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How to Avoid Forex Scams

written by: KellenKautzman•edited by: Rebecca Scudder•updated: 3/9/2011

There are a few basic precautions that you can take before you enter the Forex market to see that you are not taken in by Forex scams.

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    Forex Scams

    The foreign exchange business, or Forex as it is referred to, is a market like any other. And like all markets it has its share of shysters and hustlers who are only in it to make money any way they can. There are a few basic precautions that you can take before you enter the forex market to see that you are not taken in by Forex scams.

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    Where is your Forex broker based?

    forex scams A number of Forex brokers are based offshore, where they see the advantage of avoiding regulatory authorities. Make sure you are able to identify the place where your broker is able to operate from and the laws that he is subjected to. Do your research and latch on to a Forex broker who is open and upfront about where he operates from and is easily accessible, even in person if need be.

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    Does your Forex broker also trade?

    If your broker is also a trader, it is quite likely that he will be competing directly with you. You will fall short on any competition with him because he will have far greater trading knowledge and probably deeper pockets.

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    Research your broker

    Your initial information about a broker will come from his web page or some advertising material that you have seen. Go online and visit forums and places where reviews are available. Correspond with people who have used these brokers and get an idea about their customer support, spreads, and ways that they execute trades. Look for news regarding these brokers and if you find any that is derogatory, start looking for other brokers. After all you do not want to risk your money with someone who does not have a good reputation.

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    Market manipulators

    Some Forex brokers earn money by moving the market against the clients. They profit from the client’s losses. In the Forex currency market there is no real marketplace where there a lot of buyers and sellers. You are totally dependent on the Forex currency dealer and his honesty for a fair price as he will decide what the execution price is. Avoid Forex scams by controlling all trades through your broker, limiting his access to your funds to when you want him to trade for you.

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    Your Forex dealer should be registered with a marker regulator and bound by its rules. Check his status with the market regulator and see the compliance report that each dealer has to make to the regulator

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    Warning signs

    • Avoid any company that guarantees huge profits. If this was so easy, there would be no poor investors, and we all know the sad fact that a lot of people have lost money on the market.
    • If the opportunity given by the dealer seems fantastic, stay away from it. Remember always that gains can only come when some one loses, and you could be a loser instead of a gainer.
    • If a dealer assures you that there is no risk in the Forex market, stay away from him. Forex markets are risky and you could just as well lose money instead of making it.
    • Be careful of currency fraud. Dealers play on sentiments to lure you into the market.
    • Make very sure about the security of any payment gateway that you are using as it could make your bank accounts and other details vulnerable if the security on the site is lax.
    • If a broker does not reveal his background and details stay away from him. He may be a fly by night operator only looking for instant gain.

    So make your entry into the Forex market trade with caution. Rely on information given to you by people you know and trust and not the hype of an email or advertisement to avoid possible Forex scams.

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    Wikimedia Commons - Forex Scams - Currency