Warning Signs of Forex Fraud

Forex Fraud Analyst Team

The Forex/CFD industry is a massive one, moving massive amounts of money and generating huge profits for some of its actors. It is therefore quite understandable that every day, more and more people are drawn in by it, and more and more people turn to underhanded ways of speeding up revenue-generation.

Indeed, as it currently is (and lately, it has in fact made huge progress regulation-wise) the industry is rife with scammers, anglers and generally: Forex fraud. Given the mind bogglingly diverse range of fraud, we’ll have to define two signs of forex fraud: obvious frauds and sneaky ones.

Bear in mind that there are at least a few tens of thousands of people out there, who do nothing more than think of new ways to defraud those looking to turn a quick buck by investing online.

The temptation is huge on both sides of the divide. Those looking to take advantage of the services offered by various industry actors, are no less greedy than the service-providers themselves. After all, everyone is after the profit, and since this is a zero-sum game, someone has to be left holding the bag at the end, one way or another.

Long story short: the setup is indeed one that’s extremely fertile for fraud.

Obvious Forex Fraud

Some of the Forex scams are so obvious for those educated in the ways of the industry, they’re downright ridiculous. We have to bear in mind though, that for every person who understands what makes this industry tick and how, there are ten others who don’t.

The common denominator of such obvious scams is the fact that the pitch that they make is too good to be true. If someone tells you that you don’t have to do anything really, other than to send over a few hundred dollars, and you will see a massive windfall: you are targeted by such a scam.

There is no easy money online either: if something seems to be too good to be true – trust your instincts on this – it most definitely is just that.

If you suspect you’re dealing with such a scam, by all means, run a quick search on it. Chances are there are already scores of complaints about the scheme out there. Even if there aren’t any (the scam is a new one), do not jump into anything that’s too good to be true.

Also, please remember that in the world of investing, there is no such thing as 100% guarantee. Anyone peddling something like that is a fraudster.

Such deals are pushed into your face in staggering variety, but it is indeed relatively easy to see through them.

Unregulated/unlicensed brokerages have to be included in this category as well. They may not be as easy to spot as Ponzi schemes, as they masquerade as legitimate operators, but there are a number of clues you can easily pick up in their regard too.

Such “brokers” are usually haphazardly tossed-together operations, using “proprietary” trading platforms that are suspiciously simplistic and rudimentary.

Once they get them hooked, such “brokers” do not relent on their “clients”. They employ various aggressive marketing techniques, calling them on the phone and spurring them on to “invest” more money.

Genuine scam artists, such “account managers” have been known to fleece people of their life savings, and there have even been instances when they convinced some to take out loans to keep “investing”.

Needless to say, such operators are not exactly keen on providing any details on their regulatory status, and if they do, a simple check will reveal that they are indeed lying.

Automated trading systems and various trading robots were a sort of epidemic a short two years ago. Lately, they seem to have subsided somewhat though, with the withering of the awful binary options vertical.

Still, there are some holdouts in this realm, peddling their deals in more refined forms.

While auto-trading as a concept does indeed exist, and it is indeed legitimate (MT4 supports EAs, which are in essence auto-traders), it doesn’t quite work the way fraudsters would like you to believe. EAs need to be supervised and tweaked all the time. Their sole utility is that they take volume-work out of the equation for expert traders who believe they may have happened upon a setup that is marginally profitable for a limited time.

Do not believe anyone who tells you that you can sit back and the robot you’re about to buy, will keep yielding profits indefinitely.

More Subtle Forex Fraud

Of course, most of the fraud perpetrated through the FX/CFD industry is much more subtle, and much more difficult to pinpoint, let alone prove.

We are in the business of reviewing FX/CFD brokerages and we can tell you that there is not a single legitimate (regulated, licensed and reputable) broker out there, who has not been accused of fraud one way or the other, at least a handful of times.

Fraud pushed behind the facade of a regulated, global brand is all the more dangerous, obviously.

In this regard, there are several issues we’d like to point out.

First of all: your regulated, reputable and trusted broker may be a market maker.

Indeed, we have reviewed one such broker a short while ago, and believe it or not: it is regulated by the CFTC and it is a member of the NFA too.

With a market-making broker, you – the client – are in essence trading against the broker. Guess who has the upper hand in that setup?

This fundamental conflict of interest should immediately disqualify any broker from your consideration. One way or another, such market-making brokers find a way to turn your trades into losing ones. Rather than trading with them, you’re better off taking your money to the back of the garden and burning it.

Secondly: the point-spread scam has been around since the dawn of online trading, and – despite what some say – it continues to be a nuisance to this day. Run a search on any of the reputable brokers out there and you will see that scores of traders complain about this very problem.

The red flag in this regard is usually raised by large spikes in the spread during major economic news, such as the monthly NFP announcement. These spread-spikes make the profitable trading of the news – already a daunting mission without any manipulation involved – an impossible one.

The spread scam does not require a broker to be a market maker either, since the gains resulting from the manipulation are reflected in the commissions the traders end up paying their broker.

Authorities have cracked down on point spread scammers in the US lately, but most of the major brokerages are offshore ones these days, and despite regulation, there’s not much the pushers of such schemes have to fear in the way of being apprehended.

This takes us to shoddy regulation, which is a major bane of the industry too. This is indeed slippery ground to walk when it comes to showcasing Forex frauds. After all, regulation is supposed to offer certain consumer protection guarantees.

Sadly, that can definitely not be said about some of the regulators out there, whose endorsement hardly amounts to anything more than indeed aiding and abetting online crime.

A short while ago we reviewed a number of regulatory agencies world-over, and some of them do indeed offer licensing for a handful of beans and a few trinkets – so to speak.

Moreover, such jurisdictions make a selling point out of being very quick and “cost-effective” in providing a regulatory background. Although no one really admits this, it is hands-down impossible for such regulators to conduct proper audits on the operators they have authorized, and to hold them to proper regulatory standards.

While most brokerages these days say they keep their clients’ funds in segregated bank accounts, with many of them, this is not the case at all. The comingling of funds is a problem that is difficult to verify and that makes it very easy for the broker to stick his hands into the cookie jar elbow-deep if that’s what he fancies.

Even more prestigious regulatory bodies (such as Cyprus’ CySEC) fail to provide proper guarantees regarding fraud prevention.

The bottom line in this regard is that your broker’s regulatory background may indeed not do much in the way of protecting you from some of the scams covered on this page.

Signal selling has been a profitable scam since the dawn of online trading as well.

There are parties out here posing as “experts” who guarantee that you will never lose any money if you properly apply the trading signals they send you. Obviously though, the very nature of this setup makes it clear that such experts always leave themselves wiggle-room, so at the end of day, if you do end up losing money, you’ll have but yourself to blame.

Paying for such a service has always been a bad idea. This does not mean that there aren’t any possibly useful signal services, but these are monetized differently.

There may be for instance expert traders who use dedicated chat-platforms, and pay-to-access chat rooms. Such traders only sell you access to what they preach though, and do not claim any guarantees in regards to the signals they may or may not produce.

The too-good-to-be-true warning is obviously valid in this case too. If someone promises you fabulous profits in exchange for a $20 fee, add two and two together and draw your conclusions.

The opposite end of the price-spectrum is covered as well: some may ask for as much as $5,000 for a signal service or a trading system, which is indeed a scam in itself.

Withdrawal issues

This is indeed the elephant in the room, the mother and father of all red flags and a “condition” of truly epidemic proportions in today’s online trading industry.

When a trader makes a deposit, everything seems to go very smoothly. When the time comes for a withdrawal though, all sorts of unforeseen problems pop into the picture.

Nowadays, all regulated (or purportedly regulated) brokerages are very keen on fighting money laundering and on knowing their customers. In accordance with that, they all observe strict AML and KYC policies, which do indeed have their place in the online trading ecosystem.

The problem is however, that some brokers abuse these policies when it comes to processing withdrawals.

They ask for all sorts of documents and they procrastinate. The worst thing about such problems is the fact that they are caused by money issues within the brokerage, meaning that the money the trader is looking to withdraw has probably already been spent at that point.

Certainly, verification is needed, but with problem brokers, it becomes quite obvious very quickly that the verification process is not the real issue holding up the funds.

What can you – a rank-and-file trader – do to steer clear of such scams?

If you read through the article above, you have already taken your first step in the right direction. Recognizing the Forex fraud signs above is a very useful skill to have.

You’re not even required to cast judgment over a broker at a single glance. It is enough if you start suspecting something, and as a result of that, you do a little research.

When you’re looking to establish whether or not you are dealing with a scam, read into user feedback rather than actual reviews about the broker.

User feedback seems to paint a slightly worse-than-real picture of service providers, but it is always healthier to err on the side of caution.

Bear in mind that if you do fall for a scam, your chances of recovering your money are minute. Statistically speaking, of the cases that actually get reported to the competent authorities, only around 25% end up settled, with the user getting a refund.

The problem is that even if the perpetrators of these scams are apprehended, the monies of those defrauded are seldom recovered.

More reading on forex scams