How to Spot a Forex Scam
One can spot a forex scam by looking for the following characteristics:
Offers come from unregistered and unregulated entities - You need to check your local regulator to determine if the broker you are considering is in good standing with the relevant regulatory bodies. In the US, these entities include the CFTC and the NFA. To determine if someone is registered and licensed to accept funds for the purposes of speculative trading, you can contact the CFTC. To get information regarding any action that was taken against a registrant you can use the National Futures Association’s (NFA) Background Affiliation Status Information Center (BASIC), which can be accessed at: www.nfa.futures.org/basic.
Sounds too good to be true – This is a time-tested way of spotting a scam; if it is too good to be true it probably is.
Promise huge profits with limited risk – Especially in the case where high leveraging is used, most traders will lose a significant amount of their trading account within a year of active trading; offers of risk free trading is a lie, so too is the promise of guaranteed gains.
Trading system scam – A popular forex scam involves someone claiming to be a master trader who has made lots of money for his or her clientèle. They may also sell membership for traders to get access to their “unflappable" trading signals. The scammer may actually give trading signals, but the actual performance of the trading system may be nothing near the performance that was claimed. When traders complain about not getting the promised results, they may rebut by claiming that the trader did not execute the signal as given or simply blame the system’s less than stellar performance on adverse market conditions. What these scammers often do is collect a good amount of money from unsuspecting persons and then disappear.
High priced trading systems – You really should question the legitimacy of anyone who sells their trading system at a very high price. Think about it, if they are so good at trading, doesn’t it make sense for them to try to claim a share of the more than $1 trillion-a-day forex market than it is for them to try and pry a few thousand dollars out of the hands of gullible investors. Anyone who asks investors to purchase their trading system for thousands of dollars probably doesn’t have the interest of his investors at heart. This should cause a potential investor to be wary of any lofty performance claims.
Truly, one of the best defenses investors have against forex scams is education. If an offer is too good to be true, it probably is. It is important to read reviews from past customers on the quality of customer support, and performance levels before investing your money. It is also a good idea to check with regulators to see if the entity is registered and is in good standing before investing your money.
For more tips and strategies, be sure to check out the other items in Bright Hub's Collection of Forex Trading Guides.