Learn to Trade

Detect Forex Scams from Far Away: Just Ask These Questions

By Rob on September 16, 2016

Reading Time: 5 minutes

Long gone are the old days when trading was like the “Wild West,” dangerous and unregulated, and a haven for unscrupulous Forex scams. Here’s a bit of truth, though: Forex scams, while considerably more scarce than in years past, have evolved so that some still do pop up from time to time, doing quite a disservice to reputable brokers, and the legitimate service and education providers among us in the process.

Actually, it just so happens that I found and took action against one such scam this past week. This one wasn’t at all clever or inconspicuous—it spammed my social media pages with self-promotion, after all—but some Forex scams could be much harder to spot. So, to ensure you stay protected, here are some revealing questions to ask yourself, and your Forex product and service providers, to make sure you keep Forex scams at bay and only align with parties that are worthy of your trust and hard-earned capital.

Is It Regulated by a Proper Governing Body?

In days gone by, many of the most common Forex scams were all about computerized manipulation of bid/ask spreads, practices that have since become prime targets of regulatory agencies in the US, UK, and other nations worldwide. And in large part, that’s why a retail trader’s best line of defense against Forex scams is choosing a broker that’s licensed and regulated by the major governing body (or bodies) in their home nation.

Going offshore in search of a low-price broker, or being enticed by lofty promises like “The tightest spreads,” opening account bonuses, or cash-back incentives can leave traders vulnerable to Forex scams, as the protections and ongoing diligence afforded to traders by the regulatory bodies at home won’t follow in those cases. So the takeaway is simple: Be wary of any broker not bound by the legal and regulatory agencies in the nation where you trade.

Can You Quickly and Easily Withdraw Funds at Any Time?

Especially with the advancement of the Internet, Forex scams are nimble these days, and can pop up and disappear at seemingly a moment’s notice. That’s why retail traders have to be diligent, ensuring that any company they decide to work with has a valid street address, a dedicated phone line they can call to speak to a real person, and no restrictions about withdrawing funds from any account.

See related: 2 Truths and a Lie about Currency Trading

It’s your money, after all, and you should be able to access it quickly, easily, and on demand. These are important questions to ask of any broker or Forex provider, and you’ll want to avoid any that say “No” to any of the customer service-related inquiries noted above, as devoted service is provided by reputable companies, but ignored by Forex scams that just want your money.

Has the System Been Independently Tested and Verified?

Who among us hasn’t seen clever marketing pieces or a late-night infomercial for some trading system or methodology that they say generates double- or triple-digit profits, and they have the stats to prove it? Well, some methods might produce impressive performance results indeed, but retail Forex traders shouldn’t just take their word for it. Stats can easily be manipulated and important facts hidden for the sake of marketing.

If a system has been independently tested and its results verified by an unbiased third party, however, then it may warrant more confidence and help weed out some Forex scams in the process. You see, Forex scams can make whatever promises they want—it’s an illegitimate business anyway—but far fewer would go through the added effort and bear the expense of an independent audit, nor would a scam be likely to pass such a test. So if any product or method in question does, it shows that not only does the system or method in question hold up to scrutiny, but the people and company behind it are open and transparent enough to allow that scrutiny, and that’s how you separate Forex scams from legitimate trading operations.

Do You Have Segregated Account Protection?

In nations where Forex regulation and controls have gotten more advanced, there are rules that enable retail Forex traders to opt out of their funds being “commingled” into a single asset pool where it then becomes impossible to track the performance of your individual investment. This is called opting for “segregated account protection,” which is intended to prevent Forex scams by way of increased transparency.

There have been plenty of instances where commingled funds were used to pay exorbitant salaries and bonuses, fund Ponzi schemes, or simply mask the manager’s underperformance, and in more exotic locales and nations where Forex regulation hasn’t kept pace with, say, the UK and United States, protections aren’t in place to safeguard traders and their assets.

3 Modern Facts about Forex Scams

Here’s the good news in closing: Forex scams aren’t as prevalent today as they have been in years past, so even though we’re discussing risk factors and how to stay protected, traders shouldn’t feel like they are vulnerable and constantly under fire from unscrupulous scammers. In fact:

Today, aided by increased regulations and the evolution of the Forex industry, there are significantly fewer Forex scams and more honest, reputable Forex providers than ever.
High-performing trading systems don’t cost thousands anymore. In fact, for a few hundred bucks or less, it’s possible to get started with a system or methodology that’s proven, sensible, and powerful. So, if ever someone can’t (or won’t) tell you how something works, or they promise unbelievable results in return for paying a premium price, it probably is exactly what it sounds like: Too good to be true.
Traders have a wealth of resources at their fingertips for identifying and combatting Forex scams. From the regulatory agencies and their web sites, to consumer protection groups, and even Forex industry-specific entities. Now, with information easily within reach, it’s easier than ever to conduct your own due diligence about individuals, companies, and trading methods, so be sure to be your own advocate and watchdog before committing any of your own, hard-earned capital.