Foreign exchange fraud takes place when a trading scheme is put into place in order to defraud traders by convincing them that they can expect to gain a high profit by trading in the foreign exchange market. Financial markets have long been plagued by swindlers preying on gullible traders. According to a recent report in the Wall Street Journal, “The average individual foreign-exchange-trading victim loses about $15,000” before giving up and backing out of the market altogether.
In fact, even Forex trading, which is a form of currency trading, is considered by some regulators as extremely risky at best and as outright fraud at worst. However, when Forex trading is done within the set parameters of established investment rules and with a clear understanding of Forex markets, Forex trading can be a lucrative investment alternative to other financial markets. In order to choose the right Forex broker, a trader should read review sites such as DailyForex.com where brokerages are researched and compared.
Forex Scams
Indeed, over the years, many Forex scams have been uncovered and there are still many that continue to exist in one form or another. Some scams can be extremely compelling and many seem quite legitimate. What they all have in common is that they take advantage of traders seeking to make a quick profit in the Forex markets. Unfortunately, many people learn the hard way that there are no easy answers in Forex trading. Only after losing their shirt, do some traders wise up and take the whole process seriously. The fact is that Forex trading can be lucrative and investors can make a nice bundle. But understanding the inner workings of the market and recognizing the correct financial indicators are essential to coming out ahead. Learn more here fxacademy.com.
Here is a list of some popular Forex scams still being employed by online Forex brokers:
1. Signal Sellers
With every passing day, a new Forex broker starts peddling its wares. Each broker claims to have the best signal and professes to be able to supply the most updated financial data that will ensure success for any trade someone chooses to make. These signal sellers charge a daily, weekly or monthly fee for their service and usually do not offer anything that will help improve one’s trading. They will promise the moon and never come through. It is important to always keep in mind that there is no such thing as having a magic formula to success in the Forex market and if there was, why would a broker pass
it along to thousands of other people? As with anything that sounds too good to be true, promises of future success should be taken lightly and should never be depended on. Buy beware.
2. Software that Predicts Future Outcomes
There is no software anywhere that can figure out and predict how the Forex market will perform. However, a quick Google search will turn up plenty of software sellers that tell a different story. Some companies out there are peddling their special program for crazy amounts of money, sometimes more than $6,000. Most of the time, the software program turns out to be something that can be easily downloaded free from the Internet. Always stay away from any type of Forex software with statements of being able to forecast which trades the trader should make.
3. Phony Investment Funds
In the past few years, funds called HYIP (High Yield Investment Program) have popped up all over the Internet. Most of these (if not all) are scams. These funds promise you a high level of return for the temporary use of your money in their Forex fund. It is a type of Ponzi scheme wherein the investors of yesterday get paid back by the investors of tomorrow. Once the fund runs out of suckers, the fund usually closes down and the ‘managers’ abscond with whatever money they are left with.
Frauds might also include the churning of customer accounts for the purpose of generating commissions, improperly managed “managed accounts”, false advertising, Ponzi schemes and outright fraud. In fact, any retail Forex broker who suggests that trading foreign exchange is a low risk, high profit investment can be considered fraudulent.
To avoid scams such as these, it is important to choose the right Forex broker. This should be accomplished by speaking to experienced Forex traders and doing proper research. Forex review websites are beneficial in comparing Forex brokers and listing their differences. Sites such as Daily Forex provide additional financial data for these reviews.
It is equally imperative to remember that the Forex market is a ‘zero–sum game’, which means that whatever one trader gains, another one loses. In addition, after brokerage commissions and other transaction costs are subtracted from the results of all traders, the Forex market then becomes a negative-sum game.
We can never totally avoid losses when trading on the Forex markets. But choosing a broker with a good reputation and a faultless track record is certainly one way to avoid being taken in by a scam or fraudulent scheme.