As of April 2019, the spot forex market, which also includes currency options and futures contracts, transacted about $6.6 trillion each day.
Forex scams tempt unscrupulous operators with the promise of big profits in a short period of time thanks to the massive amount of money that is circulating in an unregulated spot market that trades instantaneously, over the counter, and without accountability. Thanks to the Commodity Futures Trading Commission’s (CFTC) aggressive enforcement efforts and the 1982 establishment of the self-regulatory National Futures Association (NFA), many once-common scams have been eradicated, although others still exist and new ones are emerging.
The Point-Spread Scam in the Past
The bid-ask spreads were manipulated by computers in an old point-spread forex fraud. The difference in points between the bid and ask essentially represents the broker compensation for a back-and-forth transaction. Usually, these spreads vary across currency pairings. When these point spreads between brokers vary greatly, a fraud takes place.
For instance, some brokers provide spreads of seven pip or more instead of the standard two to three point spread in the EUR/USD. According to market custom, a pip is the smallest price movement that an exchange rate may make. The smallest difference is that of the final decimal point since the majority of significant currency pairings are priced to four decimal places.) Any possible benefits from a successful transaction might be negated by commissions if you add four or more more pip on every trade. This depends on how the forex broker arranges their trading costs.
The past ten years have seen a decrease in this fraud, but be wary of any offshore retail brokers that are not regulated by the CFTC, NFA, or their home country. These attitudes still remain, and when faced with actions, it’s quite simple for businesses to fold and take the money. For these computer operations, many imagined a prison cell. However, historically speaking, American-based businesses, not foreign-based ones, have committed the bulk of violations.
Scam of the Signal-Seller
The signal seller is a common swindle of the present. Retail businesses, pooled asset managers, managed account providers, or individual traders that provide signals offer a system—for a daily, weekly, or monthly fee—that they say can help anybody become rich by identifying the best moments to purchase or sell a currency pair. They extol their extensive knowledge and trading skills, as well as endorsements from others who attest to how excellent a trader and friend the person is and the enormous riches that person has amassed on their behalf. For the right to get trading tips, the unwary trader just has to pay X dollars.
The majority of signal-seller con artists just take the money from a specific number of traders, then they vanish. Some may advise a profitable transaction every so often in order to keep the signal money flowing. This fresh con is gradually spreading to more people. Despite the fact that certain signal sellers are trustworthy and carry out trade activities as promised, it pays to be wary.
Scams Using “Robots” in Today’s Market
Some forms of trading strategies created for forex constitute a recurring fraud, both old and new. These con artists boast that their system can make trades automatically while you sleep, generating enormous money. The word “robot” is now in use since computers have completely mechanized the operation. In any case, a large number of these systems have never been formally reviewed or put to the test by a third party.
When evaluating a forex robot, the settings and optimization codes of a trading system must be put to the test. If the optimization codes and settings are incorrect, the system will provide random buy and sell signals. This will lead unwary traders to engage in nothing but gambling. Although there are proven techniques available on the market, prospective forex traders should do their homework before investing in one of these strategies.
Other Things to Think About
Many trading strategies have historically cost upwards of $5,000. This might be considered a fraud on its own. A good strategy nowadays shouldn’t cost a trader more than a few hundred dollars. Pay close attention to anybody selling systems that promise amazing outcomes in exchange for outrageous charges. Instead, to possibly make money, seek for reputable merchants whose techniques have been thoroughly examined.
The mixing of monies is yet another ongoing issue. Individuals are unable to precisely monitor the success of their assets without a record of segregated accounts. This makes it simpler for retail businesses to utilize investor money to pay extravagant salaries, purchase homes, vehicles, and aircraft, or just vanish with the money.
Always be wary of claims made in advertisements or other marketing materials that promise exceptional results when selecting a broker or trading strategy.
Other frauds and red flags may be seen when brokers refuse to let investors withdraw money from their accounts or when there are issues with the trading platform. Can you, for instance, initiate or quit a transaction amid choppy market activity after an economic announcement? The ability to withdraw money should display caution warnings. Warning indicators should once again flash if the trading platform doesn’t work according to your liquidity expectations.
Visit the Background Affiliation Status Information Center (BASIC), established by the NFA, to do research on the forex broker you are considering. Numerous adjustments have eliminated the old frauds and thieves while legitimizing the system for the many legitimate businesses. Be on the lookout for fresh forex scams, however, since the temptation and appeal of enormous riches will constantly attract new and more skilled con artists to this industry.