While forex itself is not a scam, unfortunately, there are plenty of scams out there that are associated with forex. Being a relatively new and fast-growing industry, there are people who go into business simply to take advantage of those who are new to the industry. As regulators are catching up, scammers are finding it more difficult to operate, but it is still important to be on the lookout and to find legitimate and trustworthy options.
Scams and Regulation
There is a significant difference between a scam and a poorly run brokerage company. Not all companies that lose money were a scam and today, it is less common to find scammers than it used to be, primarily due to increased regulations in the industry. Prior to 2007, there were many brokerage companies that closed overnight, disappearing with people’s money. All it took to set up a brokerage was fees of a few thousand dollars and as they were set up in non-regulated countries, there was no recourse. Since 2007, mostly thanks to increased regulations, there has been a sharp decline in the number of scams reported.
Avoiding a Scam
The best way to avoid being scammed is to only do business with a brokerage that is headquartered in a country with regulations. It has become more expensive for a brokerage to do business in a country that is highly regulated, such as the US, so only serious companies will open their doors. However, don’t stop there. It is up to you to do due diligence and look into the brokerage. Read reviews online and on social media. Look into the history of the company and how long they’ve been doing business. Read the company policies and speak to a real person. Open a demo account and trade via the demo account for a while. Once you’re happy with that, trade with the smallest amount of capital that you can. Make sure to request a withdrawal of your funds and see how simple it is to get your money when you want it.
Types of Forex Trading Scams
We’ve spoken about brokers who can scam you, but there are other ways you can be scammed as well. Signal sellers use a system, which may be automated or manual, that is supposed to identify favorable times to buy or sell a currency pair. Signal sellers charge daily, weekly or monthly fees. Many analysts suggest that the scam is that no system can guarantee an outcome, or everyone would be using it. Forex investment management funds are also commonly a scam. These funds guarantee outstanding market returns for a share in the profits. The investor gives up control of his money in order to have all of his forex trades managed by a skilled trader. The problem is that there can be no guaranteed high returns and if anyone promises this, they are generally scamming you. Knowing what to look out for can help you avoid putting your money into a scam where it will inevitably be lost.