The foreign currency exchange market, known as the Forex market or FX in itself is the world’s largest trading arena where global currencies are exchanged, and it operates legitimately, handling trillions of dollars in daily trades. It plays a crucial role in facilitating various activities like purchasing imports, selling exports, traveling, and conducting international business. However, due to the availability of high-leverage positions that hold the potential for substantial profits, as well as the absence of a centralized and regulated exchange, unscrupulous individuals exploit the lack of regulation to prey on inexperienced traders who wish to enter this market.

The Forex market operates on a “zero-sum” principle, which implies that when one trader earns a profit, another trader incurs a loss. The Forex market itself does not generate value independently, that’s because currencies don’t produce profits or pay dividends as a company would.

As most currency movements are influenced by financially strong corporate institutions and banks with extensive knowledge of the financial markets, undercapitalized traders are often at a disadvantage and more likely to experience losses compared to these well-established entities. Achieving significant profits in the market requires substantial experience and involves a steep learning curve.

Unfortunately, scammers exploit the complexities associated with the Forex market. They deceitfully withhold crucial information about market realities from unsuspecting novice traders, claiming that they can lead to financial success, attracting traders worldwide who seek reliable brokers for Forex and cryptocurrency trading.

These forex scams manifest in various deceptive forms, including deceitful brokers and fraudulent trading systems.

Most Common Forex Scams:

1. Forex Signal Seller Scams

Some Forex traders opt to use trading signals to assist them in predicting currency exchange rate movements. These signals are typically offered through subscription services for a weekly or monthly fee. Before subscribing, it is advisable to request a historical performance chart from the signal provider to assess the credibility of their claims.

Most signal providers have a mixed track record, consisting of both successful and unsuccessful tips. This information can be utilized to choose among them and avoid obvious signal scams.

1.1. Claiming High Levels Of Accuracy or Profits

The first signal scam to look out for is claims of high levels of accuracy or profits, such as “90%+ accuracy,” or 100% guaranteed success. They emphasize their experience and trading abilities, accompanied by testimonials from individuals who attest to their success to gain trust, but in reality, they offer no accurate trade predictions. The scams occurs when companies charge investors without providing any advice or disappear after providing limited trade details.

These claims should raise caution as achieving such levels of accuracy is highly improbable. Always review previous signals against historical market data to verify claims.

1.2. “Free Signals”

The second signal scam to beware of is brokers and affiliates who offer “Free Signals” when you sign up and deposit with their recommended brokers. They earn commissions by referring new clients and are most likely not providing reliable signals.

2. Forex Robot Scams aka Trading Bots

A forex robot is a software program that uses algorithms, or lines of computer code, as technical signals to buy and sell currency. Investors should understand that trading software only automates a manual strategy. Automation has its inherent benefits, but generating unlimited profits is not one of them.

Unfortunately, there are scammers that offer solutions that are not what they claim to be. Key factors to consider when it comes to evaluating automated trading solutions:

2.1. Cutting-edge Trading Software With a Recommended Broker

Similar to the “Free Signal” scams, this prevalent scheme involves the sale or provision of “free trading software” to investors who deposit funds with a recommended broker. The scammer receives a commission for referring new clients to the broker, and their objective is to entice unsuspecting investors with empty promises solely to earn their commission.

2.2. Promising Very High Percentage Growth Returns Or Unlimited Profits

Scammers promote systems that claim to generate automatic trades and accumulate vast wealth, even while you’re not actively involved. They specifically target inexperienced traders by making false promises of significant guaranteed profits requiring little effort or knowledge. They manipulate data, use deceptive figures, create fake testimonials, and use polished websites to convince customers to purchase their products.

Victims eventually wake up to realize that the robot they bought has traded their account into a loss as no robot can adapt and thrive in all environments and markets. When you think about it logically, if the product generated immense wealth within a short span of time, they would not be selling it for a few dollars, but instead using it exclusively for themselves.

Many of these systems have never been submitted for formal review or tested by an independent source. Always do as much research as possible, to give yourself the best chance of avoiding a robot scam.

3. Pump and Dump

This form of scam is more commonly observed in stocks or cryptocurrency markets; however, pump-and-dump schemes can also take place in less liquid forex markets. In such cases, a chat room or social media group manipulates the price in one direction and subsequently sells off their positions to individuals who were influenced by the artificial price movement.

4. Forex Phone Call Scams

If you receive an unsolicited phone call regarding a forex investment opportunity, it is crucial to recognize it as a scam. It is important to remember that any information you receive from a prospective broker should be provided in written form. Relying solely on promises made during phone conversations or oral statements is not advisable. In the event that they propose opening an account on your behalf or you’re told to download screen sharing or remote access tools to ‘support you’ through the investment process, exercise caution and refrain from disclosing any information or transferring funds to the company. Safeguarding your personal and financial security is paramount when dealing with unfamiliar investment opportunities.

5. Forex Email Scams

Scammers employ various tactics to extract sensitive information from you through email. It is crucial to remain vigilant and be cautious of emails requesting personal details, password changes, or software downloads. These deceptive emails may mimic official communications from legitimate forex brokers, even directing you to counterfeit websites that appear identical to the genuine ones. The intention behind such scams is to gain access to your passwords or computer, ultimately aiming to drain your funds.

6. Forex Broker Scams

Broker scams are subtler and more devastating than other scams as a company that should serve as your trading partner may end up being your worst enemy.

It is normal for forex traders to desire to choose reputable brokers to conduct their operations. Regrettably, there exist numerous forms of scams perpetrated by forex brokers. The multitude of services and features available today makes it challenging to identify these scams. It is crucial to distinguish between a scam and a legitimate forex trading activity to safeguard oneself from financial devastation. Presented below are the prevalent scams associated with forex brokers.

6.1. High Yield Investment Programmes aka Forex Ponzi Schemes

This particular scam lures investors with the enticing prospect of high returns accompanied by minimal or no risk. The fraudsters make grand promises of returning the initial investment along with a profitable gain. However, in reality, these scammers advertise fictitious forex funds that do not exist. Typically, they only require a small upfront investment and initially fulfill their promise of returns to early investors, creating the illusion of a successful investment. Subsequently, these investors are encouraged to recruit their friends and family to invest as well. Unfortunately, instead of utilizing the funds for trading purposes, the scammer utilizes the money from new investors to repay earlier investors. Once a sufficient number of people have contributed to the scheme, the fraudsters disappear with the funds, leaving the investors with nothing.

6.2. Managed Forex Account Scams

Managed forex account scams occur when fraudsters pretend to offer expertise in forex trading knowledge and services investing currency on your behalf. Typically, investors are required to pay a fee or commission for such an account.

Conducting thorough research on financial services and individuals is of utmost importance. As a general guideline, it is advisable to steer clear of forex brokers who make extravagant promises of unusually high returns.

These scams often involve a fraudulent trader who diverts the invested money to purchase luxurious items for personal gain instead of utilizing them for trading purposes. When the victim eventually requests a withdrawal, the scammers are unable to pay as they have squandered the money on personal indulgences.

6.3. Price Manipulation

This scam is frequently executed by fraudulent brokers. Some brokers manipulate their trading platforms in a manner that consistently puts traders at a disadvantage. This manipulation can take various forms, such as negative slippage, where entry and exit orders are executed at unfavorable prices for the trader. For example, a buy order may be filled at a significantly higher price, thus limiting potential profits or eradicating them entirely. Another tactic employed is known as ‘stop hunting,’ wherein the broker intentionally triggers the investor’s stop-loss order before resuming the provision of accurate prices. Essentially, price manipulation is aimed at generating losing trades for investors.

6.4 Pip Scams aka High Spread Offers

In this scam, certain brokers deviate from the usual spread of points in a pair and instead offer spreads of seven pips or even higher. (A pip represents the smallest price movement in an exchange rate, typically the last decimal point for most major currency pairs priced to four decimal places.) When factoring in an additional four or more pips on every trade, potential gains from successful trades can be significantly eroded by commissions, depending on how the forex broker structures their trading fees.

6.5. Personal Data Scams

Upon registering with a brokerage firm, it is inevitable that you will need to provide certain personal and confidential information, including potential payment details such as credit card information. It is essential for a legitimate and regulated broker to implement appropriate security measures to safeguard your data, ensuring its confidentiality and non-disclosure to third parties. However, in the case of scam brokers, they may neglect necessary precautions or, even worse, sell your information to third parties. These third parties might begin sending unsolicited emails or contacting you via phone with offers you never consented to receiving.

6.6. Aggressive and High-Pressure Sales Tactics

This scam technique entails employing aggressive and coercive tactics to persuade investors into quickly depositing substantial amounts of money. Some scammers even offer bonuses or discounts to persuade you to invest right away.

Legitimate forex traders do not resort to aggressive marketing or apply undue pressure when promoting their expertise or services to potential investors. If you receive persistent and unsolicited contact from unfamiliar forex brokers or companies, it is most probably a scam.

6.7. Unauthorized Forex Broker Firms

This scam involves an unregistered firm offering forex trading services without the necessary licenses or regulatory approvals. In some instances, criminals masquerade as legitimate forex brokers or investment platforms that already exist, aiming to deceive individuals into investing in non-existent forex funds. They accomplish this by creating identical websites that mimic reputable platforms, tricking unsuspecting investors into making payments to them.

Fraudsters often also exploit the name and registration number of an authorized forex broker. It is crucial to always verify the legitimacy of a broker by checking the official register of the relevant regulatory body and ensure the company is operating in compliance with the rules and regulations of the foreign exchange market. Use only the contact details provided in the official register, as scammers may try to convince you that the listed numbers are outdated or incorrect.

6.8. Fake Bonuses and Promotions

Brokers often provide bonuses and promotions as part of their offerings. However, regulated brokers are required to adhere to regulatory guidelines to ensure that their bonuses and promotions do not impose excessive restrictions on traders.

Unfortunately, there are brokers who employ misleading promotions with terms and conditions that are overly strict or practically impossible to meet. They use these tactics to attract investors, but in reality, the investors are likely to lose their trading capital before having an opportunity to withdraw any profits. It is important to exercise caution and skepticism when encountering such offers. If a promotion sounds too good to be true, it is likely that it is deceptive in nature.

6.9. Terms and Conditions

Forex scammers exploit their understanding of the forex market by employing complex terminology when targeting their victims. They use terms such as risk disclosures and other terms of use to protect themselves from liability in case investors experience losses during their fraudulent schemes. Prior to consenting to utilize the services of any forex broker, it is crucial to thoroughly review and understand their terms and conditions.

As pointed out in the previous scam, sometimes scammers use account incentives to lure new clients. Once you have received the bonus funds and wish to withdraw them, a Forex scammer may deny you that right due to its terms and conditions.

6.10 Investment Groups and Learning Programs aka Forex Pyramid Schemes

Forex pyramid schemes revolve around the recruitment of individuals into investment groups or learning programs that promise to provide guidance and data for profitable forex trading. Participants in these schemes are required to pay a subscription fee and are incentivized to recruit more people in order to earn commissions.

The primary source of income in this scam is derived from membership fees, rather than actual profits from forex trading. It is called a pyramid scheme because as new recruits join, existing members ascend higher in the “pyramid” structure and supposedly accumulate more earnings. However, when it becomes challenging to recruit new members or if membership starts to decline, the leaders typically shut down the scheme and take off with all of the money.

6.11 Unusually High Leverage

The Forex market operates with high leverage, which can be both advantageous and risky. While successful trades can yield significant profits, unsuccessful trades can result in amplified losses.

Leverage essentially involves a loan from the broker to the trader, enabling the trader to engage in margin trading. The typical margin ratio ranges from 50:1, 100:1, to 200:1, depending on the traded currency amount. Some brokers offer exceptionally high leverage levels of up to 2000:1, which entices investors with the promise of substantial profits. However, it is crucial to acknowledge that the inherent risks in the market can swiftly deplete a Forex trader’s margin with a single losing trade.

6.12. Unsegregated Client Bank Accounts

Regulated brokers are required to maintain segregated bank accounts for client funds, ensuring they are kept separate from the broker’s own operational accounts. In contrast, scam brokers often operate a single bank account for both client funds and their own operational capital. This practice raises concerns because when the broker’s accounts experience financial difficulties, they may resort to using client funds to sustain their operations.

Such behavior represents a highly unethical business practice. In the unfortunate event that the broker fails to fulfill their financial obligations, your funds may become entangled with theirs and could even be subject to claims by their creditors. It is essential to exercise caution and choose brokers who adhere to proper account segregation practices.

6.13. Refusal to Withdraw Funds

This scam entails the scammer either refusing to return the investor’s funds or imposing obstacles that make it challenging for the investor to withdraw their money, such as imposing very high withdrawal fees.

If you encounter difficulties or obstacles when attempting to withdraw funds from your account and the broker provides you with a vague explanation it is an indicator that the forex broker is a scammer.

When you begin live trading, it is advisable to start with a small volume and for a short duration. Afterward, make an attempt to withdraw funds from your trading account. This practice allows you to test the broker’s withdrawal process and assess its reliability.

6.14. Forex Mutual Fund (PAMM) Scams

The Percentage Allocation Management Module (PAMM) draws inspiration from the traditional hedge fund model and is a legitimate investment vehicle, offering an opportunity for investors to participate in a managed fund. However, it is crucial to conduct thorough due diligence before making any investment, as scam forex brokers are active on these models as well.

Scammers often entice investors by claiming extraordinary historical returns that far exceed market norms and make false claims about the expertise of their fund managers. Scammers also apply excessive management fees, it is important to understand the process for exiting the fund if desired, and any potential penalties associated with early withdrawal.

6.15. B-Book Forex Broker Scams

In the A-Book business model employed by brokers, all client orders are directly transmitted to the forex liquidity provider, which then forwards them to the interbank market. This approach ensures a direct and transparent execution of trades, enhancing efficiency and reliability for clients.

When a forex broker adopts the B-Book model, it functions as a market maker where all orders are handled internally by the broker itself. This means that trades placed by traders are not visible outside of the broker’s trading platform, and there is no involvement of an external liquidity pool. This model can give rise to a conflict of interest, as the broker acts both as an intermediary and a counterparty to the transaction.

As the Forex market operates on a “zero-sum” principle the B-Book model is often utilized by scammers. In this model, the broker’s profits are directly linked to the losses incurred by traders. Dishonest brokers may engage in unethical practices such as providing non-market quotes on the trading platform, monitoring client stop-loss orders, and intentionally manipulating trades through server-side plugins, all with the aim of causing traders to lose money.

How to Identify Forex Scams?

Engaging in forex trading demands extensive knowledge, skill, and experience. Now that you are acquainted with the different types of forex scams, understanding them becomes the initial step toward avoidance. Keep in mind that you possess the right to inquire and seek clarification. Asking the right questions can help discern whether you are dealing with a reliable forex broker or a deceitful scammer.

Is The Broker Regulated?

Brokers that operate without regulation are not accountable to any governing body. Consequently, if they engage in fraudulent activities, such as intentional system glitches or malfunctions resulting in significant slippage, or if they refuse to process your withdrawal you will have no recourse or support.

A recommended initial step is to examine the footer of the broker’s website. If there is no mention of the broker being regulated by reputable oversight bodies or any disclaimers regarding the risk of potential losses. Reputable regulators require brokers to provide such information to ensure investors’ protection. They are also subject to random platform checks that ensure they always offer transparent trading services to clients and are not using dubious marketing tactics.

The broker should also operate under a valid license number issued by those organizations, as well as fully conform to their regulations to remain in good standing.

Additionally, you can review the scam tracker we have created of deceitful firms that have been identified for engaging in fraudulent practices.

If Regulated, How Trustworthy Is The Regulatory Organization?

Certain fraudulent brokers falsely claim that they are regulated and registered by a governing organization that does not actually oversee or regulate forex companies.

The presence of certain disclosures at the bottom of the homepage may create the impression of a regulated broker. These disclosures might include warnings about the risks associated with trading CFDs and a legal section. However, upon closer inspection of the legal section, it becomes apparent that although the firm is registered as an international broker the regulatory organizations provided do not regulate forex brokers.

How Do I Know What Regulatory Bodies are Legitimate?

Hence, it is crucial to verify the credibility of the regulatory authority that oversees the broker you are considering. You can visit the governing body’s website and conduct a search using the registration number provided to ensure its authenticity and good standing.

Each forex regulatory organization operates within its own jurisdiction and regulation enforcement varies significantly from country to country.

Some of the most common are:

Is the broker offering bonuses or rewards for opening an account?

In the majority of regulated jurisdictions worldwide (with some exceptions), promotional bonuses for opening new accounts are prohibited. If the broker truly lived up to their claims, they would not need to offer big incentives to attract people to their services.

Is the broker claiming to have won awards?

Many fraudulent brokers make false claims of receiving prestigious awards. Scam brokers deliberately display fake awards from previous years, as they are more difficult to verify compared to recent awards.

In some cases, scam brokers may showcase awards from reputable media outlets, but these awards turn out to be fabricated. Always exercise caution and verify the authenticity of any claimed awards.

Is the broker offering guaranteed profits?

No company has discovered a reliable method to consistently generate substantial profits, whether it be experts, through automatization, or signal trading. If such a method did exist, it would not be made available to the public for free.

Is the broker being promoted by influential people?

It is important not to fall into the trap of assuming a broker is reliable simply because it is being promoted by influential people like athletes, actors, or social media influencers. It is important to recognize that these individuals are being paid to promote the broker and may have additional commissions for attracting new clients. It is also possible that their likeability is being taken advantage of by the broker without their knowledge or consent.

Is it easy to reach customer service?

Legitimate companies prioritize easy access to customer service as part of their commitment to customer satisfaction. They understand the importance of providing prompt and reliable assistance to address any queries, concerns, or issues that customers may have. As such, they offer multiple channels for reaching their customer service team, including phone support, email support, live chat, and sometimes even social media platforms. They also provide comprehensive resources to assist traders in getting started offering extensive educational materials, including step-by-step guides, video tutorials, and informative articles.

Is it easy to find impartial reviews from other clients?

It is crucial for investors to conduct thorough research and review the experiences of real traders on reputable websites. By reading reviews from trusted sources, investors can gain insights into the reputation and reliability of Forex service providers. Reputable review sites often delve into the investigation of complaints and assess factors related to safety and security, such as Know Your Customer (KYC) policies and website encryption standards.

When searching for reviews, it is important to look for genuine customer feedback. If there is a lack of reviews or if they appear to be fake or manipulated, it is advisable to exercise caution and avoid engaging with that particular service provider.

Do they provide a demo account?

A demo account allows potential traders to practice and familiarize themselves with the broker’s platform and trading tools without risking real money. It is an essential feature provided by legitimate brokers to help users gain confidence and develop their trading skills.

The presence of a demo account option serves as a reliable indicator to distinguish between reputable and fraudulent brokers. If a broker does not offer or discourages the use of a demo account, it raises strong suspicions of engaging with a Forex scammer.

How To Avoid Getting Scammed?

Now that you are familiar with the various forex scams that exist and equipped with the knowledge to ask pertinent questions.

The most crucial step to protect oneself from forex scams is to genuinely acquire proper knowledge and skills for trading on the Forex market. It is important to recognize that mastering the art of Forex trading, similar to any professional skill, can take years of dedication. Any assertion promising quick monetary gains should be approached with caution and skepticism.

Equipping oneself with a solid trading education and a comprehensive understanding of risk management techniques is vital. Scammers often prey on individuals who lack trading experience, exploiting their optimism, fears, and limited knowledge. By acquiring in-depth knowledge of the markets, you reduce your vulnerability and become a less susceptible target for fraudulent schemes.

Once you have acquired the necessary knowledge, it is crucial to select a regulated broker with a strong reputation and extensive experience in the industry. Look for a broker with a proven track record, positive feedback from past and current investors, and a long-standing presence in the market. Conduct thorough research and analysis before making your decision. Remember to trust your own judgment rather than relying on automated systems or entrusting others to manage your account.

What can I do if I have already been scammed?

If you believe that you have been a victim of a forex scam, it is crucial to take action quickly.

In such situations, the first step is to reach out to the relevant authorities in the country where the broker is registered. It is important to report the scam and provide them with all the necessary information and evidence.

Simultaneously, it is advisable to contact your bank or credit card company to inform them about the fraudulent activity and request a chargeback for any unauthorized transactions.

Seeking legal advice is also recommended to understand your rights, explore the available options and help you navigate through the legal procedures. We encourage you to reach out to us at contact@legalbyte.io to evaluate and assess the eligibility of your case. Taking prompt action is vital to optimize the likelihood of a successful resolution and ensure that those responsible are held accountable.

By promptly reporting the fraud and taking appropriate legal measures, you not only increase the chances of recovering your funds but also contribute to exposing the scam and protecting others from becoming victims.