Spotting Foreign Exchange Scams

Spotting Scams in Foreign Exchange

The amount of money being traded in the foreign exchange market lays it bare to scammers.  Add to that the fact that it is an unregulated market with no central exchange and forex scams can only but increase.  The existing regulatory bodies have managed to outlaw some of the old scams that existed, however there are new ones that appear on a regular basis.

Historical Scams

One of the main scams in the past was the manipulation of bid and ask spreads.  This is normally where forex brokers earn their money.  These spreads differ between brokers and currency pairs.  The scam enters the arena when there is a major difference between spreads among forex brokers.  You may find that the broker does not offer the normal two to three point spread that is common with the EUR/USD pair, but spreads of as much as seven pips or more may be offered.  When you do the calculation of this variance on the level of transactions that are undertaken on a daily basis, the profit margin for most traders erodes very quickly.

This scam is not as prevalent as it used to be due to the intervention of the regulatory bodies.  However, you should take care if you work with a broker who is not regulated.

Signal Sellers

One of the popular scams nowadays is the signal seller.  Signal sellers try to impress you with their trading abilities and supposed long years in the foreign exchange market.  To gain the advantage of all this experience and knowledge, all you have to do is hand over a specified amount of cash and they will provide you with recommendations on how to place trades.  All that normally happens is that they collect these cash amounts from a number of people and then they disappear.  Some of them may send you a couple of good recommendation simply to extend the scam and the payments to them.  This type of scam is on the increase, but you can still find reputable and honest signal providers out there.

Foreign Exchange Trading Systems

This is a scam that has been around for quite a while and is not going away.  Individuals or companies promote their trading systems as the ultimate automatic robot trader that will make vast amounts of profits on your behalf while you sleep.

The one problem with this is that these systems have not been tested by an independent source to provide traders with genuine reviews.  The factors that should be examined are the parameters and optimisation codes that have been used.  If these two factors are invalid, the system is simply generating random buy and sell recommendations that provides traders with nothing more than a pure gamble on currency pair valuations.  To avoid this type of scam, you should only deal with reputable firms or individuals.  There are tested systems on the market and you should ensure that you opt for one of these.

You should be wary when it comes to new systems and forex brokers.  It is possible to check on forex brokers before you register.  There are many online reviews and you should communicate with other traders regarding the brokers they make use of.  There will always be new forex scams out there and you should be alert to ridiculous claims about making money overnight and for no work at all.



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