margin requirements?
In case you did not know, 1% is the standard margin requirement, but the lower, the better since this gives you more control over your trades.
8. Who will hold my money? A private or a public company?
A public company is preferred because they are usually insured. Even if they go bankrupt, you will still get your money back.
What to Do if You Were Scammed?
These scammers are so cunning and difficult to track and catch. However, if you are lucky, you might be able to recover some, if not, all of your stolen funds.
If you have been a victim of fraud, here are the steps you have to take immediately.
1. Double-Check All of Your Documents
If you smell something fishy, go through all the agreements and documents you signed with the agency so far. You need to be sure if there was a misunderstanding or if they really are a fraud.
It is possible that you missed certain fees or terms hidden in the fine print. If the broker’s actions conformed to the obligations of the contract, you won’t have legal rights to take action against them.
2. Immediately Stop Further Transactions
If you are 100% sure that you are the victim of a scam, cut off all transactions immediately. Even if the broker lures you into making more transactions, do not trust them anymore.
It is not uncommon for them to trick their clients into sending more funds with the false promise of helping to recover your initial loss.
3. Gather Proof
Now you have to gather all the evidence you can, such as emails, transaction receipts, bank statements, phone call history, and anything else you can.
To put it simply, try to show any proof of interaction with the agency that you can manage to help strengthen your case.
4. Report the Fraud
In this step, you have to contact the regulatory authorities in your country and report the scam.
If you are living in the U.S., you should report to the Commodity Futures Trading Commission (CFTC). Similarly, for Australian residents, the concerned authority to reach out to is the Australian Securities and Investments Commission (ASIC).
Since they have protocols to investigate Forex scammers, they could be of great help.
We also recommend that you spend some time and share your bad experience on Forex trading forums so other aspiring traders keep their distance from the scammer. Those members could even help you by putting pressure on the broker to release your funds (considering they have not vanished yet).
5. Take Legal Action
Exploring legal options becomes necessary when the victim loses a large amount of money. You may have to consult a recovery counsellor or a lawyer specialized in Forex scam.
They have thorough understanding of the complexities of different types of international scams, and can recommend a sensible course of action.
When you file a lawsuit, be prepared to spend some money while the fund recovery process (if possible) might be lengthy. However, feel free to discuss your options because you never know what might happen in future.
Bringing It All Together
When stepping into this vast financial market, you should know how to spot a Forex scammer so your dreams are not broken from the very beginning.
It is also important to remember that if you are losing money, that does not mean you are being scammed. In any kind of investment, loss is part of the game.
Perhaps the broker has failed to make profits for you for some time. That does not mean you can call them a scam right away.
One simple and easy way to avoid currency trading scams is going for well-reputed brokers such as Forex.com, Sway Markets, Oanda, IG Markets, and IBKR.
At Kingsley Capital, we have an excellent passive income opportunity for you.
You do not have to do the trading yourself, but will be an investor and our high-profile traders will perform trades on your behalf.
This is totally passive because you just have to create an account and fund it, then we will do all the hard work.
Our traders are not the average traders you see every day. They are some of the world’s most famous traders who work for banks, NYC-based hedge funds, and ultra-high net worth individuals. However, they keep their identities hidden to avoid any conflict of interest.
Since our inception in 2021, we have been generating up to 60% returns a year combining the knowledge, skill and experience of our traders with the power of machine learning technology.
Moreover, we use a unique combination of a number of trading strategies and human inputs to trade better than anyone else.
If it sounds interesting, you can book a call and talk to one of our passive income consultants to know more about how it works.
FAQs
1. Who can help me if I suspect fraud?
Ans. This depends on your location. If you are totally confident that you have fallen victim to a scam, you have to report it to the concerned financial regulators in your country, such as the CFTC and the SEC in the U.S.
2. Can a scam broker be sued?
Ans. Yes, that is possible if you have lost a significant amount of money. Counselling with a legal professional will be necessary who can guide you in the right direction based on your condition.
3. Can I sue an offshore Forex broker?
Ans. That is also possible but solving cases involving international frauds is even more difficult since it requires several parties from several countries to take legal action.
4. How long might it take to recover my funds?
Ans. This is a complex and time-consuming process. There is even no guarantee that you might get back your stolen funds. This is because these Forex frauds are usually difficult to track when they decide to disappear from the scene.
The timeline depends on the circumstances of your case, which could take even years.
