Forex Scams: What They Are and How to Spot Them

There are several forex scams that prey on retail traders and the general public. These frauds are still on the rise.

These days, social media currency advertisements are sometimes accompanied by images of expensive vehicles or homes, and some scammers even utilize celebrity endorsements to attract new clients.

The best place to understand forex scams is by downloading the WikiFX app. WikiFX is a forex inquiry app, which allows traders to review and rate brokers before they use them. This is helping to prevent many scams around the world. The WIkiFX app is available on the play store and the AppStore.

People who lack the patience necessary to succeed at forex trading may turn to promote forex fraud. Some people carry out this due to their existing technical understanding of forex trading.

Over £27 million was lost by UK nationals to online forex and cryptocurrency scams in 2018-2019, according to the UK's FCA.

Even while the majority of retail traders are now well-educated and exclusively deal with reputable brokers, many people, particularly in Asia, Africa, and even industrialized nations, fall for scams that are obvious if you know what to look for.

It's important for forex traders to avoid falling for false promises; in this post, we'll talk about several forex scams and how to spot them.

Unlicensed forex brokers or dealers are the first scams.

In several regions of the world, regulatory bodies govern retail forex and CFD trading. The Financial Conduct Authority (FCA) is present in the UK, the Australia Securities and Investment Commission (ASIC) is present in Australia, the Cyprus Securities and Exchange Commission (CYSEC) is present in Cyprus, the FSCA is present in South Africa, the CMA is present in Kenya, etc.

However, as retail forex trading is unregulated in many nations, any forex broker operating there must hold a license from a foreign regulator, often one from outside.

According to a Safe Forex Brokers UK report, although forex trading is largely unlawful in Africa and Asia, numerous global CFD brokers nevertheless accept customers from these regions. These brokers aggressively encourage unrestricted forex trading in addition to accepting it.

The majority of brokers in these locations are not regulated by any regulatory authority, despite the fact that there are some reputable forex brokers with a history of being properly regulated in several regions.

When a trader deposits money into an account with an unlicensed broker, he is unable to withdraw it. Unlicensed brokers also run brokerage businesses and provide trading platforms to the general public.

As a general guideline, you should visit the website of the appropriate regulator and look for a list of authorized forex brokers in your nation before dealing with any forex broker anywhere in the globe.

You should refrain from trading with overseas brokers if FX and CFD trading are prohibited in your nation. Avoid any brokers who are not multi-regulated if the situation is ambiguous, meaning there is no regulation but it is not illegal and you still want to trade.

To guarantee that a broker is legitimate and authorized, always check the regulator's website.

Scam #2: Sellers of fake signals

Some con artists market trading signals and robots that can advise a trader when to open or close a position. While you may use these forex robots to help you with technical analysis, you shouldn't rely on them to forecast the market.

The vendors may claim that their signals have a 98% success rate while asking the trader for a charge. After paying the price, the trader starts receiving emails when a new signal is released, and they may use this information to conduct trades.

The issue is that the fraudster typically stops communicating with the trader after receiving payment and sending a few email signal warnings. There is also no assurance that these signals will function.

More novice traders who are eager to make money and searching for a passive strategy that ensures success are the main targets of these scams.

Phishing No. 3: Price Manipulation

The majority of Standard Accounts offered by forex brokers are spread-only accounts with no commissions, however the spread makes up for this. The spread is the discrepancy between a currency pair's ask and bid prices.

Due to their huge amount of trading, major currency pairs like the EUR/USD have narrower spreads than emerging market currency pairs.

Major currency pairings with exceptionally wide spreads include the EUR/USD when the price is being manipulated.

The broker may invent further justifications or claim that their spread is bigger than what other brokers give because of the Bank they work with on the backend. The spread that other brokers are providing for the relevant currency pair should be checked by traders.

Are the prices being manipulated by the broker often？

Additionally, a currency pair's bid and ask rates may vary between the time a trade is opened and the time it is completed. Slippage is the term used for this.

It may happen as a result of a network issue that slows down transaction execution speed, and occasionally it merely results from a trader being exposed to currency risk in a turbulent forex market.

Are there too many slipups？

A dishonest forex broker could take advantage of this and hold off on fulfilling orders until the value of a currency pair declines, triggering the trader's stop loss order, which then transforms into a market order, forcing the trader to cut his losses and sell the currency pair at the next available price, which the broker then purchases at a loss.

Some brokers, like as CMC Markets, provide guaranteed stop loss orders (GSLOs), which a trader may purchase for a refundable charge to insure against the possibility of slippage, to prevent this.

To find out if any users have complained about price manipulation or other unlawful conduct, traders should constantly visit internet App stores and read user reviews regarding their brokers' App. This

Scam #4: Ponzi and pyramid scams in HYIPs

High Yield Investment Programs (HYIPs), which include Ponzi schemes, pool money from the unwary public to invest in foreign exchange or other markets with the assurance that the gains will be distributed equally among all the donors. They function like funds where money is amassed to invest on behalf of investors.

Additionally, they provide exorbitant returns on investment promises and start repaying the initial investors.

Because Ponzi schemes reuse the funds obtained from original donors and utilize them to pay new contributors, creating the appearance that they are legitimate, their victims are drawn in. Investors are persuaded to invest additional money in the plan when they observe the growth of their first investment.

The Ponzi scheme administrators close their doors and flee after amassing a sizable sum of money from their victims.

These currency frauds are quite prevalent in African nations. For instance, a recent fraud involving MBA Forex primarily targeted Nigerian investors.

Forex companies with trading platforms are frequently involved in multi-level marketing and forex pyramid schemes. The pyramid strategy is utilized to motivate traders since they need to get more users to their site.

With this method, the guy at the top selects two candidates who will be underneath him in the pyramid. The pyramid keeps expanding as the two individuals underneath him recruit three more people.

The person at the top receives a paid commission for each hire, and so on. The amount of commission you receive increases as you move up the pyramid.

A con artist may employ a strategy like this to entice victims to utilize his business, offer them forex videos, signals, and other products, and then vanish with their money.

It's preferable to not try to get fortunate and steer clear of these HYIPs altogether because initial beneficiaries may still have their gains taken away from them when investigations begin.

Investors should constantly inquire, verify, and confirm that the company they are working with is authorized to conduct business in their nation and provide financial advice. Are they subject to applicable regulatory bodies' regulations on the acceptance of public funds for investments？

Scam #5: Bonuses and Reward Promises

With margin trading, there is a significant danger of losing money due to the volatility of the forex markets. Because of this, major authorities require brokers to post risk disclosures on their websites to alert potential customers to the risks associated with trading forex and CFDs.

A broker should be avoided if they advertise benefits like a $50 bonus for signing up for an account, risk-free trading, or 80% profits on trading signal purchases.

These incentives assurances serve as distractions from the trader's need to do due diligence. Brokers are not permitted to make any offers by the majority of the main authorities.

Managed trading accounts: Scam number six

An unskilled or overworked forex trader might create a trading account and give it to a qualified account manager to trade on his behalf. These experts demand payment for their services.

This has also been used by con artists to defraud traders by promising to handle their accounts. They could execute transactions against the interests of the customer or outright flee with the client's money.

Traders should research the account manager's history to learn about his track record of performance and examine their risk-management plan and historical drawdowns to determine the fund manager's effectiveness.

The appropriate authorities must also provide the account manager a business license.

Social media Gurus, Scam #7

The goal of the majority of motivational forex videos and advertisements currently popular online is to give the viewer the impression that the speaker or guru earned all of those possessions via successful forex trading.

These so-called gurus exclusively discuss the advantages of trading and avoid discussing its drawbacks. Some of them engage in business with or collaborate with unregistered brokerages, which leads to investor fraud.

Forex brokers are required by market authorities all over the world to provide risk disclosures on their websites. The dangers a trader confronts are highlighted by this remark, and some authorities even went so far as to require brokers to disclose the proportion of clients that lose money when trading with them. On the broker's website, this is often located near the bottom of the page.

Even the amount of leverage that CFD brokers can provide to ordinary traders is subject to regulations.

Due to their claims that their programs are almost risk-free, which is just untrue, social media gurus do not adhere to this regulation obligation. If that were real, they wouldn't be divulging the supposed secret to success.

Never rely only on advice you see on social media. Using margin to trade is exceedingly dangerous, and managing forex trading risks is quite difficult.