Wherever there are large sums of money involved, the darker elements of society are never far behind. Attracted by the opportunity to fleece unsuspecting investors of their hard-earned cash, many scammers abound in the FX, or Forex, trading industry. Forex Scams are not uncommon. We have seen many such examples emerge over the years. Here are a couple of things to look out for whether you are an experienced trader or a complete novice. You would be surprised at who falls for the silvery-tongue and promises of these operators.
The first step to take to avoid becoming a victim of a Forex scam is to make sure you open an account with a regulated broker. There are many jurisdictions that regulate Forex and CFD trading but we would suggest you look at the bigger ones. FCA in the UK, ASIC in Australia, Cysec in Cyprus and of course the FSB in South Africa. Don’t take the brokers word for it, check them out online and make sure they are regulated. It is easy to put regulation on a website so use the resources available to you such as, https://www.fsb.co.za/fais/search_fsp.htm. Call them and understand what they stand for. Do not get pressured into opening an account unless you feel 100% comfortable.
How did you hear about them?
This relates not only to the broker but also to the person that introduces you to forex trading. Was it someone that you know well or simply a post you read on Facebook? If it was someone you know well then take some time to question them and understand how their introducing you, might benefit them. If there is any doubt in your mind, walk away and do some research yourself.
Another popular way to get the message across is through social media or elaborate advertising ploys. We see a post on Facebook where someone is offering you free signals or tools to help you buy a Ferrari after just 6 months of trading. Too good to be true … absolutely! Forex trading takes time to master and is not a get-rich-quick scheme. It is also worth noting that anyone with the “secret formula” to great riches is unlikely to give it away for free or for $10 per month.
EA’s or Auto-Trading Systems
The popularity of automated trading solutions has really increased over the years. MT4 and Metaquotes offer a market place for thousands of “black-boxes” whose profitability and trading strategies vary greatly. Many may have been successful in the past but as market conditions change, their results may vary too. I am always struck as to who would sell their intellectual property for such small sums if they really do work.
The most common one that surfaces, is guaranteed returns. You may be approached to invest your money with an organisation that will trade your account for you and promise a monthly return for as long as you keep your money with them. They are usually immaculately dressed in the most expensive clothing and may even own expensive cars. Some may have caught the bus to see you but how are you the know!
The only investment product that I am aware of that offers guaranteed returns, is a government bond. Usually a few % per year and even they sometimes default. Anyone remember Argentina in 2014? Many of these conmen offer up to 50% of your invested capital guaranteed PER MONTH. These levels of return are clearly unsustainable and almost always require other investors to continue adding to the pot. More commonly known as a Ponzi scheme. For those who would like to know more about Ponzi schemes, read the life and times of Bernie Madoff – https://en.wikipedia.org/wiki/Bernard_Madoff
If you speak to someone offering guaranteed returns in FX, run a mile. It is a risky trading product and while there are people who can consistently make money trading, none of them will offer a guarantee.
If you ever find yourself in a position where your broker or investment “manger” is not allowing you to withdraw your funds or return your investment, then alarm bells should be ringing. There should be no reason that it takes more than a few days for your funds to be returned.
There are some great opportunities to be found in trading the FX market but there are also some inherent risks. Make sure you are aware of them and do your best to avoid falling victim to anything other than market risk!