Forex is one of the largest financial markets, overscoring even Stock Exchanges in value, with approx USD 6 trillion traded daily. It is operating 24/24, and the trading is made on many platforms you can find online. It’s based on currency pairs trading and what makes it interesting – a fluctuation of currencies’ value. This market is available to anyone with an internet connection, but to succeed in it, you will still need some skill level to avoid Forex scams. Their numbers are ever-growing, following the Forex market’s opportunities to offer to all those wanting to increase their capital, including retailers, companies, and governments.
Here, we will point out some foreign exchange market features that make it predisposed to trading scammers and frauds.
Be careful when starting Forex trading
The utmost precaution is mandatory in order to avoid forex scams. Currency pairs are exchanged over the counter, which means the market is not centralized but made via an online network between traders and via intermediaries such as brokers. Forex brokers’ selection is in the core of your forex trading, so read Forex brokers reviews carefully before making the final decision.
Forex is based on leverage, which is practically the amount you will get from your broker to be able to trade at a margin. The most common ratio of the margin is 50:1 or 100:1 or even 200:1, which depends on the sums you are ready to trade. High leverage can be attractive to inexperienced traders because even with small currency fluctuations, there is a chance to profit. But, it’s only in theory, so don’t be reckless.
Is Forex a scam?
The combination of complex features of Forex and inexperienced users with a lack of the right information represents the perfect bait for forex scammers.
Taking advantage of rookies’ lack of experience and the right information, dishonest brokers put a stain on forex trading reputation. So watch out for the following main types of forex scams:
- Signal sellers
- High yield investment schemes
- Bid/asks spread manipulation
- Software scam
This type of forex fraud is one of the most common, and you can stumble upon them on social media platforms or reach you via scam emails. They sell information claiming that these are assumed from reliable resources and professional forecasts. They charge weekly or monthly, but in reality, they do not help anyone to trade better.
High yield investment schemes
High yield investments are the form of pyramid schemes or also known as Ponzi schemes. It is based on a promise of high investment returns for a minimum starting investment.
In most cases, early investors can make a profit and be motivated in such a way they recruit more people to this scheme. The bitter truth is that other members’ subscriptions and fees fund their initial profit, and there is no investment opportunity on sight.
Bid/asks spread manipulation
Bid/ask spread manipulation has decreased lately but is still around. That’s why you should choose a forex broker that is verified by the local regulatory authority. The norm for one spreads in 2 to 3 pips, but the dishonest brokers will offer you more like 7-8 pips, considerably over the norm.
These forex scammers will try to draw new traders’ attention with trading robots software that will do all trading instead of you. This software can be useful for the analysis and identification of some trends in the forex market. It can also be useful when a trader is sure that the broker is reliable after reading good reviews and trying trading on a demo account on their platform. But don’t take this as an excellent reason to start your trading with the specific broker. It is just one of the features that forex platforms offer today and is to be used wisely and not to rely on entirely.
Presuming that you are just starting in forex trading activities, it is advisable to read some educational materials and then open a demo account to figure out what is all about and find your best strategy. Once you understand how it works, you will be ready to take the piece of the cake of this profitable market.