Investing online can be risky, especially in the world of the Foreign Exchange Market. Forex scams run rampant in the world of online trading, fuelled by scammers that are protected by the anonymity of trading online. Recognizing a dangerous broker in time can protect investors from serious consequences.
Investing online, or trading (buying, selling or investing in financial instruments), is as accessible and easy as it is risky.
The combination of internet/retail brokers (brokers that meet the needs of individual customers) has given everyone anywhere the opportunity to trade. This has opened the door to anyone at any experience level and in any financial bracket to invest, creating opportunities for legitimate brokers, but also scam artists.
Foreign exchange fraud is defined as any commercial scheme used to defraud traders through persuasion, through the act of convincing investors to expect high profits by trading on the foreign exchange market. The foreign exchange market is a zero-sum game, that is, what one gains another loses.
For each case of Forex exchange fraud, a legal protection system has been developed consisting of lawyers specialized in trading, and in particular Forex, who investigate all possible methods to recover money for investors who have lost by trading.
Forex scam methods
Contents
There are several ways that investors are entrapped by Forex scammers, be it via telephone marketing (including SMS messaging and Whatsapp), emails, or advertising. All of these methods promote attractive investment proposals, promising high rewards with little effort in a short period of time. Regardless of the method they choose to employ, these fraudsters are almost always extremely persistent and aggressive.
Forex phone scams
Receiving unsolicited telephone marketing calls (also known as cold calling) selling everything from vacation packages to TV subscriptions are by now commonplace for anyone with a telephone.
Although many of these calls are concluded with a polite "I'm sorry, I'm not interested right now", an average of 1% to 4% of these calls are successful, this small percentage is enough to continue to drive the practice.
Generally, a Forex phone scam will try and grab your attention immediately – within seconds, the caller will either 1. Present an opportunity to invest nearly nothing and receive inflated profits, or 2. Present themselves as a professional trading consultant representing a Forex broker. Although a small percentage of these calls may be legitimate, the majority turn out to be Forex scams.
Email, SMS and Whatsapp Forex Scams
Similar to the Forex phone scams, Email, SMS and Whatsapp messages from phony brokers are becoming more and more common. Once again, it is always important to be vigilant when it comes to any unsolicited messages, whatever format it takes.
Forex advertising link scams
This method of forex scamming is found in website advertisements or advertisements found on social networking platforms, such as Facebook or Instagram.
They are often accompanied by photos of well-known personalities from the world of business or entertainment, who have nearly never authorized the use of their image. These images are used because they unconsciously arouse curiosity and thus influences the viewer to click and find out more.
Another tactic used in these marketing schemes is the narrative "from rags to riches", which utilizes visuals to share a tale of transformation of someone who once struggled to make ends meet, but now is living the highlife; all thanks to Forex investments.
Spot the signs: tricks to identify legitimate vs. phony Forex schemes
Trading in Forex and CFDs normally takes time to become profitable, so be wary of any forex broker who presents an opportunity to "get rich quick", or to make high and fast returns on modest investments.
One can certainly earn money on the Forex market, but it is almost never easy or quick.
Phony Forex brokers generally present themselves to prospective clients in a very amicable way; inquiring about the client's personal lives, choosing to assume a more friendly demeanour over a professional one.
Oftentimes, the information they collect from clients in regard to their personal lives serve as fodder for their manipulative tactics, which are utilized throughout the course of the client's investments. These "relationships" that the client and the Forex broker build is created largely through manipulation on behalf of the brokers.
This is why, although cordiality is always appreciated, a reputable broker should always conduct themselves with clients in a professional manner.
Reputable Forex brokers should also never discourage their clients from self-educating on trading, or about the Foreign Exchange market in general. This is another tactic that phony brokers utilize; they discourage their clients from becoming educated about trading, and instead encourage them to trust the broker's "expertise and leave the decision making up to them". By doing this, they are able to make decisions on behalf of their clients that are not in their best interests.
Key Warning signs of a Forex Scammer
- You didn't seek them
out
If you are persistently contacted by a Forex broker company that you have not personally contacted, proceed attentively. It is always better to inquire through acquaintances or trusted reviews rather than responding to an unsolicited message or phone call.
- They are very
aggressive
Broker operators who operate forex scams utilize more coercive and aggressive methods than reputable brokers. They generally do not respond to requests to stop contact and will utilize different persuasive methods to do everything in their power to convince you to spend your money.
- They promise exaggerated
returns
A classic indicator of a Forex scam are exaggerated returns on small investments. Promises of high and/or guaranteed returns, when investing in Forex, are a big warning sign. These "guarantees" are nearly impossible to predict, as returns are dependent on an extremely volatile market.
- They offer a high
spread
The normal spread ranges (or relative value trade ranges) from two to three points in EUR/USD. Beware of those who offer spreads of seven pips (the smallest price movements. Most major currency pairs have a price of four decimal places, so the smallest variation is that of the last decimal point). - They present complicated
"Terms of Use" and "Risk Disclosures"
Forex scammers take advantage of complicated jargon and lengthy 'terms of use' agreements and 'risk disclosures'. The importance of these agreements are that they are binding and each clause can hide disadvantages for the investor who may have to find other ways to recover losses in trading.
Red Flags
If you are investing through a Forex broker, it is recommended to always be diligent, by keeping up-to-date with your trades and being constantly informed of any changes in regards to your investments or account.
When to worry:
- If you are unable to
withdraw
If you try to withdraw funds from your account and are unable to do so, be alarmed. If, upon inquiring as to why you are unable to withdraw your money, the broker makes an unclear apology or does not respond to your inquiry, there is certainly cause for alarm. - The broker is
blacklisted
By now many investors inquire about the broker's credentials before accepting them to manage their account, and if they are well reviewed and their license is in order, it is more likely that one can invest their money with confidence. It is possible, however, that "pending licenses" may occur, or that the situation changes where a license is suspended, or a broker comes under investigation. For this reason, it is advised to periodically check websites of regulatory bodies (Consob for Italy, Cysec for Cyprus, FCA for Great Britain, NFA for the United States, etc.) to verify that the broker's legal standing has not changed).
Fraud risk operations
Forex Management Funds
Forex Management Funds offer investors the opportunity to have their Forex transactions carried out by highly qualified traders, who can offer exceptional market returns in exchange for a share of profits.
Forex robots
Traders have the choice of whether to trade manually or use an automatic trading tool, also known as a Forex Robot.
Forex Robots are legitimate trading programs that utilize algorithms as technical signals for entering and exiting trades at optimal timing.
As with all trading opportunities, before relying on a forex robot, research should be done that can distinguish reliable operations.
Infamous Forex Scams
The Ponzi/Forex Pyramid Scheme
Oftentimes, Ponzi schemes are difficult to recognize for what they are, especially in the beginning stages. Ponzi schemes are phony investing scams which guarantee high returns with limited risks. Ponzi schemes generate returns for prior investors by acquiring new investors. This is similar to a pyramid scheme, for both operate by using new investors' funds to pay earlier investors.
Most scammers who implement Ponzi schemes don't actually invest in the Forex market; instead, the money is cycled internally, being given to earlier "investors" to stage returns that don't exist. The continual and growing membership of "investors" allows some of these Ponzi schemes to go on for years.
HYIP Forex
A very popular scam uses 'High Yield Investment Programs', or HYIPs.
HYIPs are the most elaborate forms of Forex Ponzi schemes, for they generally pay the interests of investors, or guarantee a high return on their capital, using the money of new investors.
Arguably the most unfortunate result of this type of Forex Ponzi Scheme is that those who invest are well motivated to involve friends and relatives, who end up being defrauded in turn.
As often happens in these situations, the money of the forex trader is never actually placed on the market, but simply diverted to either be deposited in the scammers' accounts, or to pay new investors to temporarily gain their trust.
Computerized manipulation of the bid-ask Forex spreads
An old forex scam is based on the computerized manipulation of bid-ask spreads. Fraudsters offer large bid-ask spreads (at least 7 pips) on certain currency pairs, making it more difficult to earn profits on trades, indeed, any potential gains deriving from a good investment are cancelled by the commissions, which end up in the pockets of the brokers.
Spreads have begun to be regulated better, with only minor spreads being allowed.
Solely with retail Forex brokers, which are not regulated by the regulatory authorities, can still execute such scams.
The Signal-Seller scam
Fraudsters love to sell systems that offer programs at exorbitant prices, a price justified by the guarantee of incredible investment returns. A very popular Forex scam is that of the 'signal seller'.
Signal sellers are retail companies that offer a system at a daily, weekly or monthly rate, which prides itself on identifying favourable moments to buy or sell a currency pair that will succeed in pulling in high profits.
Debt recovery in online trading is not simple, but neither is it impossible. If you have come across a scammer, or an alleged scammer, to whom you have entrusted your money, know that the best way to facilitate the recovery of what you have invested by relying on a trusted law firm which specializes in Forex Litigation.
No lawyer can guarantee the recovery of the entire amount lost in trading, but a reputable firm will certainly do their utmost with the right tools to recover as much as possible.
Our lawyers with the Boccadutri law firm's Forex Litigation Department have successfully assisted many clients in the recovery of their investments. We have a privileged relationship with the regulatory authorities and have been chosen by the Forex Peace Army, the most comprehensive website that informs the public on brokers and scams in progress, to help investors prevent (and victims recover) trading losses.
The opening of the Cyprus office physically places us in one of the most prosperous territories for the Forex market, making our firm in an even more advantageous position to execute Forex Scam Litigation.
Each situation has its own peculiarities, which is why our team studies each case and communicates with clients prior to instruction, to best determine the most optimal route in recovering funds invested.
Originally published May 7, 2020.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
