Avoiding Forex-Related Frauds and Scams

The first thing I look for is the geographical location of the broker. If I find that they are based in a country where the financial industry is, in my opinion, relatively unregulated and under-developed, I quickly forgo signing up. This is terrible news for honest brokers in those countries, but your job as a trader is to protect your capital. If you lose that, then you cannot trade. The onus is on them to convince you that they will do the right thing by you as an investor.

Another reported scam involves a firm advertising an employment opportunity. In reality, they are trying to attract individuals with capital to trade using their systems. The employment ads appearing in newspapers and through the Internet, state that a foreign currency trading firm is looking for individuals to teach them how to trade the foreign currency market using firm capital.During the training process, which often occurs on a demo system, the novice traders are encouraged and told that their demo trading records show that have made significant profits, that they are ready to make real money and would be very successful. Despite the firm’s assessment of the novice trader as a brilliant newcomer, no firm capital is provided to the trader, instead the excited novice is told to use their own capital to trade using the firm’s platform. In addition to various fees imposed on traders using the firm’s platform, the Forex firm makes money as an introducing broker. Each time the novice trader trades through the firm’s system, a good part of the spread charged by the broker is shared and goes into the firm’s coffers. After a few months, the novice trader loses their investment and leaves. The Forex firm, having made money from the novice’s trades, moves on to new traders, eager to become rich trading foreign currencies.

Notice any license numbers that they may have registered with regulatory bodies that act like government watchdogs who oversee the finance and investments industries. These are organisations that impose strict rules to safeguard your investment. Some of these rules may include the requirement that brokers segregate all customer funds from the operational funds of the business. Your money is required to be put in highly-reputable banks and the funds are only withdrawn from these accounts upon specific withdrawal requests.