What is Forex?
The foreign currency exchange market called the Forex market (FX) is the world’s biggest trading market, overlooking the Stock Exchange in size with almost $5 trillion US dollars traded daily. The market is available 24 hours per day; when trading in New York closes, it reopens in Tokyo and Hong Kong. Currencies are always traded in pairs, for example, the US dollar with the UK pound or the US dollar with the EURO. With constant price fluctuations, this out-of-control market can create a lot of money for institutions, businesses, and some individuals.
Forex Terms
There are several terms that are used by forex traders. Here are some of the basics.
- Going long: Purchasing a currency with the expectation that its worth will rise in a couple of hours. It can then be purchased at a profit.
- Going short: Selling a currency with the expectation that its price will fall. It may then be redeemed at a reduced cost.
- Currency pair: Each Forex exchange entails the conversion of one currency into another.
- The ask: The price the trader will spend to purchase a currency pair.
- The bid: The price at which a trader will offer a currency pair.
- The spread: The variation between purchase and sale prices.
Trading in the Foreign Exchange Market
Globally, the forex market operates 24 hours a day, 5 days a week.
Historically, only governments, large corporations, and hedge funds took part in the foreign exchange market. In today’s world, exchanging currencies is as simple as a click of a mouse, and accessibility is not an issue. Many investment companies let individuals create accounts and trade currencies via their platforms.
This isn’t like a trek to a foreign exchange kiosk. The process is fully electronic, without the physical exchange of money from one hand to another.
Rather, traders are taking a position in a particular currency in the hope that there will be some upward trend and strength in the currency that they’re buying (or weakness if they’re selling) so they can generate a profit.
Forex scams
The following outlines forex scams and the types of scams that have been involved in forex fraud.
Signal sellers
The “signal seller scam” is a scam that operates by a person or a company selling information on which trades to make and asserting that this information is based on professional predictions which promise to make money for the novice trader. They normally charge either a daily/weekly or monthly price for this service but do not provide any information that helps the trader make money. They will usually have a slew of testimonials from allegedly legitimate sources in order to gain the trader’s confidence, yet in reality, they do nothing to forecast profitable trades.
High-yield investment programs
High-yield investment programs (HYIP) are often just a type of Ponzi scheme wherein a high level of return is promised for a small initial investment into a Forex fund. However, in reality, the initial investors are recompensated from the money generated by the current investors, and a steady flow of new investors is required to keep the funds flowing. The owners usually shut it down and vanish with all the remaining money as soon as there are no more investors in the scheme.
Manipulation of a bid or ask spreads
These types of forex scams have lowered over the years, yet they are still around. This is why it is important to select a Forex broker who is registered with a regulatory agency. These forms of scams would generally consist of having spreads of around 7-8 pips instead of between 2-3 pips, which is the norm.
Scams through software
Forex robot scammers lure novices with the promise of big gains with little effort or knowledge. They can use fraudulent or misleading figures to convince customers to purchase their product. Their promises are flawed since no robot can adapt to and survive in all environments and markets. Software is generally used by professionals only to analyze past performance and identify trends. All software should be formally and independently tested, but caution is required when trusting the reviews themselves, as these can be bought. If their product did precisely what they asserted, they would not be selling it and would instead be using it entirely.
Managed accounts
These accounts can be a form of a forex scam, and there are several examples of managed accounts. These scams often involve a trader taking your money and, instead of investing it, using it to buy all sorts of luxury items for themselves. When the victim finally demands for their money back there is not much left to repay.
Ponzi and pyramid schemes
These are very common forms of affinity fraud. They guarantee high returns from a small starting investment up front. The early investors usually do earn some kind of return on their money and motivated by their perceived success, they then hire their friends and family into the scheme. However, the ‘investment opportunity’ doesn’t really truly exist, and their initial return is funded by money paid in by other scheme members. When the number of investors begins to dwindle, the fraudsters shut the plan and pocket the funds.
Boiler room scams
This type of scam consists of the scammers typically making people buy shares in a low-grade private company on the promise that when the company goes public their shares will increase exponentially. They rely on “urgency,” implying that a chance will be missed if they fail to act quickly, preventing the target from properly researching the opportunity. However, the company does not always exist and may have a phony phone number, office, and website. When the scammers have made all of the profit they can, they will vanish with everyone’s money.
How do I spot Forex scams?
The single most important thing a person can do to evade being scammed is to actually learn to trade on the Forex market properly. The problem in this is finding trustworthy Forex brokers/teachers who can be trusted. The novice must ensure that the broker has made the money that he or she claims to have made; due diligence is essential here. The Forex market is not a game of chance, but rather a serious market in which trillions of currency units are traded every day. Prior to actually trading for real money, use demo accounts to learn how to make long-term profits. Be aware that, as with any professional skill, mastering the Forex trade can take years. Any statement claiming that “you can make money quickly” should be prevented.
Paul Belougour, the managing director of a retail Forex trading company, has gone far enough to suggest, “if this is money you have worked hard for – that you cannot afford to lose – never, never invest in foreign exchange.”
Do not take the assertions made at face value; instead, conduct your own survey. An inexperienced trader should be critical in their approach, analyzing statistics and making their own functions that they have tested and had success with on a demo account first. This will take time to accomplish but will serve the novice trader better than trusting an automated computer program. Don’t give in to a “too good to be true” investment.
Another thing a person might want to check is the legitimacy of the company making the claims or selling the expertise/course. To do this, study the location/jurisdiction where the business is registered, as many Forex scammers will trade from a location where they believe the local law will make it hard for them to be prosecuted internationally.
Tips to avoid Forex scams
Here are some tips and tricks to bypass forex scams. It is important to understand these tips if you deal in forex and want to erase differences.
- Study the market carefully: To know more about the market and its trends, it is important to study it thoroughly so that you get a fair idea of how it works. It is indeed challenging and risky for beginners to trade forex.
- Often, forex scams make you think you must decide right away—they may tell you there are only a few spots left for a once-in-a-lifetime opportunity, for example. And these aren’t opportunities you should let slip away! However, if someone is pressuring you, walk away.
- Always ensure that your dealer is enrolled with the National Futures Association (NFA) and the Commodity Futures Trading Commission when dealing in foreign currency exchange (CFTC). Ascertain that you are permitted to run a business in your home country. It is critical that you carefully read all instructions provided by any company before trading in order to protect yourself from any type of fraud. This will help you elude fake brokers. Make sure to confirm everything before proceeding.
- There is a saying “all that glitters is not gold,” and this is especially true when dealing with flamboyant websites. Avoid sites that guarantee fast profits and profitable returns. The first sign of suspicion should arise from the fact that there is no easy money in the market nowadays. Often, unauthorized websites offer high rates of return, and as a result, people like to engage them to do work for them.
Conclusion
There is a lot of potential for big profits in the forex market, but only if you do it correctly, use the right broker, and avert being the next target of forex scams.
You will be better prepared to spot scammers from a distance if you use the information provided as a weapon.