Forex is the largest and most liquid market in the world. There is so much money involved (around $3 trillion per day) that it attracts dishonest brokers who want to trick unsuspecting traders out of some of that money. There are some regulations in place to protect traders, but forex does not have a central regulating authority. For instance, the forex spot market, which is where most of the trades are, is totally unregulated. By not dealing fairly, brokers can defraud their customers. The truth is a lot of money can be made in forex, which lures overly greedy brokers.
Fortunately, some of the older types of forex scams have been brought under control by the Commodity Futures Trading Commission (the CFTC) and the National Futures Association, which is a self-regulatory commission formed in 1982. Those older scams played with the spreads between the bid and ask prices. Typically, the spread between USD and EUR shouldn’t be more than two or three points. But in some scams, the spread can go up to seven pips or even more. Those types of manipulations are not common now, thanks to the CFTC and the NFA. Besides these regulatory commissions, protect yourself by choosing a forex broker that deals with other stock market trades, meaning that he/she is under the oversight of the SEC and the FINRA. It’s unlikely that a broker would handle dishonest trades while subject to those regulations.
Scam Warning Signs
Make sure that when entering a trade that you will be able to exit when you need to. In the event of a sudden economic news flash that would affect your trade, can you quickly exit? The broker you are using should allow you to handle your trades according to your own liquidity expectations. This also means that you will be able to withdraw your money from an investor account anytime you want to. Stay away from any trading station that does not leave you with control over your money.
Beware of Signal Sellers
There are different types of signal sellers that offer systems that supposedly will identify the best times for placing a trade with a specific currency pair. These might be manual systems, where the trader plugs in the details and watches for the results, or they might be automated. The results can also be based on breaking news stories or technical analyses. Either way, signal sellers will charge a fee for the service of giving specific information that relates to the best trading opportunities. It’s hard to say if all signal sellers are dishonest or not worth the money. The best way to find out is to set up a practice trading account with one of them. If the predictions work and you can profit from them, then you have your answer!
In short, understand the forex market so you can spot a scam a mile away. Don’t look for deals that are too good to be true, and don’t give up control of your money to someone who hasn’t earned your trust.