If you search on the internet about forex broker scams, you’ll be overwhelmed with so many results. Although the forex market is gradually becoming more supervised, there are still plenty of unethical brokers who should not be in business.
When you’re planning to trade forex, it’s crucial that you know how to determine brokers who are reliable and practicable and to avoid the ones that are not. For you to be able to sort out the best brokers from the weak and the reputable ones from those with fishy dealing, there is a series of steps you must go through first prior to depositing a huge amount of capital with a broker.
Reminder First!
Before we discuss forex scams, you need to separate fact from fiction first when researching for the potential forex broker. For example, you might see a lot of forum articles, posts, and unhappy comments about a broker, we can assume that most traders fail and never generate a profit. However, sometimes those traders that fail to make profits post content online that criticized the broker for their own flunked forex trading strategies.
Just remember that these kinds of experiences are common among traders and it is most probably that the broker is not at fault.
With that being said, here are some of the major types of forex scams you must avoid:
Robot Scams
This trading program, forex robot, utilizes algorithms, or lines of computer code, as technical signals to open and close trades. Take note that not all forex robots are scams. For instance, Forex robots can be built using Expert Advisors (EAs) within the well-known MetaTrader suite of trading platforms.
If you want to avoid forex robot scams, it would help if you search them online and look for a list. These will help you avoid some of the popular scammers. Here are some of the things you need to watch out for to prevent yourself from being a victim of Forex robot scams:
- Marketing messages seems too good to be true. When you notice that a forex robot needs to ‘sell’ you on the dream of what it can do for you, then most likely they will have the results to back it up. Regardless of this, numbers don’t lie, or do they have to?
- Extremely high percentage growth returns. A few forex robots market that yields over 4,000% return in just a couple of years. This may appear incredible, however, it’s essential to look at the statistics. The return is probably just closed trades, and the system could have open trades that if the stop losses were hit can eradicate any gains.
- Constant scalping strategies. Plenty of forex robots apply a scalping system which means they trade for very little profits. Afterwards, this will display a high win rate and can increase the results in a supportive market condition. So far, market conditions change, and if the system loses more trade than it wins, it will only acquire several losing trades to wipe out any accrued profit.
- Employing unregulated brokers. Several forex robots will show excessive great results using unregulated brokers no one has ever heard of. For example, the results can be great on their own interbank spreads, however, if you open an account with them, your commissions and spreads will be broader, therefore, consuming much of the profit.
Cash Bonus for Opening an Account
When a broker gives an unusually high cash bonus, is not regulated, and does not provide offer details for the bonus, then you are most likely making business with a scam broker. For instance, the 1000 Extra Bonus Scam from the 1000Extra hints, a company that offers a $1,000 bonus with their ambiguous promotional offer.
If you try to click around and look for more information you will be redirected to sign up for an account. This 1000Extra is not regulated and they have inadequate information about the company and has numerous across the web.
Pretending to be Regulated
Yes, they may claim that they’re regulated when they’re actually not. If they say that they’re regulated, how reliable is the regulatory body? There are a few scam brokers who will claim to be regulated and registered by a governing body that does not monitor or control forex companies.
To know whether a regulatory body is legitimate or not, you want to stick more to those forex brokers that are regulated in a major hub since they are more trustworthy, but wariness is justified. Here are some credible regulatory bodies you can depend on:
- Cyprus Securities & Exchange Commission / CySEC Regulated: Cyprus (OK)
- Financial Markets Authority / FMA Authorized: New Zealand (OK)
- Swiss Financial Market Supervisory Authority/ FINMA Authorized: Switzerland (GOOD)
- Investment Industry Regulatory Organization of Canada/ IIROC Authorized: Canada (GOOD)
- Financial Services Agency/ FSA Authorized: Japan (GOOD)
- Australian Securities & Investment Commission/ ASIC Regulated: Australia (GOOD)
- Securities Futures Commission/ SFC Authorized: Hong Kong (GOOD)
- Monetary Authority of Singapore/ MAS Authorized: Singapore (GOOD)
- Financial Conduct Authority/ FCA Regulated: United Kingdom – (GREAT)
Fake Trading Investment Scams
There are plenty of advertisements today that promote phoney forex trading investments scams and fake forex investment funds. During the old days of the forex market, several traders argue that the Forex Kings and Forex Paradise are scams. But it was hard to prove since there was no concrete evidence to back up these claims.
Basically, an enticing marketing message or salesperson will sell you on the ghost, or uncertain results, of their forex fund. The only thing you need to do is give them your investment and you can sit back and enjoy the returns.
Obviously, a lot of people who send their money to this scam never see it again. The company will tell you that they never heard of you and have not received any funds from you.
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Also, another thing that they do is they open an account for you, normally with an unregulated fishy broker. But they’ll wipe out your account after one or two trades. When these things happen, it would be extremely hard for you to get your money back since it’s unregulated.