Avoiding Forex Trading Scams

There’s no end to the trading scams that plague foreign exchange (forex) traders who are too willing to believe the unbelievable. Nearly all of them could be avoided by even the most inexperienced FX traders if they kept this simple rule in mind:

If it sounds too good to be true, it probably IS too good to be true.

Unfortunately, far too many people forget those words when greed takes over their common sense.

According to the United States Commodity Futures Trading Commission (CFTC), the U.S. government agency that is charge regulating commodity futures and options markets in the United States, there has been a marked increase in FX trading scams in the last couple of years and they expect those numbers to keep rising as more and more investors discover the Foreign Exchange market.

One of the most common trading scams involves the promise of easy or fast money. These promises take many forms but they all have one thing in common theyre lies, and they frequently go something like this:

  • I’ll show you how to make thousands of dollars every week, guaranteed!
  • “Our secret method outperforms 90% of all domestic investments!”
  • “There are no bear markets in Forex. You can’t lose!
  • “Make a 30-40% rate of return, every month, we guarantee it!

These are the kinds of claims that people are receiving in their snail mail and e-mail every day. Worse, thousands of people actually fall for these scams.

These scams usually come attached to offers including:

Forex Trading Ebooks

Many of Forex trading ebooks claim to offer “FX Training” or some Perfect Forex Trading System. These are nothing but a scam. They often have a big price tag too. Avoid at all costs!

Forex Trading Forecast

Many traders would like you to believe they are so good at predicting the forex market, you should pay to hear their predictions! These are complete nonsense and should be avoided.

Currency Trading Signals

These are similar to forex forecasts, except they actually send you a FX Trading Signal signal via email, sms etc telling you to place a trade. It is my view that these are often setup by people who can not trade profitably and have moved their efforts to selling signals. Many of these companies have their past performance on their website. In my experience, most of the past performance claims are complete nonsense. Also, let’s look at it from their point of view, they can come up with a fx trading system and let people pay them to see if it works or not on a live account. Not a bad deal for them, huh? These can also be known as “Forex Alerts” or “Forex Services”.

Currency Trading Seminars and FX Training

Let’s do an FX Trading seminar? Doesn’t that sound appealing. Do the Seminar and then be able to go and make money trading FX. Most of the time, it doesn’t quite work like that. I am not saying all FX training programs are scams, but certainly the vast majority of them are. They can be extremely expensive too! Save your money for your currency trading account! I have seen many claim to be the “Top Forex Trading course”, often costing several thousand dollars. Many of these FX Courses do not teach anything that is not freely available online at forex trading sites like this.

Managed Forex Account Scam

Many Managed Forex Accounts are scams. They are offered by traders who know they cannot successfully. In other words they suck. They market their forex managed accounts offering high returns to hopeless investors. They can trade other peoples money at no risk to themselves. Sometimes they even get paid for each trader they make regardless if it wins or loses, encouraging them to make more trades. Not all Forex Managed Accounts are scams, but the vast majority are. If you want to invest, do thorough due diligence.

Other things to look out for:

  • FX traders who will manage your trades for you. All you do is send them money.
  • FX Traders who reveal their insider secrets to you when you buy their e-book or sign up for their training course.
  • FX traders who sell foolproof software trading platforms, or manual systems that make all of the decisions for you.

Even the most proficient FX traders in the world rarely end up on the winning end of a trade more than 65% of the time, with 45% being the norm. This means that anyone who is claiming higher success rates, especially in the range of 90% or better, should start smelling funny to you the moment you read their claims.

Secondly, if there were traders who were able to achieve such magnificent results, why in the world would they even think about selling those secrets to the average trader? They could simply utilize their secrets every day and become billionaires by year’s end. Are you starting to smell anything suspicious yet? You should be.

There is another type of FX trading scam that is not so easy to spot, unfortunately. And that’s because these scammers do not make outrageous claims. They simply go about methodically stealing your money once they get their hands on it. Well, not always stealing it directly, but defrauding you of it nonetheless. Here’s an excellent case in point:

In October 2005 a brokerage house named Refco, arguably the largest and most esteemed FX broker in the world, filed bankruptcy after the CEO became involved in a billion-dollar scandal that, when exposed, brought the company to its financial knees and ultimately destroyed it.

Now, even though none of that billion dollars belonged to the over 17,000 investors who had accounts with Refco, they lost every penny in their investment accounts nonetheless. Here’s how that happened.

As the case wound its way through the bankruptcy courts, some of the largest creditors, including big names like Bank of America and others, succeeded in convincing the bankruptcy court that those 17,000+ customers were actually unsecured creditors and they would have to stand in line behind all of the secured creditors in order to get at least some of their money back. The problem was, of course, there wasn’t enough money to pay both the secured and unsecured creditors, so these 17,000+ traders, people just like you and me, lost it all in minutes after the decision by the court was affirmed.

This was able to occur because Refco did not segregate their investors accounts from their general funds and, as a result, these accounts were not protected from creditors. And the rest, as they say, is history.

I hope that this article has helped you develop your nose for scams and that you’ll always ask questions, the right questions, before you invest in the FX market.