How to Avoid Forex Scams
Forex trading is one of the most lucrative investments you could find. With trillions of dollars traded in various currencies daily from people and businesses around the world, it’s no wonder many people are lured by the potential earnings of Forex trading.
Unfortunately, the Forex market isn’t open to individuals, which means you’d need a broker to be able to officially trade foreign exchange currencies. Here is where the problem begins.
There are a lot of Forex brokers, traders or companies with access to the Forex market. If you choose a reputable broker that works hard for your invested money, then you’re all good. However, if you mistakenly chose one with a sinister plan to scam you out of your hard-earned money, all the investment you’ve willingly given the broker could turn to dust.
To avoid Forex scams, here are 12 things you should know:
1. If it’s too good to be true, it probably is.
If a broker is promising to make you rich overnight, and you know in your gut that it can’t be true, listen to your instincts. When a broker tells you it’s easy to double your money by just opening an account with him/her, understand that in any investment, you need to pull in some weight for it to actually earn. Forex investments are no different, which is why guarantees of unusually high performance should be a red flagged.
2. Brokers who don’t explain trading risks.
A legitimate Forex broker doesn’t just discuss the rainbows and sunshine of Forex trading. He/she must also disclose the real possibility of losing money in the process. A risk disclaimer is one of the first signs of a trustworthy Forex broker, so when you’re eyeing a broker or company, find the text disclaimer within their e-mail, website, or any message they sent you. Never believe a broker who downplays the disclaimer, explaining that a written risk disclosure is just an SOP that the government requires all Forex brokers.
3. Brokers without proof of performance.
If a broker or trading company cannot or does not want to show off their performance track record, this is a huge warning sign to stay away. Be skeptical to false, incomplete or overly astounding information about their performance history.
4. CFTC or NFA Membership.
In the US, every broker and trading company is required to become a member of the Commodity Futures Trading Commission (CFTC) or National Futures Association (NFA), which ensure brokers and trading companies adhere to set standards in providing retail Forex services. The CFTC is also the federal agency that suspends or block-lists trading firms and brokers that deceitfully sell currency. Check with these organizations to ensure you’re dealing with a legit broker.
5. Don’t believe limited offers.
Some Forex scams rely on urgency tactics, claiming that only a limited number of people can join and invest on a “one time opportunity.” The Forex market is a gigantic business that won’t close shop anytime soon, so even if you’re itching to invest your money now, don’t be rushed into making a decision without checking out the broker’s background, or discussing your would-be investment with someone who could give his/her insights into the Forex industry.
6. Most signal sellers are a scam, but not all.
Signal sellers sell either a manual or automated system that identifies favorable times for buying or selling currency based on news, technical analyses, or other factors. These services come with a monthly, weekly or daily fee, which is on top of the amount of investment you plan to make.
One question to ask yourself before you sign up for a signal seller service is: “If their system really does work to achieve positive trading opportunities, why wouldn’t they just use it to game the system and earn millions, instead of selling the system to other people?”
There continues to be a debate whether signaling services can actually predict a favorable move in a trading market, or not. However, there are legitimate signal sellers, such as Metatrader, but it is responsible enough to provide a disclaimer that its system carry a risk of losses and may not be suitable for all types of investors.
7. Understand where your money will be.
Ask the broker or trading firm if you will be given accounting statements or a way to track your investment, should you decide to sign on. Discuss whether your investment will be put into segregated accounts at all times. Note that it is prohibited, under the Commodity Futures Modernization Act of 2000, for Forex brokers and firms to combine investors’ funds with those of its principals or chosen firm. Be wary if the broker you’re talking to cannot discuss where your funds will be placed.
8. Fees on top of your investment.
If possible, get a copy of a broker or trading firm’s fees in writing. You need to be fully aware of possible management fees, commissions, interest, and other kinds of charges associated with the Forex trading service they will provide, before signing a contract or handing off your money. If not, you might be surprised that a huge chunk of your investment got slashed due to these fees.
9. Stay away from the interbank market.
If a trading company is pushing you to trade in the interbank market to get “better spread,” don’t just agree. While the interbank market is the top level of Forex trading, it is unregulated and decentralized, and is geared towards short-term currency transactions mostly among banks and huge companies.
10. Don’t deal with overseas brokers or firms.
Forex regulations of every country vary significantly. It is best to transact and invest money through a local broker or firm. If possible, go with someone or a company that has a physical address, where you can visit should the broker begin to become suspiciously busy to take your calls.
11. Beginners should avoid trading on margin.
Never trade on margin particularly if you are new to the Forex market. This is particularly true for brokers without experience, if the brokerage firm you signed up with has no time to closely monitor trades. If you’re really interested about margin and leverage, understand that there’s a higher level of risk to your capital and a possibility of losing more than your invested funds.
12. Withdrawal of your money.
Before signing onto the dotted line, make sure you read and understand the terms and conditions that are put in place. Will the brokerage allow you to withdraw money from your investor account? Can you exit a trade if the need arises? If there is no way to back out of Forex trading or get your funds out from your account, this should be a big warning sign not to move forward with your investment.
When the internet opened up another venue for brokers and trading firms to connect with potential investors, the number of Forex scams grew rapidly and continue to become a problem to this day. But you shouldn’t lose hope, as there are plenty of reputable brokers out there too.
In most cases, potential investors are given a practice trading account, where you could thoroughly understand how the Forex market works. The best way to avoid Forex scams is to take your time to study, research broker/brokerage background, open a practice account, be patient, and master the industry from inside and out.
This post was a guest post from Kenny Wong. Thank you for sharing this information with my subscribers.
Kenny Wong is a freelance writer and an expert in Content Marketing who specializes in writing about Pet Training, Psychology, Gambling, Politics, Photography and Trading Stocks/Forex.