This article looks at the different types of FX rates trading scams and how to identify them.
While there are numerous honest and reliable trading services available, there are also scam services. These FX rates scams are developed to exploit trusting traders and steal money from them. When looking at a forex broker or forex trading software, you must ask make some considerations in order to protect yourself and your investments.
What do the experts say?
In recent years the problem of fraudulent trading services has become so notable that the US Commodity Futures Commission has started warning traders about these scam artists. The Wall Street Journal reported that unsuspecting traders had lost in excess of $15 000 and the amount is rising. Unfortunately, the foreign exchange market is an unregulated trading market making it difficult to monitor any fraudulent behaviour; thus it is up to the trader to be aware of warning signals and identify potential scams themselves.
What types of FX rates trading scams are out there?
There are various types of scam artists present on the foreign exchange market, but the two most well-known are the forex broker and the forex trading software manufacturer.
1. The forex broker scam
There are various aspects of a brokerage that must be considered before utilising one, from the customer support service to the trading platform. When facing a potential scam one will see that any aspect of this brokerage could be exploitative.
One popular broker scam is where a fraudulent broker will execute trades on the client’s account quickly and without thought to the client’s profitability. This is done in order for them to charge higher fees.
2. Forex trading software manufacturer
The foreign exchange market is a highly volatile one and each trade presents a risk of loss. In fact, the most effective traders agree that success is the reduction of loss instead of an increase in profits. If you are presented with the opportunity to purchase a 100% profit guaranteed trading software, it is advised you back away. There is no such thing as guaranteed profit and this salesperson is more than likely a scam artist.
It should be noted that forex brokers will also present traders with forex software or ‘robots’. If they suggest that you will experience more profits than losses, you should be cautious. A legitimate robot will indicate the percentage of both potential profits and losses due to the high risk of trading. This percentage usually varies between 5-10%, and is never 100% profits.
What are the warning signs of an FX rates trading scam?
If a forex broker ceases withdrawals from your trading account, then you should consider this a red flag to a forex scam. A legitimate forex broker would allow you the facility to enter and exit trades quickly if there is an unexpected market movement; if they do not then you should be concerned. It is always best to be alert of different trading behaviours when dealing with your broker, and if you feel uncomfortable in any way you should leave the brokerage.
Due to the growing amount of online scams, there are different forums and discussion threads that are available to discuss this topic. It is important you stay up to date with the different scams to ensure you do not fall prey to one of these fraudulent services.