Trading forex generally involves a substantial risk of loss, as well as high potential returns. As a result, if any company you are considering investing with claims to be able to offer you guaranteed high profits by trading forex, then you would be wise to be suspicious of a potential fraud. Forex scams offering unrealistic returns will often play on an individual’s greed, in addition to their desire to earn lots of money without making much of an effort to do so.
Although the offer of unrealistic returns tends to be a forex fraud red flag signifying a high risk investment, just because a potential forex related investment scheme does not offer unrealistic returns does not necessarily make it legitimate. Example of a fraud with unrealistic returns.
Greed is a Weakness
One of the juiciest carrots that scammers of all types use involves the promise of unrealistic returns that play on people’s greed. As a result, being greedy when considering your investment choices can play right into the hands of a forex fraudster.
For example, returns of one percent per day, or twenty percent per month would generally be considered unrealistic investment returns when trading forex. Nevertheless, some scammers will instead offer far more reasonable returns simply to take people off guard.
HYIPs Usually Offer Unrealistic Returns
As the name implies, many so-called High Yield Investment Plans or HYIPs are guilty of offering unrealistic returns to potential clients. Nevertheless, they often basically consist of little more than forex related Ponzi schemes where the deposits from new investors go toward paying investment returns for existing investors until the scam eventually fails.
Furthermore, many HYIP’s or High Yield Investment Plans can be discerned simply by observing their outrageous returns claims. Since they usually amount to little more than a Ponzi scheme scam, they just take in principal from new clients to pay out the high interest rates to existing clients until all the money is gone. See an example of a HYIP Ponzi scheme.
Many people never see the fabulous profits their often forged account statements show. They eventually end up losing the entire amount of their investment, sometimes after having actually received some interest payments before the scheme fails.
These unscrupulous HYIP companies often warn potential clients in their fine print, or tucked away on a hard to reach webpage, that investing money in the forex market could lead to the total loss of their investments.
Unrealistic Returns Promised by Forex Software and Services
Another type of potential forex scam involves vendors that promote automated forex trading software or forex signal generating services by claiming astronomical results from back testing the product over a certain time period. Read about forex trading softwares and see an example of a forex trading software scam.
Often, such time periods are carefully selected and then the system’s parameters are optimized to show high profits with low drawdowns during that testing period.
Also, while the system may indeed have performed well theoretically, it may not do nearly so well when exposed to rigors of a live trading environment when realistic factors like dealing spreads and order slippage are taken into account.
Although increasingly sophisticated in their algorithms, forex trading robots and forex signal software still has trouble replicating the success of actual experienced human traders.
A Forex Managed Account Fraud Scenario
As an example, the way that the tantalizing carrot of unrealistic returns attracts potential targets in a forex managed account situation might work something like this:
- The scammer somehow convinces the mark that the scammer — through sheer genius and forex market savvy — has devised a fool proof “proprietary” forex trading system.
- The forex system — which allegedly consistently beats the market and has been proven by the scammer to make huge and reliable profits — has now been offered to the general public out of the seeming goodness of the scammer’s heart to share with the teeming millions who do not know how to trade forex on their own.
- Nevertheless, in order to take advantage of these huge returns, a forex managed trading account must be opened by the potential client and placed at the discretion of the company making the claims with a rather large minimum deposit.
The unrealistic returns in this example play on two very base human characteristics: greed and sloth. A greedy disposition will make the proposition of receiving large amounts of money attractive while slothfulness will be attracted to not having to lift a finger to obtain these fabulous returns. Each weakness adds to the attraction of the “investment” to the potential forex fraud mark. See an example of this type of managed account fraud.
Conclusion: Beware of Unrealistic Returns
Basically, unrealistic returns could be considered the most important of all forex fraud red flags to beware of when reviewing any forex product, whether it is a trading robot, signal generator service, investment plan or any other situation where you will be purchasing goods or entrusting money to others.
Remember, high returns certainly attract customers looking for them, but unrealistic returns attract marks for forex frauds.
We also recommend that you read our story on offshore fraud to learn how to better spot a forex fraud.
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