Let's check in this article, Forex broker scams, we are going to provide you with some valuable tips so that you don't become a victim of online scammers. To save you time looking for a reputable company, we have selected the best, most reliable brokers that you can safely start working with.
Unfortunately, fraud exists in any commercial sphere, and the Forex market is no exception. Even in 2022, despicable Forex brokers continue to deceive unsuspecting traders, but the trend is on the decline.
There are many main reasons for this change. Today, Forex broker scam blacklists are kept up to date and regularly published by independent websites. Our website is no exception.
Forex Broker Scams: Who Are They?
Forex broker scams are not always represented by the brokers themselves.
They are most likely individual participants without companies, but who position themselves as brokers.
Often they are very experienced Internet users who can fabricate false information on the website they have created.
The owners of such fraudulent websites do not have a license, therefore, they are not regulated. Sometimes they don't even have basic knowledge of the Forex market.
But for a new trader who doesn't have a background in economics or finance, not everything is so obvious.
For example, a person might visit a beautifully designed website, see enticing promises of profit and words or phrases like “spread” and “instant order execution”.
This for the newbie, could add a semblance of legitimacy to the dodgy site.
As a result, a person signs up, makes a deposit — and this is where the most interesting part begins — and therein lies the technology deception. Scam brokers mainly include three types:
Forex Broker Scams: 1 — Opportunistic Brokers
Until recently, this type of scam was the most prevalent. The idea is that a group of people (or even one person) creates a website.
It is often just a landing page that encourages the audience to invest and earn big money. This can also include PAMM accounts.
Scammers don't care what they say, the main thing is to attract people and their money. As a result, they collect deposits from traders and close the site, sometimes they declare a pre-planned bankruptcy, and sometimes they make no announcement.
Forex broker scams: 2 — Bucket shops Forex
This type of scheme is more refined and requires more careful preparation, but the potential profit of the scammer is also greater.
In this case, they create a complete platform that duplicates the functionality of the main Forex brokers.
The trader does not play on the world interbank market, but with other traders registered only on his fraudulent website, or even with the platform itself.
Naturally, the bucket shops create impossible conditions for the site itself to remain in the black while traders constantly lose their money.
Forex Broker Scams: 3 — Pyramid Schemes
This is perhaps the most famous type of scam used everywhere, not just in the foreign exchange market.
This kind of scam has nothing to do with forex brokers. It's about the company positioning itself as a broker, but really, it just collects deposits from investors, often without even faking interbank market activity.
They just keep issuing empty promises and slogans. Today, this type of scam is less common than others.
How to Identify Forex Trading Scams?
In the early 2000s, when the Forex market became accessible to everyone and was just reaching the V-peak of its popularity, it was not easy to tell a scam broker from a legitimate one, especially if the new trader was just starting out.
But today, in the age of globalization and computerization, general information is easy to find on the Internet in a matter of minutes.
Today, it has become much easier to protect against Forex scams.
But if you need more details, we will inform you about the main practices of scammers. Here are some:
They promise high profits
These promises are a clear sign that the Forex broker is a scammer because no legitimate broker can guarantee high profit for the investor.
Also, according to statistics, only 11 – 25% of new traders end up becoming professional players in the foreign exchange market and start to earn good money.
They say there's no risk
This is also a clear sign of a scam because the trader's success does not depend on the broker.
The key role is played by the trader's strategy, that is, how he diversifies risks.
For example, a legitimate broker may share a deposit between multiple currency pairs or use automatic trading. It is impossible to completely eliminate risk from Forex.
By law, the activities of legitimate forex brokers must be regulated by an authorized body—a public or private licensing company.
You can find information about regulators on the broker's website and check the regulator's website.
This is open information and the license validity can be verified in a matter of minutes.
This can include many things like unsolicited calls. If you are contacted by phone, email or in any other way by a Forex broker you have never heard of, and he offers you cooperation, you know for sure that this is a scammer, 100%.
Also, scammers always insist on you making a “here and now” payment. They talk about the high qualifications of their managers (PAMM accounts), but they can only confirm their profitability with Excel tables.
Scam brokers often use little-known or generally unknown trading terminals (i.e. something other than these trusted terminals: MT5, MT4, LIBERTEX, QUIK, TRANSAQ, CQG or ROX).
In reality, the broker does not need to create a terminal because using any of the above options is simple and reliable for both the trader and the broker.
A broker that focuses on PAMM accounts and binary options, promising huge profits, is very likely to be a scammer. These are also effective tools, but they cannot be the main source of income for a successful trader. And certainly, PAMM accounts do not guarantee a high income.
Many scam Forex brokers like to point out their top positions in some dubious ranking polls.
But they only show ratings present on their website, or in a third-party resource that actually belongs to the same person and has no weight in the Forex market.
This detail is critical, but many traders do not pay attention to it. An SSL certificate is a digital signature of the website, which guarantees the security and confidentiality of the connection to the server.
That is, when on this site the chance of getting malware or spyware that will transfer your data to third parties is minimal.
Why are Forex brokers regulated and why do we need to know?
We have already briefly mentioned the regulation of Forex brokers. Here are more details on that.
The global (interbank) foreign exchange market has a legislative basis. This legislative framework defines a special category of regulatory companies.
They are internationally licensed companies that operate in the global currency and securities market.
Its task is to monitor and analyze other market participants for compliance with legal regulations and financial security requirements. Simply put, the regulator verifies that the broker is legally operating in the Forex market and that he is complying with the regulator's Terms and Conditions. If not, they could be fraudulent.
The work of Forex bucket shops and pyramid schemes often looks legitimate, but the regulator will easily understand that this is fraudulent schemes and he simply will not license the activity of such a company.
Thus, the broker's regulation is an important guarantee that the broker is honest and trustworthy; and he places orders on the interbank market and fulfills payment obligations.
Each regulator has its methods and tools for checking Forex brokers. In 2022, brokers must meet several strict requirements.
They should have: full financial transactions transparency; a certain amount of money in your account; a complete set of documents required by law; and an official website that meets all technical security requirements.
Furthermore, from a jurisdictional point of view, the regulator can be local (operates in the country) or international (operates globally).
Here are the main international Forex regulators:
Belize International Financial Services Commission;
Cyprus Securities and Exchange Commission;
Mauritius Financial Services Commission;
UK Financial Conduct Authority;
South Africa's Financial Sector Conduct Authority;
Bahamas Securities and Exchange Commission.
Forex Broker Scams: Test Your Forex Broker's Reliability
We have prepared a simple test that you are welcome to take. It allows you to determine whether you can trust the Forex broker you have chosen.
The test consists of ten questions and will only take a few minutes to answer. In return, you will receive unbiased information about the reliability of your broker.
Does your broker's official website have an SSL certificate?
Does your broker use one of the following terminals: MT5, MT4, LIBERTEX, QUIK, TRANSAQ, CQG or ROX?
Is your broker regulated by one of the following organizations: IFSC, CySEC, FSC, FCA, FCSA, SCB?
Does your broker have 20+ trading tools?
Does chat support respond quickly?
Your Forex broker is widely known; and, if so, is it included in our rankings for the best forex brokers?
You have read feedbacks about this broker; and if so, are they mostly positive?
Does the broker offer additional services (eg auto trading)?
Does your broker avoid cold calling you asking for deposits or participation?
Can you make a deposit using standard methods — Visa/Mastercard, wire transfer, PayPal, Skrill?
How to interpret the test results:
If you answered “Yes” to all 10 questions, then this is a reliable broker and you can work with him.
If you got 7–9 “Yes” answers, then the broker is likely to be trusted, but we recommend reading additional information about them.
If you only have 5 – 6 “Yes” answers, we recommend that you study the feedbacks about this broker in detail as it is doubtful that it is reliable.
If you have less than 5 “Yes” answers, then we do not recommend working with this broker because it is very likely that he is a scammer.
Summary of how to avoid Forex broker scams
Previously, the trader had to carefully analyze the main market participants by key parameters and even then there were no guarantees.
Today it is possible to quickly check all the indicators: the site's SSL certificate; regulator registration number.
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