A Comprehensive Overview of Current Popular Forex Scam Types

In the forex market, many victims of forex scams are either individual traders or retail forex investors, and the number of these victims continues to rise. However, it is important to note that as investors, we should not be misled by deceptive appearances while trading forex.

Although most investors today are educated and possess a certain level of anti-fraud awareness, there are still many novice investors who fall prey to scams. This may be due to the ever-changing nature of forex scam tactics, making them difficult to anticipate. However, it is largely attributed to investors' excessive self-confidence. In this article, we have compiled a comprehensive list of current popular forex scam types and provided effective methods for identifying them, as presented by WikiFX.

Scam Type 1: Unlicensed Forex Brokers or Dealers

Retail forex and contract for difference (CFD) trading is strictly regulated in some parts of the world. For example, the National Futures Association (NFA) in the United States, the Financial Conduct Authority (FCA) in the UK, the Australian Securities and Investments Commission (ASIC), the Cyprus Securities and Exchange Commission (CYSEC), and the Financial Sector Conduct Authority (FSCA) in South Africa, among others.

However, retail forex trading is unregulated in many countries, which means that any forex broker operating in unregulated jurisdictions is conducting business through foreign licenses from offshore regulatory bodies.

A study conducted by a reputable UK-based forex brokerage revealed that forex trading is unregulated in most parts of Africa and Asia. Despite this lack of regulation, many foreign CFD brokers still accept clients from these regions and actively promote unrestricted forex trading.

While there are reputable forex brokers with good regulatory records in multiple regions, there are still inherent trading risks associated with their offshore operations in countries where forex trading is prohibited.

However, our greater concern should be with unlicensed forex brokers that offer trading platforms to the public, as investors may face difficulties withdrawing funds or realizing substantial profits.

Based on experience, before choosing any forex broker, it is advisable to visit the website of the relevant regulatory authority and check for a list of licensed forex brokers in your country or licensed companies that are subject to strict oversight overseas.

If forex and CFD trading is prohibited in your country, there may be a gray area where it lacks regulation but is not illegal. In such cases, if you still wish to trade, it is crucial to avoid any unregulated brokers. Always verify the forex broker you plan to open an account with on the regulatory authority's website to ensure they are authorized and legitimate.

Scam Type 2 - False Signal Sellers

In recent years, trading signals and automated trading robots have become increasingly popular, and fraudsters have seized the opportunity to make money. These forex EAs (Expert Advisors) claim to automatically provide signals on when to enter or exit trades, making it appear easier to make profits. However, they are often riddled with various schemes.

Signal sellers may boast a 98% success rate for their signals and require upfront payment from investors. The problem is that in most cases, these signals cannot guarantee effectiveness. These scams primarily target inexperienced investors who are eager to make profits and are searching for a quick and effortless way to make money.

Prior to using trading signals, investors may only engage in a few manual trades per day. However, the high frequency of trading signals misleads investors into frequent trading, which not only increases transaction costs but also exposes their capital to greater risks.

Forex robots are best used as a supplementary tool for technical analysis, helping to identify trading opportunities. However, they should not be relied upon to predict the market or make final trading decisions.

Scam Type 3 - Price Manipulation

Most forex brokers offer standard accounts with spreads but no commissions. However, they compensate for this through the spreads. The spread refers to the difference between the buying and selling prices of a currency pair.

Major currency pairs like EUR/USD have smaller spreads due to their high trading volume, while emerging market currency pairs have larger spreads. When prices are manipulated, you will notice significantly larger spreads for major currency pairs like EUR/USD.

Brokers may claim that their spreads are higher than those offered by other brokers because they have direct connections with banks or come up with other fabricated reasons. Investors should inquire with other brokers to see what spreads they offer for the relevant currency pairs. Typically, for standard accounts with no fees, the spread for EUR/USD ranges from 0.7 to 1 pip.

Additionally, there can be instances of price slippage, where the buying and selling prices of a currency pair change instantly between the time of trade initiation and execution. This can occur due to network issues slowing down trade execution or simply as a result of currency volatility in the forex market.

Are instances of slippage too frequent？ Unscrupulous forex brokers can take advantage of this by delaying order execution until the exchange rate of the currency pair drops, triggering the investor's stop-loss order.

To avoid such situations, some brokers, like CMC Markets, offer Guaranteed Stop-Loss Orders (GSLO) that allow investors to hedge against the risk of slippage. However, this may involve paying additional fees or higher margin requirements.

Investors should conduct thorough background checks on forex brokers and read user reviews to determine if there have been any complaints regarding price manipulation or any illegal activities. While the authenticity of many user reviews may be uncertain, they can still serve as a comparative reference to evaluate brokers.

Scam Type 4 - Ponzi Schemes and Pyramid Schemes

Ponzi schemes and High-Yield Investment Programs (HYIPs) gather resources from unsuspecting retail investors to invest in forex trading or other assets. They operate similar to funds, pooling capital to make investments on behalf of clients.

They promise exceptionally high returns to lure in more victims. Because Ponzi schemes use funds from new investors to pay the initial investors, they create an illusion of legitimacy. As investors see their investments grow, they are convinced to put more money into the scheme or recruit more people to participate.

Once a significant amount of money has been accumulated from victims, the scheme abruptly stops making payments, and the managers of the Ponzi scheme close down the operation, fleeing with the funds.

Forex pyramid schemes and multi-level marketing typically involve a forex company that owns a trading platform and aims to attract more investors to their platform using pyramid techniques. In this technique, each person at the top recruits two people who will be beneath them in the pyramid. These two people then recruit three more people, and the pyramid continues to grow.

With each recruit, the person at the top receives a commission. The higher one's position in the pyramid, the greater the commission earned. Scammers can exploit such schemes by enticing victims to visit their company and sell forex videos, signals, and other products. Investors should always inquire, investigate, and verify whether the chosen forex company has relevant qualifications. They should also check if the company is regulated by relevant regulatory authorities and if it is authorized to handle public funds for investment.

Scam Type 5 - Promises of Rewards and Bonuses

The forex market can be highly volatile, and margin trading carries significant risk of loss. That's why major regulatory authorities require brokers to display risk disclaimers on their websites, warning potential investors about the dangers involved in forex and contract for difference (CFD) trading. Therefore, if you come across a broker promising high deposit bonuses, it should raise a red flag. These promises of rewards may just be a bait. Most major regulatory authorities do not allow brokers to offer any incentives.

However, small bonuses or rebates can slightly improve the margin of error and reduce trading costs for experienced investors. It is crucial to consider the investor's own trading experience, as bonuses and rewards can be a double-edged sword.

Scam Type 6 - Managed Trading Accounts

An investor who lacks experience or time to engage in forex trading may open a trading account and entrust it to a professional account manager to trade on their behalf. These professionals charge fees for their services. However, scammers also take advantage of this arrangement by offering to manage investors' accounts. They may engage in trades that are not in the best interest of the client or simply abscond with the client's funds.

Investors should investigate the account manager's track record, assess their past success rate, and review their risk management strategies and previous drawdowns to gauge the efficiency of the fund manager. Additionally, the account manager must hold the necessary operating licenses from relevant authorities. Investors should never trust unqualified individuals.

Scam Type 7 - Social Media Scams

Many popular motivational forex videos and advertisements found online often showcase luxury yachts, cars, and other lavish items, giving the impression that the speaker or trading guru has obtained these possessions from forex trading profits. These so-called gurus tend to only discuss the benefits of forex trading while neglecting to mention its drawbacks. Some of them operate or collaborate with unregulated brokerage firms, ultimately deceiving investors.

Market regulatory authorities worldwide have enforced the requirement for forex brokers to display risk disclaimers on their websites. These disclaimers highlight the risks investors face when engaging in trading. Some regulatory bodies go even further, demanding brokers to disclose the percentage of people who have incurred losses from trading with them. This information is often found at the bottom of broker websites. Regulatory authorities have also imposed limitations on the leverage rates that CFD brokers can offer to retail investors.

Exaggerated promotion on social media, profit promises, and any form of enticing advertising are all in violation of regulatory requirements. It is simply not possible for a project to claim it has almost no risk. If it were true, they wouldn't need to share their supposed winning formula.

It is important not to blindly trust any recommendations on social media. The risks of forex trading are difficult to manage, and trading with leverage carries significant dangers.