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Forex trading is attracting more and more people who are discovering the financial markets as a source of perennial income. Passive Forex investing is also on the rise! The trading volume is constantly growing and the funds’ flow is increasing. Unfortunately, not all brokers make money by providing honest services, which gives rise to ever-present Forex scams. So, be vigilant if you don’t want to face problems when trading in the financial markets. Forex scammers are actively working to attract as much money as possible via unscrupulous means.
In this article, Traders Union explores what a Forex trading scam is, discusses the features of this ruse, and gives pointers on how to avoid becoming a victim of cybercriminals.
What is a Forex Scam?
There are various types of Forex scams perpetrated by disreputable individuals and entities that investors should be aware of.
Bogus trading platforms may be created to lure investors with the false promise of high returns. The operators behind such sham platforms may manipulate account balances and trading activity to create the illusion of profitability and mask losses.
Signal seller scams are another method employed by fraudsters. They market a supposed system for identifying favorable currency trading opportunities and charge excessive fees. However, the algorithms behind these signals are ineffective and do not confer any real edge in the markets.
Trading robots or automated trading systems are also used to defraud Forex traders. Despite claims regarding the profitability of these "bots," they are underpinned by defective algorithms and misleading performance metrics.
Managed account services offered by scammers are another red flag. They promise to execute trades and generate profits on investors' behalf but engage in unauthorized activities that are contrary to clients' best interests.
Exaggerated or outright fabricated credentials, track records, and statements minimizing investing risks are further hallmarks of forex scamming operations.
High-pressure sales tactics may also be deployed to rush unsuspecting victims into ill-advised decisions.
Is the entire Forex trading a scam?
Forex trading itself is legitimate - it involves exchanging currencies on the foreign exchange market, which is the largest and most liquid financial market in the world. Reputable Forex brokers and platforms are regulated by financial authorities like the U.S. Commodity Futures Trading Commission (CFTC) or the UK's Financial Conduct Authority (FCA). Legitimate platforms provide transparent information, educational resources, and adhere to regulatory standards. Many professional traders and financial institutions engage in Forex trading as a fundamental part of their investment strategies.
Key elements employed by Forex scammers
There are many ways to employ the tenets of a Forex fraud, after all, they come in many types and are fully adaptable to the whims of fraudsters. There are hundreds of fraudulent schemes, and cyber criminals constantly come up with new iterations. However, the old schemes continue to work also. Below, the Traders Union explores several ploys that remain popular with Forex brokers.
Forex pyramid and the Ponzi scheme
A pyramid scheme is a type of common Forex trading scam. Such schemes contain predictable elements:
A broker or investment platform offers the client lucrative investment plans with fantastic (i.e., unrealistic) returns;
Clients register with the company and invest their first funds based on the unrealistic representation. This is how the first level of the pyramid is formed.
Forex scammers encourage traders to invite their friends and colleagues to the project. As a rule, these referral programs are multilevel affiliate programs supported by elaborate increases in interest rates and physical prizes for the traders who have invited a certain number of customers.
New customers deposit in cash, forming subsequent levels of the pyramid. At the expense of these funds, the company pays remuneration to traders of the previous levels.
When the cash flow ends, the broker or investment company ceases to exist, and the fraudster-promoter absconds with any undistributed funds.
After the organization closes, traders will no longer be able to get their money because the scammers will have disappeared.
The Ponzi scheme is another type of frequently employed Forex broker scam. Its metric is in the shape of a pyramid, but with one difference. If in the standard pyramid new customers are attracted by fellow users, Forex scammers attract their victims directly, one by one, in the Ponzi scheme. They find contacts of potential victims in open sources, and persistently convince them to invest in the platform.
Withdrawal frauds
Payment fraud is a common method of fraud among dishonest brokers. The broker seeks not to pay money to the client/trader by using any excuse or pretext available. As a rule, the company asks the client to wait for a little while longer or blames the delay on a technical failure, or problems with banking services.
Often scammers indicate in advance a long withdrawal period. This is necessary to attract as many people as possible before deceived customers start writing negative reviews. Also, Forex scammers “buy time” by referring to technical problems or internet glitches that are out of their control.
Moreover, scammers can use this scheme to obtain extra funds. For example, they may ask the customer for an extra payment as bank insurance or to cover bank fees. However, after transferring extra funds, the Forex scam will still pay nothing. Over time, technical support stops responding to traders.
Quote frauds
Often, fraudulent brokers don’t provide direct access to foreign exchange trades. This is done to manipulate quotes.
After opening trades, fraudulent brokers carry out sharp movements of quotations up or down. Thus, the stop-loss order is disabled or “knocked out” for traders, and the account is completely reset to zero or even goes into the red by less skilled fraudsters ones. Moreover, Forex scams can manipulate orders as well. For example, it can prohibit the execution of a stop-loss order so that the trader will lose money.
In some cases, scammers reserve upfront the right to void transactions. Such provisions are prescribed in the User’s Agreement. This is to ensure that traders cannot prove fraud in the event of a lawsuit.
Spread frauds
The spread is the difference between the bid and ask prices. This difference is the broker's income from the trade. If the spread is floating, its value is constantly changing. And this is used by fraudsters.
Fraudsters artificially increase spreads when orders are closed. Thus, the standard spread for EUR/USD of 1.0 pips can turn into 10.0 pips or more. Due to this, Forex scammers skim all the trader's profit from the trade under the guise of a commission.
If spread manipulation is used against you, you will not be able to earn anything. The spread will be increased to the desired size, and if you make a profit, it will be minimal. Thus, a fraudulent broker does everything to ensure that you exhaust your deposit as soon as possible.
How to spot a Forex scam
Thoroughly investigate the broker before you start to work with it. Several differential characteristics can help you recognize a Forex fraud. Let's consider them in more detail.
Broker with no license
Reliable brokers are always licensed. A license is a document issued by a government or government-authorized regulator that certifies that a company meets the financial requirements of the jurisdiction.
Before you start working with a broker, make sure that it has a financial permit from a reputable regulator. These include:
USA – SEC;
Great Britain – FCA;
Cyprus – CySec;
United Arab Emirates – DFSA (Dubai) or FRSA (Abu Dhabi);
Australia – ASIC;
Japan – JFSA and FFAJ;
Germany – BaFin, etc.
It takes a lot of time and money to get permission for financial activities, which is why scammers do not seek genuine licenses. They usually work without a license. They can also get a document in an offshore zone, where the requirements are much rigid and strict. Another alternative is to obtain a flimsy “certificate” from a private company with an opaque verification scheme.
Aggressive marketing
Scammers often use aggressive marketing. Their task is to convince the client to invest in their platform at any cost. Representatives of the broker or investment company use cold calls to find clients. They often make calls with various tempting (unrealistic) offers. Fraudsters are constantly emailing or writing potential targets on social media.
A reputable and trusted broker will never use aggressive marketing. Such companies are promoted using advertising and other methods, but they do not call customers several times a week or every day; their representatives do not contact potential customers/traders via social networks or by email—at least not until the client voluntarily goes through the registration and verification procedures himself.
Opaque investment conditions
The task of a fraudulent broker or investment platform is to trigger the greed factor in a potential target and to encourage the client’s urge to get big money easily or the “get rich quick” syndrome. Therefore, they often quote incredible interest rates in their investment programs and quick turnarounds of profits. However, the investment platform never explains how such a super-profitable plan is achieved. As a rule, scammers use only general and inexact phrases like “investing in Forex” or “investing in stocks”.
Companies are required to disclose the earnings pattern. The trader shall know which stocks or currencies the manager invests in and which trades he opens. If this information is not disclosed, traders are persuaded according to the principle “invest money and get more”. This should at least raise doubts and prudent investors would run away as soon as possible.
Unknown trading platform
Fraudulent brokers use unknown trading terminals with low security. They can also develop their own terminals. This is done to gain access to market manipulation.
Such a charlatan can provide a sharp jump or return of the trend for one or two seconds via one click of a button, which will be enough to trigger stop-loss or reset the account. On the Japanese candlestick chart, such a movement will be shown as a long spike going in either direction.
Don’t work with trading terminals if you are not sure about them. If you are offered some kind of "innovative platform", check all the information about the broker. There is a good chance that you’ve met a scammer.
Company reviews
Forex scammers tend to be short-lived and collect a large number of negative reviews. One of these brokers is NovaTech. After the influx of customers stops, they close the project and re-register under a different name. Therefore, independent company reviews are one of the most important factors in choosing a broker. Never rely on reviews that appear on the broker’s website as they can be paid or manipulated.
Always execute caution if:
There are many negative opinions about the organization;
There are no reviews about the company.
The only positive reviews appear on the broker’s website.
If there are no reviews, this may indicate that the company is new. In this case, you can check the date of its foundation, which is often written on sites or in independent reviews. If a company indicates, for example, the year 2005, but there is not a single review on the internet, they are trying to deceive you.
You can watch reviews only on independent sites. There you will find objective and fair opinions. On Traders Union, you will find a large number of reviews about companies that are vetted by the gurus at TU, and you can protect yourself from a possible Forex scam.
Here are three examples of companies that have ceased to exist and exhibited signs of a scam.
AlfaTrade
AlfaTrade positioned itself as a Forex broker. The company’s legal address was listed in Bulgaria. The broker attracted traders with free trading signals and offered clients the services of personal analysts to help newbies. Company representatives used aggressive marketing, often calling and persuading traders to open an account with the company and with guarantees or promises to increase the amount of their deposit.
However, users noted in reviews that AlfaTrade's promises were a myth. The deceived clients stated that the company did not provide signals, and personal analysts did everything to make traders lose money. Traders also encountered account blocking when requesting to withdraw funds.
AlfaTrade Forex broker
As of 2023, the company's official website is unavailable, but a statement published on the website says traders can “continue to trade through their MT4 trading account”.
AlfaTrade is a scammer
AGM Markets
AGM Markets was a Cyprus broker headquartered in Limassol. The company was licensed by CySec but did so at a time when Cyprus didn’t have strict regulatory requirements. Subsequently, the company was deprived of its financial license.
Users in the reviews noted that AGM Markets used a fraudulent trading terminal scheme. According to traders, they repeatedly encountered re-quotes and slippages upon the execution of trades. So, users lost money. Moreover, the broker's clients faced problems when attempting to withdraw funds. Traders complained that when submitting withdrawal requests, money was debited from the trading account, but the request was never processed.
AGM Markets Forex broker
As of mid-2023, the broker's website is down, and his domain is on sale.
AGM Markets is a scammer
AXEForex
AXEForex was allegedly registered in 2017 in the UK. However, the broker was operating without a license. The company attracted customers through four types of trading accounts, 250+ trading instruments, and low requirements for an initial deposit (only $100). However, traders faced significant challenges.
Users in the reviews claim that the broker used aggressive marketing. There were constant calls and persuasions to invest extra funds. AXEForex never permitted the withdrawal of money, and the accounts of clients who submitted withdrawal applications were blocked or deleted.
AXEForex Forex broker
As of mid-2023, the broker has ceased operations. The company's website doesn’t exist, the domain is up for sale.
AXEForex is a scammer
Thanks to reviews on Traders Union, thousands of traders have been able to avoid cooperation with scam projects. If you are offered to work with a broker, check it out in the Forex Scam rating on our website. If you have had the experience of cooperating with a fraudulent broker, tell us about it. This way you can protect other traders and prevent fraudsters from enriching themselves with new victims.
Reputable Forex brokers
If you want to successfully trade or invest in the Forex market, you need to start by choosing a competent trader. The company must be reliable and proven. Pay attention to a list of brokers that are fully compliant with security requirements and offer a good range of features and services according to Traders Union.
eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk. Don’t invest unless you’re prepared to lose all the money you invest.
Can quotes on the websites of various brokers differ?
Brokers get quotes from liquidity providers – large banks. Therefore, theoretically, there may be differences, but they are insignificant. If the discrepancy is large, it is worth considering the risks of fraud.
My personal analyst squandered my deposit. The broker offered a replacement but asked me to replenish the deposit first. Should I agree?
Absolutely not! You’ve met a scammer. Your new deposit will also go to the broker.
The company asks me to pay for insurance before the withdrawal. Should I do it?
Brokers are required to withdraw user funds without any extra terms. Payment of insurance or bank commissions (as a separate payment) is out of the question.
Can an offshore licensed broker be considered reliable?
In theory, yes. If a broker has permits from reputable regulators in addition to an offshore license, it can be considered reliable, but proceed cautiously.
Ivan is a financial expert and analyst specializing in Forex, crypto, and stock trading. He prefers conservative trading strategies with low and medium risks, as well as medium-term and long-term investments. He has been working with financial markets for 8 years. Ivan prepares text materials for novice traders. He specializes in reviews and assessment of brokers, analyzing their reliability, trading conditions, and features.
Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.
The topics he covers include trading signals, cryptocurrencies, Forex brokers, stock brokers, expert advisors, binary options. He has also worked on the ratings of brokers and many other materials.
Dr. BJ Johnson’s motto: It always seems impossible until it’s done. You can do it.
Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO). Mirjan is a cryptocurrency and stock trader. This deep understanding of the finance sector allows her to create informative and engaging content that helps readers easily navigate the complexities of the crypto world.
