What are Forex Frauds and Scams?

The Forex market boasts a staggering daily trade volume of up to $1.65 trillion, according to a survey by the Bank for International Settlements. When combined with currency options and futures contracts, the daily turnover exceeds $5 trillion. Unfortunately, the lack of central regulation in the FX market allows Forex Scams to proliferate, luring unsuspecting clients with promises of quick, massive returns. Although Financial Regulatory Authorities have taken measures to address many of the older scams, new ones continue to emerge, operating in the shadows. Traders must remain vigilant and choose regulated brokers with established reputations to avoid falling victim to these scams.

Below we look into the most common scams in the Forex industry:
Forex scams
1. Spread Manipulation
Manipulating bid/ask prices on computers was a common way for Forex scammers to make a profit in the past. The difference between the bid and ask prices, known as the point Spread, is the fee charged by Forex brokers for each transaction. While normal spreads are usually low, scam brokers increase the point spread to 10 pips or more, cutting into investors' potential returns. Even a 4-pip spread on a $1 million trade can erase any profits from a good investment, leaving traders with significant losses while the brokers take home large commissions.

However, with the increase in regulatory oversight in the past decade, the number of Forex scams in this regard has decreased. It is important to be cautious and avoid unregulated brokers who may manipulate spreads or even disappear with your money. While the forex market is still not entirely regulated, traders can protect themselves by working with reputable brokers held accountable by prominent Financial Regulatory Authorities.
2. Selling Forex Signals
The Signal Seller Scam is a popular scheme in the Forex market where signal sellers offer a system that is claimed to detect the most favorable times for buying or selling currency pairs, usually for a fee. These sellers often brag about their experience, skills, and knowledge and even use fake testimonials to convince traders to sign up. While there are honest signal sellers, the majority of these sellers are scam artists.

Many of these scammers collect money from traders and disappear, while others will recommend good trades to keep the signal going. However, it's questionable why anyone with a system that beats the market would want to make it widely available instead of using it to make huge profits themselves.

To determine if a signal seller is legitimate, opening a Demo account with them is a good way to test their system. In this way, traders can see if the system actually works. It is important to be skeptical and to do thorough research before subscribing to any signal service.
3. "Forex Robot"
Scammers in the Forex market are using the latest technology to lure unsuspecting traders into their web of deceit. They are promoting "Forex robots" aka "Trading Robot Expert Advisor" as an easy way to make money without having to lift a finger. Expert Advisors, known as EAs, are computer programs that can be integrated into the MetaTrader 4 platform to automate your Forex trading experience. By utilizing these tools, you can eliminate manual intervention and simplify the Forex trading process.

However, many of these Robots have not undergone proper review or independent testing. Trading systems must be carefully scrutinized to ensure that their parameters and optimization codes are valid. If these codes are invalid, the system will generate random buy and sell signals, leaving traders to gamble with their money.

While there are some reputable Robot trading systems available, traders must exercise caution and conduct thorough research before introducing a new system into their trading strategies. The Forex market can be challenging, but traders must not let the promise of easy profits lure them into fraudulent schemes.
4. Forex Investment Management: A Common Scam
The rise of Forex management funds in recent years has been accompanied by an increase in fraud. These funds offer investors the opportunity to entrust their trading accounts to skilled Forex traders in exchange for a share of the profits. The problem is that this requires investors to give up control of their money and hand their account over to someone they know little about.

Most of these funds are scams and the investors often end up with nothing, while the scammers use their funds to buy luxuries for themselves. The rule of thumb in Forex trading, as with any other investments, is that if it sounds too good to be true, it likely isn't genuine and legitimate.

However, in recent years, brokers have started offering a safer way to invest in Forex via Copy trading services. In this way, investors retain full control over their money and professional traders must go through a monitoring stage in terms of performance and other important factors before being hired for the job.
5. Untrustworthy Forex Brokers
The foreign exchange (Forex) market is not fully regulated, which leaves room for dishonest brokers to take advantage of their customers. These brokers may deal unfairly with their clients or defraud them outright. Often, these bad actors are small, cheap, and unregulated entities that have recently entered the market.

To avoid being victimized by these fraudulent brokers, it is essential to trade with a REGULATED Forex broker that is held accountable by prominent Financial Regulatory Authorities such as CYSEC of Cyprus, FCA of the UK, IFSC of Belize, and ASIC of Australia. While the Forex trading industry itself may be partially regulated, no regulated broker would risk their license by defrauding their customers. To ensure a broker is reputable, traders should select one that is well-established, has a long history in the market, has built a strong brand name, and prioritizes ethical customer service. Check out Best Forex Brokers in Kenya for more information.

Brokers who do not allow withdrawals from their clients' accounts or have faulty trading platforms that do not function properly are often associated with scams. For example, traders should be able to enter or exit trades during economic announcements that are not in line with their expectations. If traders experience problems withdrawing funds or using the trading platform, something is likely amiss, and they should be cautious.
The bottom line
While there are many scams in the Forex market, it is important to approach trading with an open mind and the knowledge that success takes time and effort. Forex trading is not a "get-rich-quick" scheme, but rather an opportunity to develop a profitable career as a trader. Avoiding scams can be achieved by dedicating time to learning Forex, developing a trading plan, building self-discipline, selecting a reliable broker, and beginning your online Forex trading journey.

To become a successful forex trader, it is important to take a systematic approach to trading. This involves setting realistic goals, finding a reliable broker, developing a trading strategy, and honing your trading skills over time. By staying disciplined and focusing on the long-term, traders can avoid falling into the traps set by forex scams and can achieve success in the forex market.
Forex Brokers in Kenya

High Risk Warning: Trading in Forex and CFD markets carry a high level of risk and may not bbe suitable for all type of investors; Before deciding to trade, please make sure that you understand the risks fully.

👍 Follow us on Facebook!
© 2021 - 2024 ForexKe.com All Rights Reserved.