Forex is not a scam, but there are many scams that are being run in the forex industry and unfortunately, many people have fallen victim to them. You need to know the different scams that are going on so that you can avoid them.
Is forex a scam?
This is one question that has been asked many times on various forums and discussion threads. And I totally understand how such questions come into the minds of individuals.
But the simple answer to this is that forex is NOT a scam.
Forex stands for Foreign Exchange, which is basically the exchange of currencies of the countries around the world.
The forex market is a decentralized over-the-counter digital marketplace for the trading of foreign currencies i.e. individuals can buy or sell these currencies through this market.
As and when the internet became more of a basic thing in the lives of individuals, the forex market has become much more accessible.
Individuals can open accounts with brokers, deposit capital in their trading accounts, and participate in the forex market in no time.
This increase in accessibility has led to a rise in scams that are targeted towards individuals.
A simple google search on scams in forex trading will produce several articles on how individuals have been duped off their hard-earned money, not by the forex market but by some bad actors because of whom this serious business gets a bad name.
What are the most common forex scams?
Now that I have discussed the credibility of the forex market and forex trading, let’s move on to the scams that individuals fall for and are creating a bad name for the industry.
There are types of scams that are being run and targeted towards individuals. These scams often try to attract and lure individuals towards the forex market.
They convince individuals to avail their services and charge a fee from them in return.
Their pitch for the individuals is mostly about creating a fortune through trading in a short period of time which is totally unrealistic.
1. Signal selling
This is one type of scam that many individuals have fallen prey to. Signal selling is basically giving out calls either for buying or for selling currency pairs.
Signal sellers charge upfront fees from individuals and provide them with these signals.
Signals are tips in general, these individuals will notify their customers about potential trades and these are to be manually entered by customers.
The signal seller may or may not even be actually trading those tips or calls they provide.
The most logical argument on this is that if a person is confident about his trading skill and claims to have found a reliable strategy that allows him to capitalize on price movements in the forex market, then why not trade those properly and earn the fortunes.
Why spend time convincing others to believe in your strategy and pay you a small fee to avail your tips.
Some signal sellers may provide good calls in the beginning and then every call they send out will lead to a loss.
In such cases, individuals that have bought this service cannot do a thing as they are completely dependent on the calls that are sent out to them.
There may be some signal sellers out there that provide good calls which they actually trade on and maintain risk properly, but these are very less in number.
I believe that you would be better off trading on your own by acquiring knowledge rather than pointlessly wasting money on service providers.
2. Automated trading
Just like signal selling, automated trading is also a service that is provided in return for a fee.
In automated trading there are no signals that are sent out to individuals but rather the trades are directly placed into the system for them.
The individuals that provide this service of automated trading, provide their customers with software that automatically enters the trades.
These softwares have some rules that have been programmed into them to spot trades and to execute.
Just like the argument advanced in signal selling, if an individual has a system with profitability that they claim, then why not simply trade on it themselves and reap the riches out of it.
This software may have worked on historical data of currencies but there is no guarantee that it will continue to work so in the upcoming trading sessions.
It is even possible that this software have been tweaked so much that the results on historical data are impressive but they fail to adapt to the changing market conditions and incur huge losses.
3. Money managing
Money managers approach individuals and try to convince them into investing and allocating funds to them to invest and trade on.
These self-proclaimed money managers may provide past performance data or backtested data of their trading strategy or plan and try to lure individuals into believing in them. At times some may not provide any kind of data.
These individuals try to project a dream and make their investors believe that forex is a gold mine that will change their lives in just a couple of weeks if not days.
I do not want to imply that all money managers out there are scams and just want to convince investors to invest and then they will disappear with the funds, what I am trying to convey that you have to be aware of the tactics that these scammers use in order to trap individuals.
How to avoid forex scams?
The first step to avoiding a scam is to be able to identify and spot them in the first place. It does take much of a skill to spot these scams as mostly all of them have the same characteristics.
1. Unrealistic claims
If any individual makes claims as to changing your life or making you rich in no time, is most probably engaging in the conversation with you only to lure you into his trap and take your money.
Any individual that is all flashy and appears to have a luxurious lifestyle already, will not spend time convincing others to pay a small amount for their services. They would other and bigger things to care about.
They may make claims of having a 100% success rate or about having a holy grail strategy that no one else has discovered yet and they want you to reap the benefits from it. All these are sweet talks with nothing to back it up.
As I mentioned earlier, the forex market is not a gold mine and forex trading is not a get rich-quick-scheme. No one in this market has made it big in a short period of time.
There have been such stories but those individuals got lucky and they cannot consistently repeat them.
Forex trading is all about making profits over time while keeping risk to a minimum. Profits in the short term will accumulate into big profits in the long term. This is one simple principle that many do not understand.
2. No credibility
If you are approached by an individual that is pitching you any service related to forex trading and is hesitant to give you complete details about themselves then I would suggest you end the conversation then and there.
This is a clear sign of someone trying to scam you. If an individual is looking to provide a service and if charging a fee for the same, there is no better way to build rapport with a client than to be transparent.
Dig into every possible detail about such individuals and try to extract as much information out of them.
During the interaction, if you come across any red flags that raise doubts in your mind about their credibility then be cautious about it and don’t just overlook it.
3. Too much focus on the money
If the individual is pressing too much on the amount of money you can invest and is trying to convince you to increase the capital to be invested then it is not a sign of a genuine service provider.
Such individuals may even pressurize investors to deposit funds in their accounts so that they can invest them.
As I mentioned earlier, there are many tactics that these scammers make use of to convince you to part with your money and hand it over to them, if you do so then you are just laying the red carpet for them to disappear with your money.
This is just a small checklist of red flags to look for before investing your money with anyone. If you spot any of this then simply quit wasting your time and move on from that conversation.
It is better to identify or spot this right in the beginning than to realize that you have been scammed after you have parted with your money.
Even if you realize something shady after you have acted on it, you can always choose to walk away. You will lose the money that you have already invested but it is better to save yourself from investing more.
If you have had some experience with any forex scams as such, share your story with us through the comments section.
Also mention how you identified that you were simply being sophistically robbed of your money. All that you share can always help someone out.
Share this blog post with others and let them also be aware of the type of scams that are going on in this industry.