What to Look for in a Forex Scam

While many once-popular scams have faded away owing to the Commodity Futures Trading Commission's (CFTC) aggressive enforcement efforts and the founding of the self-regulatory National Futures Association (NFA) in 1982, some old scams persist, and new ones keep cropping up.

The Point-Spread Scam in the Past

The bid-ask spreads were manipulated by computers in an old point-spread forex fraud. The point gap between the bid and ask represents the commission paid by a broker in a back-and-forth transaction. The spreads between currency pairings are usually different. When the point spreads across brokers diverge significantly, the fraud occurs.

For example, some brokers provide spreads of seven pips or more in the EUR/USD, rather than the standard two-to-three-point spread. (Based on market tradition, a pip is the smallest price movement that a specific exchange rate produces.) The smallest difference is the last decimal point, because most major currency pairings are priced to four decimal places.) If you add four or more pips to each transaction, any potential benefits from a good trade might be eaten away by commissions, depending on how the forex broker handles their trading costs.

Over the last ten years, this fraud has died down, but be wary of any offshore retail brokers that are not licensed by the CFTC, NFA, or their home country. When challenged with actions, these impulses still persist, and it's extremely easy for businesses to pack up and vanish with the money. For these computer tricks, many people envisioned a prison cell. However, the bulk of violators in the past have been US-based businesses, not offshore businesses.

The Scam of the Signal-Seller

The signal salesman is a common modern-day con. Retail firms, pooled asset managers, managed account firms, and individual traders who offer a system for a daily, weekly, or monthly fee that claims to identify favorable times to buy or sell a currency pair based on professional recommendations that will make anyone wealthy are known as signal sellers. They boast about their extensive trading expertise and talents, as well as testimonials from others who attest for the person's abilities as a trader and friend, as well as the large riches that this person has amassed for them. All the naive trader has to do is pay over a certain amount of money in exchange for trading advice.

Many signal-seller con artists just take money from a set number of traders and then vanish. Some may suggest a nice trade now and again to keep the signal money flowing. This new swindle is gradually becoming a larger issue. Although there are honest signal sellers that execute trade functions as planned, it is prudent to be suspicious.

Scamming by “Robots” in Today's Market

In some forms of forex-developed trading systems, an old and new swindle manifests itself. These con artists boast about their system's capacity to create automatic transactions that earn large sums of money even while you sleep. Because the procedure is totally mechanized using computers, the new phrase is “robot.” In any case, many of these systems have never been subjected to a formal evaluation or testing by a third party.

The settings and optimization codes of a trading system must be tested while examining a forex robot. The system will create random buy and sell signals if the settings and optimization codes are incorrect. As a result, naïve traders will do nothing but gamble. Although there are established techniques on the market, aspiring forex traders should do their homework before investing in one of these strategies.

Other Things to Think About

Many trading systems have traditionally been fairly expensive, costing up to $5,000 or more. This might be considered a ruse in and of itself. Today, no trader should spend more than a few hundred dollars on a good method. Be especially wary of system marketers who charge outrageous rates in exchange for a guarantee of spectacular outcomes. Instead, seek for genuine merchants who have had their systems thoroughly examined so that they may potentially generate money.