A forex scam happens when a forex broker convinces traders that they can gain extraordinary profits in the foreign exchange market. There are many scams out there but the more common ones involve:
- The broker running a fake online brokerage, accepting deposits and running off with your money
- The broker charging excessive fees to trade
- The broker charging excessive fees process wire transfers when you request a withdrawal of your money
- The broker taking an excessive amount of time to issue you a payment when you request a withdrawal of funds
- The broker encouraging excessive trading
- The broker manipulating stop loss orders or ignoring buy or sell orders to maximize the broker’s profits
Before picking a forex broker you should do your research. Having a look through various online brokers reviews and guides can be quite helpful. Looking at some the of the online forums for trader-reviews of brokers can be a worthwhile exercise too as often times these reviews are extremely unbiased and no-holds barred. You should look through several of these forums to get a comprehensive picture of the online broker being reviewed. Also, keep in mind that some reviews don’t reflect typical trader experience with the broker and a negative experience can be owing to a broker’s lack of trading experience or just aggressive or poor decision making. Try and find information on the reviewer’s trading experience.
How to tell if a trader is really scammed or just inexperienced?
When reading trader reviews and trader posts in online forums it’s a good idea to keep in mind that some negative reviews are owing more to the trader having little trading experience and less to an online forex broker providing a bad service or product. In addition to the tips listed above, there are a few ways you can tell if a trader has little experience. Take a close look at what the forum post has to say about a particular trader.
An inexperienced trader may leave a spot position open beyond a day and thus pay for “resettling” his account for the full bid/spread price. An inexperienced trader may also use 0.5 – 2% margin (rather than a safer 10%) in trying to gain an out-sized profit. Inexperienced traders may also be more likely to trade with a broker that charges extremely small spreads or very low commissions but runs a dealing desk and takes the trader for a considerable sum on every trade – experienced traders are less likely to trade with these kinds of brokers. Lastly, inexperienced traders are more likely to write about problems with their mini accounts and may complain of losing their first deposit of $50 to $200. More experienced traders are likely to open larger accounts and trade larger sums.
How to protect yourself as a forex trader
There are few important points to remember before jumping into trading. Make sure to read the fine print before investing – and understand the limits of what a broker is offering. What commissions or spreads is the broker going to charge on a trade? Are there any hidden costs or fees like settlement fees, wire fess, account maintenance fees, etc? Check your trades to see the lag time for order execution. Look into how long it takes to receive payment when you decide to liquidate your account. If your broker won’t let you take your investments out right away, consider it a warning and don’t invest with them.
Unfortunately, forex scams are a reality so do your research before opening an account with an online forex broker. Find the broker that’s right for you by reading online reviews and online user forums. Make sure to educate yourself on a brokers trading terms and conditions – read the fine print. If in doubt contact the broker’s customer support. If you are new to online forex trading, open a practice account before trading real money. If you do find a forex scam, post a detailed experience online for others to read so no one else get burned.