How to Avoid Forex Trading Scams: Examples, Red Flags, and Best Practices
Trillions of dollars are traded on a daily basis in the foreign exchange, or forex, market. A market that size has plenty of room for retail traders like you to carve out your own profits, but there’s also a lot of space for scam artists to take advantage of the uninitiated.
Indeed, the CFTC (Commodities Futures Trading Commission) has seen a “sharp rise in forex trading scams in recent years,” but you can avoid forex scams if you use common sense, trust only legitimate forex brokers, and follow these guidelines.
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Common forex scams
Forex scams come in all shapes and sizes, but the majority of them fall into one of these categories.
Phony investment advisor
This is probably the most basic scam, and it can be done with any financial instruments, not just forex. Here’s the simple scam—someone who claims to be an investment advisor approaches a potential victim with “can’t miss” investment advice. The phony advisor gains the victim’s trust either through personal means or with doctored documents demonstrating enormous past returns. Eventually, the scammer asks for a deposit in order to make the investment. The investment, of course, is never made, and the scammer simply keeps the deposited funds.
Forex broker scams
Unfortunately, scam artists are getting more and more sophisticated, especially in terms of web page development. Scammers can set up websites that look enough like sophisticated broker sites to lure unsuspecting victims into depositing funds. Some of these sites even use legitimate trading platforms to make it seem as though your funds are actually in the market and doing well. Thinking you’re making great profits will induce you to deposit even more money.
This became news recently when Apple removed MT4 and MT5, two incredibly popular forex trading platforms, from the app store because fake brokers were using the platforms to mimic real results. The scammers would then point to the fake results as proof that their investment strategy was working and would continue to solicit more and more funds. Victims often don’t realize they’ve been had until they try to withdraw some of their earnings only to discover they can’t.
This is even more common in crypto markets. In a crypto scam that has been given the gruesome name “pig butchering,” the scammer builds a personal rapport with the victim over several months and then begins suggesting investment ideas, using fake results on real trading platforms to solicit repeat deposits. One man was famously taken for over $1 million, but his courage in coming forward to Forbes has alerted many others to the scheme.
Clone forex firms
This is a type of fake broker scam. Some forex scammers claim they represent a registered broker and provide you with real registration and license numbers for that broker. Everything initially seems on the up and up, but then they’ll give you alternative websites and phone numbers. Often they’ll explain away the different sites and numbers by claiming that the registry is outdated, the broker is in the process of modifying its site, or something similar. Of course, the sites they give you lead directly to their own bank account, not that of the broker they claim to represent.
Signal seller scam
This is a very common forex scam. Signal sellers are those who have forex trading systems that they peddle to the public. A signal seller will alert you to the best times to buy or sell different currencies based on a proprietary system that identifies opportunities. Signal sellers make money by 1) presumably making the trades they recommend with their own money and 2) selling subscriptions. Traders who have subscriptions are alerted to the buying opportunities and can then take advantage of them.
Some signal sellers are legit and generate some excellent trade ideas, but many dupe their victims into paying significant monthly or weekly fees without providing any significant trading advantages. These less-than-scrupulous signal sellers often lure in their victims by falsifying past returns and trader reviews.
The forex influencer scam
The forex influencer scam is often part of a signal seller scam that happens over social media, Instagram in particular. Someone, either a random influencer or someone within your circle of friends, catches your eye by posting results of their forex trading activities. In between screenshots of big profits and forex charts are pictures of luxury hotels, expensive automobiles, and piles of cash. The connotations are obvious—trade forex if you want to live like me.
Once you’ve started to follow their account, the scamfluencers (did I just make that up?) will send you a message asking you if you want to join them. After looking at the views from their recent stay in Monaco, who wouldn’t?
Once you’ve been coerced into depositing money, you may be strung along for a few weeks while the traders invest your money. They may tell you that you’ve made significant profits and have doctored results to prove it. When you ask for your money, however, the excuses begin. They might ask you to pay more money for withdrawal fees in order to get your original deposit plus profits, but that’s just one last cash grab. You’ll never get your money back. They’ll eventually block you from all communication.
A lot of influencer scams also have second levels in which they push those they’ve already ensnared into posting screenshots of their own “success.” So you may see a friend that you follow posting their own profits with links back to the influencer. Once you see your friend making money, it is very tempting to sign up with the same influencer.
Unfortunately, your friend’s early returns may have been falsified in order to lure your friend into depositing more money and unknowingly spreading the scam to you and others.
These social media forex trading scams have become so prevalent that the FCA (Financial Conduct Authority) in the UK has sounded the alarm.
Forex robot signal seller scams
Not to be outdone by the signal sellers and the influencers, robots are also getting in on the forex scam action. Ok, so the robots aren’t the actual perpetrators, but they are certainly aiding and abetting.
Forex robot scams are the same as typical signal seller scams, only the perpetrators claim to have automated trading systems or some sort of all-knowing algorithms that identify the trading opportunities. Again, they’ll solicit a subscription fee that will give you access to the great wisdom of their robotic cohort.
Are there automated trading systems that net more profits than losses? Yes. Are these robots likely to share these with you? No.
Forex phishing scams
You’re far more likely to encounter phishing scams that use fake Netflix or Amazon emails, but phishers will also try to get ahold of your personal data by posing as forex brokers. It’s a simple scam as old as the internet itself—they’ll send you an email that appears to be from your broker, but the link in the email will actually direct you to their own site. Once you arrive at that site, you’ll be asked to enter your social security or bank account number. If you think you’re at your broker’s site, you might not think twice about giving them such sensitive information.
How to avoid forex trading scams
No matter how slick forex scams get, there’s some very actionable steps you can take to stay ahead of the scammers and become a successful forex trader.
Educate yourself about the forex market
Forex scammers almost always target new traders or those unfamiliar with the forex market. If someone approaches you with a foolproof forex trading system or a novel way to make money in the forex market, take the time to do your homework.
Learn at least the basics of the market. The best forex brokers have excellent educational resources for this purpose. This will allow you to assess the viability of the trading system or, at the very least, ask intelligent questions. After a few hours of research, you should know more than enough to discern which forex trading systems are bogus (hit: nearly all of them).
Have realistic financial goals
Everyone has dreams of increased financial stability, but don’t let your dreams cloud your judgment. Get-rich-quick schemes typically only work out for the schemer. Yes, forex traders make money and many do quite well, but they didn’t come by their skills overnight. If you’re realistic about how long it truly takes to build wealth through trading, you are less likely to fall victim to someone who promises financial shortcuts.
Verify identities
Scam artists of any stripe, not just those targeting the foreign exchange market, often reach out to their victims via the hacked email or hacked social media account of a friend or family member. If a trusted relative is offering investment advice over Facebook Messenger, for example, contact that relative via any other means—call, email, WhatsApp, etc.—and confirm the message is indeed coming from them.
Check with financial regulators
Financial regulators in a number of countries maintain listings of regulated forex brokers operating in their jurisdiction. You can use these databases to double check addresses and websites, learn about individual brokers, and see what, if any, complaints have been made by other traders. For my US readers, that means using the BASIC search site at the NFA (National Futures Association). BASIC allows you to search for individuals as well as forex brokers and forex funds.
Some regulators, such as ASIC in Australia, also maintain a database of the brokers and individuals you should not do business with.
Although checking with regulators definitely serves as a layer of protection, remember that these databases aren’t infallible. Scam artists who find complaints lodged against them will often simply change their name or the name of their business entity.
Use regulated forex brokers
Yes, there are some legitimate forex brokers that are unregulated, and there are advantages to using these “offshore” forex brokers, but in most cases those benefits are overshadowed by security issues. Brokers that are regulated by the CFTC and NFA in the US, or the FCA in the UK can be trusted with both your money and your personal data. That doesn’t mean all regulated brokers are created equal, so still seek out the best regulated forex broker for you.
Don’t send money . . . to anyone
This is the one foolproof way to avoid scams. Every successful scam has the same last step: separating you from your money. In most forex scams, this last step is completed voluntarily by the victim. The victim willingly sends their money to their scammer because they’ve been duped. So just don’t send anyone money for the purposes of investing or forex trading. If you want to start trading forex, do so on your own with your own account via a regulated forex brokerage.
Red flags: How to spot forex scams
Scammers are always coming up with new schemes to part you from your money, but even the most sophisticated forex scams follow certain patterns. Look out for these red flags, and you can avoid a significant percentage of potential scams.
Promise of guaranteed returns
This is the biggest, reddest flag of them all. Bottom line: If it seems too good to be true, it probably is. Scammers prey on your financial dreams by promising all the riches in the world. Truth is, no one in the forex market (or any other financial market) can guarantee returns. The forex market is far too large to be manipulated by individual traders and far too dynamic to be predicted with 100% accuracy.
In fact, legitimate forex brokers cannot legally guarantee returns. They are required by regulators to disclose the potential risks of currency trading, not trumpet impossible returns. So even if the person making these guarantees is actually a registered broker, they are not an honest one. Stay away.
You’re approached by someone unknown
Legitimate forex brokers might advertise or send out promotional emails, but they do not solicit funds from random, individual people. If you get an unsolicited call, letter, WhatsApp, Facebook Message, or any other type of message from someone who claims to be representing a forex broker, odds are it’s someone trying to pull a fast one.
Don’t fall for it.
Even if whoever is messaging you has piqued your curiosity about forex trading, thank them for the info and go directly to a regulated broker on your own.
Overaggressive or personal sales pitches
Legitimate forex brokers will not continuously harass you or use overly aggressive sales techniques. The days of hard-pushing brokers like Jordan Beifort (as depicted in The Wolf of Wall Street) are over. And even if they weren’t, would you really want someone like that giving you financial advice?
It’s also common practice amongst scammers to make very personal, emotional appeals to their victims. Often they’ll push family angles by asking, for instance, if you are sure you’re putting enough away for your kids’ college funds, or if you’ve provided the life for your family that they truly deserve. These are lines that real brokers wouldn’t (or at least shouldn’t) ever cross.
Bottom line: If a forex broker’s sales pitch makes you at all uncomfortable, cease communication.
They only accept deposits in crypto
Many legitimate brokers will accept deposits in cryptocurrency to open retail investor accounts, but they all also accept bank transfers, checks, credit cards, or other forms of payment. A lot of scammers will only allow crypto payments because crypto is very difficult to trace. Once it’s out of your hands and in theirs, it is nearly impossible to get back.
If you deposited funds through a bank or credit card, however, it would be much easier to trace and possibly retrieve your money through your bank’s fraud protection services department. So if someone insists or pushes you really hard to convert your money to crypto before transferring it to them, odds are good they’re involved in some sort of scam.
Something just doesn’t feel right
So many of those who fall victim to forex scams report an initial suspicion that was overcome by the scammer’s persistence or (usually falsified) evidence of massive returns. Trust your instincts. Again, if it seems too good to be true, it probably is.
Conclusion
After all the cautionary information above, you might be tempted to forget the forex market altogether, but I wouldn’t turn your back on the largest financial market in the world. The forex market won’t make you rich overnight, but it can prove lucrative for smart, dedicated traders.
If you take the initiative to learn as much as you can about the forex market, go through a “How to Start Trading Forex” guide, and choose a great forex broker, you won’t fall victim to any scams. Instead, you’ll use your own perspective and your own expertise to maybe slice off a little piece of that $7 trillion-a-day market for yourself.