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forex scams catching forex beginnersAvoid Forex Scams: Warning Signs

There are brokers and there are forex scams. In its 2009 report, the Foreign Exchange Committee at the Bank of International Settlements (the world's oldest international financial organization) evaluated the overall numbers of forex transactions to be $3.2 trillion.With this amount money floating through an unregulated market with the trades executed over the counter with no accountability, forex scams can only raise with the promise of earning fortunes in a short time.Although many of the old infamously popular scams have ceased, due to serious efforts by the US Commodity Futures Trading Commission (CFTC) and the 1982 creation of the US self-regulatory National Futures Association (NFA), many scams have survived, and new cheat-schemes keep arising.

Spreads Many old forex scams were based on manipulation of bid/ask spreads. In essence the spread between the bid and ask represents the commission of back and forth transactions charged by a broker. Usually , these spreads are different for different currency pairs. The scam takes place when forex brokers overcharge on the spreads taking seven pips or more whereas the normal spread does not exceed 2-3 pips. Multiply four or more pips on every $1 million trade, and any possible profits of the forex trader are eaten away by commissions.

This scam has subsided over the last 10 years, but be careful of those new unregulated retail brokers. These trend still exists and it is quite easy for the companies to pack up and vanish with the money when facing legal actions. Many saw a jail cell for these computer manipulations. Surprisingly, the greater part of the violators have historically been US-based companies, not the offshore ones.

“I will trade for you” These scammers are a retail firm, pooled asset manager, managed account company or individual trader who will trade for you based on his professional experiences that will make you wealthy. They advertise their skills and trading abilities with backing by people who virtually testify in court on how great a trader and friend this individual is, and the huge capital that this person has earned for them. All the unsuspicious forex beginner has to do is transfer X amount of money for the privilege of trade recommendations. Many of these scam artists only collect money from the traders and evaporate in the air. Some will recommend a good trade now and then, to allow the signal money to perpetuate. Although this new scam is becoming a wider problem, many of those Guru- traders are honest and execute the trades as promised. Some forex brokers introduce PAMM-systems where these individuals operate under a certain control of the broker.

“Magic forex robot” A persistent scam, old and new, offers a variety of forex trading systems. The system is advertised as the one with the ability to produce automatic trades that, even while you sleep, lead to huge profits. Today’s terminology is "robot," because of the ability to trade robotically. Either way, many of these systems have not been tested by an independent source for formal review. Assessment must include the testing of a trading system's input and control parameters and optimization codes. If the control parameters are invalid, the system will produce practically random buy and sell orders.

Therefore system will do nothing more than gamble. Although tested systems exist on the market, potential forex traders should test and verify the system they wish to integrate into their trading plan.

Warning Signs A serious warning sign is when your brokers does not allow the withdrawal from the account, or when problems exist within the trading station. Can you enter or exit a trade during when an economic news is not in line with expectations? If you can't withdraw, warning signs should flash.

If the trade station doesn't function to your liquidity expectations, warning signs should again flash. An important factor to always think about when choosing a broker or a trading system is to be skeptical of promises or promotions that guarantee a high level of profits.

Summary Of the 193 cases filed with the NFA in 2008 for rules and law violations, 166 were settled within nine months, but only 23% received lost funds. Therefore, similar to the cases of a Ponzi scheme, even when those who intentionally engage in forex scams are brought to justice, the compensation is not guaranteed. Always be wary of new forex scams, as the attraction and allure of huge earnings and magic tools will always bring new and more sophisticated types to this market.


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