Forex Fraud. A Quick Guide to Avoiding Trading Scams

Forex Fraud. A Quick Guide to Avoiding Trading Scams

forex scam

by Ethan Featherly

Over the years, online trading has become increasingly popular; the convenience, speed, and flexibility of transactions make it the go-to medium for investors who want to trade. In fact, it is the discreteness and anonymity of these trading transactions that gives lots of individual investors, corporations, and governments a lot of independence when compared with other conventional channels such as brokerage firms.

Types of Scams

However, despite the advantages that come with online trading, investors have become increasingly vulnerable to forex fraud and scams. The high technical nature of the retail industry and lose regulation of online trading leaves investors even more susceptible. The scams take different forms and here are the most popular:

Pump and Dump

The practice had tapered off until the introduction of the cryptocurrency market. It occurs when a group of scammers announces that a particular currency pair is about to gain value. This causes many traders to buy the pair, inflating its price. The scammers then sell the pair off at the inflated price and leave unsuspecting buyers to suffer the loss of the reduced price.

Signal Sellers

The seller offers a system that he claims can identify when to buy or sell a currency pair. Some systems are automated while others are manual in that they rely on technical analysis and breaking news to provide useful trading information. Signal sellers may be retail firms, individual traders, or pooled asset managers who tout their trading expertise and experience.

They may use a group of people to back their story who even testify in court about the vast wealth they have amassed through the fraudulent company. Signal sellers trick investors into giving a particular amount of money in exchange for the trade recommendations and then disappear. Some dealers may recommend a good trade to allow the signaling monies to multiply.

Most forex scams attract customers using sophisticated ads on various websites, over the radio, and through newspapers. They lure traders into thinking that they can predict the performance of various currency pairs like in the case of signal selling.

Signs of a Trading Scam

  • Difficulty in Tracking the Company’s Performance

Scams provide incomplete information about their historical performance. The best forex trading platform provides such pertinent information on trading websites without coercion. It explains the need for traders to check the company’s membership with NFA and CFTC before dealing with them.

  • The Broker Fails to mention the Risks of Trading

Forex fraud brokers fail to disclose the possibility of losing an investment, hoping that you will fall for the trick. Legit forex brokers include a disclaimer on their marketing or other forex trading material. To verify whether the broker is trustworthy, check out the social media page for reviews by previous traders. Investors should also check the company’s sacred text disclaimer.

  • A Broker who Persuades you the Market will not Fluctuate

Though technical analysis provides ample evidence on how a currency pair or stock will perform, it is a mere prediction. Markets are extremely volatile; hence no expert can predict the performance of a stock with certainty. A broker who tries to convince you about the future performance of an asset without a margin of error is simply committing a fraud.

Legit dealers provide a technical analysis free of charge along with useful tools like the economic calendar and daily updates about the performance of the stock. Keep in mind that the primary goal of a broker is to help you make a good return, not hinder your ability to create wealth.

  • Companies that Require Cash Payments via the Internet

A majority of fraudulent companies are located overseas and are created with the primary goal of duping investors. As such, they need investors to send cash via the internet and may not have a physical location in the resident country.

How to Avoid Forex Scams

  • Check Accreditation with Regulatory Authorities

A credible broker or other online traders should be accredited by at least one authority. The American NFA, for example, is a reliable accrediting body whose rules are pretty tight. Note that the stamps from FSA, NFA, or CFTC should be from the resident country. Companies that are listed in some exotic island may be suspicious.

  • Longevity

The majority of the scams close after hitting their target scores. As such, traders should find out how long the broker or other forex trading platform you intend to join has been operating.

  • Companies that Offer Unusually Attractive Opportunities

Most fraudulent scams claim that they can make you rich over a pretty short period. Forex trading is not a get-rich-fast venture. Sites that sell products have created one-page websites that promise high returns without candid explanations about how to achieve them.

  • Verification

Regulators require new online trading platforms to go through a strict verification process to determine the company’s authenticity.

  • Use a Demo account

A forex demo account is the ultimate check for any broker. Some robots promise a pretty exceptional performance, but you need to get actual proof before investing. Be sure that you can try things out without real money.

Most notorious scam

The Black Diamond case is perhaps the most memorable forex scam of all time. The company was established in 2007 when the founders, Deanne Salazar and Keith Simmons, began soliciting funds from clients. They claimed that they would use a sophisticated system- The Black Diamond- to invest in the forex market. Keith and Deanner promised lucrative returns in the form of:

  • 4% monthly returns
  • Losses would never go beyond 20% of the initial capital
  • The company would provide adequate capital for withdrawals

Despite the high returns promised to interested persons, Black Diamond could not process investors’ withdrawals in 2009. The company never made investments in the forex market. Deanne pleaded guilty and received a four and a half year sentence. Keith was, on the other hand, sentenced to forty years. They were also asked to pay a fine of $76 million to investors.


The temptation to make huge returns dupes investors into entering forex scams. Note that while regulatory bodies like the SEC, CFTC, and NFA have tightened trading regulations, investors should stay alert for signs of potential forex scams. This above discussion should help any investor steer clear of such brokerage firms or other forex fraud companies.