How to Identify and Avoid Forex Scams

Forex is legal; however, there is no lack of scammers as well. Moreover, the rise of internet-based trading platforms has only exacerbated the risks, creating more opportunities for fraudulent promotional schemes, etc.

You need to read as much as possible about forex brokers to minimize risk factors.

Problem with Forex Trading

The main problem with forex trading is a lack of transparency as well as unclear regulatory structures with insufficient oversight. Nevertheless, there are forex products listed on exchanges that have regulatory oversight. Legitimate brokers are making a business in the market as well.

Do you want to learn more about forex brokers? If you do, feel free to read the Markets Bank review.

Now, let’s focus on some of the most common forex scams:

We can start with spoofing, also called ghosting. It happens when a trader manipulates the market by placing a large order the trader has no intention to execute in order to create the impression of interest in the position.

Interesting Details About Forex Scams

Let’s not forget about signal sellers. Companies or traders who promise to identify buy or sell signals that indicate it’s an excellent time in order to make a trade in exchange for a fee.

Robot scams also proliferated around the world. Notably, the promise to make automated forex trades using a trading program often called a “robot.”

In order to avoid forex scams, the most crucial action you can take is to research the underlying broker.

One of the easiest ways to avoid forex scams is to make sure a company is registered with the Securities and Exchange Commission (SEC).

Don’t forget to check the firm’s Form ADV Part 2. It requires advisors to provide brochures with their business practices, fees, conflicts of interest, as well as disciplinary information explained in plain English. The firm’s Form ADV Part 2 should be displayed on the company website of any SEC-registered U.S.-based firm.

Moreover, brokers may offer supplementary services such as selling signals or other automated services that can lead to account churning as well as additional fees to a consumer.

It also makes sense to contact a third party, such as a lawyer or other financial professional, to conduct proper due diligence on the broker and its trading program.

Forex Brokers and Suspicious Activities

It is a legitimate concern if you can’t call your broker and speak to a representative.

Moreover, consider the country affiliation and where the firm is located. Remember that “the more developed countries have better regulations.” It is better to select a brokerage firm from the United States, Canada, Europe, or some select countries in Asia.

Lastly, registration is also key. Unsurprisingly, one of the best ways to protect yourself is to do your due diligence and make sure you are trading on a regulated U.S. exchange.

This way, you can check the broker’s registration and check job and disciplinary history through BrokerCheck, the Financial Industry Regulatory Authority’s registration database. You can also use the Background Affiliation Status Information Center (BASIC) and the National Futures Association’s (NFA) registration database.