How to recognise the top forex scams and what to do so you don’t get caught by them…
As I pointed out in the previous section (Forex Scam) the major scam in the forex market has to do with the majority of forex sites themselves.
Due to forex trading’s popularity the Internet has been flooded with fly-by-nighters and other scamsters setting up websites to trap the unwary and the uninitiated.
The following list should help the forex newbie to identify these ripoffs.
All that glitters is not necessarily gold!
1 Sites that indulge in obvious theft
I found several perfect examples of this when I was doing research for the best Free Forex Books. I lost count of the websites that were offering free downloads of obviously copyrighted material without any indication that they had the author’s or publisher’s okay to do so.
If you ever see an example of this, be wary of doing business with such people. Almost always, it will be the case that they have simply stolen the material and posted it on their site. Once more, if they’re prepared to do that to copyright holders do you really expect to get a more honest deal out of them, being a total stranger?
2 Sites that make ridiculous statements like “Trading the Euro Is Easy!”
Yeah, sure it is, that’s why 90% of new traders go broke within six months! The simple fact is that trading is not easy, but it can be learned. Beware the websites peddling products based on the premise that trading is not hard. Look for websites speaking the truth upfront while giving you valuable information that you can use in your ongoing education as a forex trader.
3 Brokers that manipulates spreads
It has to be said upfront that all brokers either manipulate the spread by adding to it in order to cover their costs and make a profit, or else they make their money by charging a commission fee on each transaction while giving you an unchanged spread.
It gets to be fraudulent when they change the spread in order to make you lose, either at news release times or when you start making too much money off them, in the case of a bucket shop broker.
This one is difficult to monitor. One broker I used had very good, honest spreads for a period of about two years. An incoming management team changed the business model and suddenly the spreads were no longer flexible – in line with the changing interbank spreads – but fixed. And fixed really was the term for it: my average spread on the AUDUSD went from 1.5 pips to more than 3.0 pips!
To add insult to injury the broker claimed that they were “smoothing the spread” in order to give better service to their customers!
Bottom line: constant vigilance is required with respect to brokers.
4 Firms that recommend other firms to maximise their own profit rather than giving a genuine ‘best’ recommendation
I had a perfect example just a few weeks ago. A forex consultancy with an otherwise good track record and reputation invited me to sign up for their signal service.
Unfortunately the service was based on setting up an account with FXCM. This is a broker I do not recommend on two counts: firstly because they have been publicly reprimanded and fined by the CFTC for acting as an ‘Unregistered Retail Forex Exchange Dealer’ in the US, and secondly because their spreads are so high.
The reason they got the recommendation in this case is obviously because of their high spreads: it allows them to pay a greater kickback to the firm that is recommending them!
Bottom line: always investigate a ‘recommended’ firm independently
5 Sites that obviously play to themes likely to appeal to your weaker nature, for example sexism or greed.
|You know the ones I mean:The broker sites with the beautiful girl just waiting to take your call, or the ecstatic guy dancing in a shower of dollars he won using that ‘special’ brokerage or buying a site’s products.Do we really think there’s a stunning girl on the end of the line, or that we can make money fall from the sky?Of course not. But such imagery plays on our subconscious psychological triggers, perhaps putting us in a more receptive frame of mind for the sales spiel.|
Reality Check guys: you won’t get rich overnight and you won’t get “lucky!”, no matter how much you pay them 🙂
All this isn’t to say that any site using these tactics is suspect, but it should put you on alert. Be very careful reading the fine print in any deal with such a firm.
Bottom line: if the product they are selling you is good enough it should stand on its own merits, and be amply supported by verifiable facts.
6 Automated forex trading systems or forex robots that have no track record
You may know by now that I do recommend some forex robots. There are many however that are advertised as having fantastic performance records, without any real evidence to back up these claims.
Always do your home work when looking at forex robots or indeed forex systems in general. If you’re going to be paying money for it, you want to know the system has a proven track record.
How do you get that? The better offerings will be verified by Myfxbook or a similar service. Such verification is especially important in the case of automated forex trading systems.
Beware the vendors who only provide screenshots of accounts or Excel spreadsheets etc. It is just so simple for the fraudsters to make these up!
7 Websites that appear out of nowhere with something to sell
If a website is trying to sell you something, look for some kind of track record or reputation for honesty. Forex Peace Army and other review sites are a good place to start.
Of course, lack of longevity in itself doesn’t mean a website is suspect, just that you should do a little digging before you consider forking over any cash.
Bottom line: beware the website coming out of nowhere, with no “visible means of reputation support”, just slickness, bluster and wild claims!
8 Brokers that misuse the MT4 Virtual Dealer Plug-In
This is software that brokers can buy from Metaquotes, the vendors of Metatrader. It allows brokers to potentially manipulate clients’ trades in the following ways:
- delaying orders by several seconds in order to give clients a less favourable price
- increasing spreads so stop losses get triggered
- modifying, freezing or deleting orders at news events
|…and several other little nasties.Despite the fact that the NFA and other regulatory bodies have fined brokers for the misuse of this powerful software in the past, many brokers continue to abuse it.It is almost impossible for the individual retail trader to spot manipulation of individual trades, although suspect activity may be evident.There are software programs a trader can run themselves which claim to unearth this illegal activity, but they are expensive and time consuming to monitor. The best and possibly the only realistic solution is to do your research thoroughly before you pick a broker.|
Bottom line: Metatrader brokers, in fact all brokers, have the ability to manipulate your trading in an almost infinite variety of ways that may be detrimental to your bottom line. Do your homework when selecting brokers!
Now that you’re armed with knowledge of the worst dangers, perhaps you might want to continue your forex education by reading more from the following Forex School section: Trader Type or Forex University