The worldwide web in general is often a safe harbor for the existence, development and reproduction of different parasitical and harmful creatures, called scammers. The Forex market, as a part of this enormous society is also a common victim of different Forex scams, some of which are more simple and individual while others are perpetrated by whole well organized societies.
All of you have heard of forex scams at least once, and some may have even had firsthand experience with such. Even so, there are still many people out there, who hardly know anything about scammers and even Forex in general. They have possible heard some bits and pieces, about how acquaintance of theirs turned a good profit on Forex, and another one who got caught with his pants down, and to this days accuses some nameless bad people in all worldly sins for scamming him out of his money. The latter are the prime target of scammers, since they feature a pretty loose character, with little knowledge of markets.
Let’s try to have a closer look at the most popular scam types, and ways to avoid them.
- Managed Account Forex Scams
You don’t have any time to trade yourself, but still want to earn millions? No problem, there’s a wide variety of “professional” traders at your disposal, that are ready to make 100% monthly profits without moving a finger. In this case, you invest a certain sum of money giving control of it to a person that you hardly know. This can be done in several ways:
- A personal agreement with the account manager
- Through a broker
- Through a broker, but using specially tailored services, such as PAMM, LAMM, trade copying, etc.
You should always approach managed trading with due caution! If you are using the services of an independent trader, you are also taking a lot of risk, as without any intermediary the account manager can simply cheat you. However, even when you invest funds through a special service with your broker – this does not secure from certain types of risks, which would often allow the account manager to blow all of the funds on your account.
- Automated Trading Forex Scams
EAs and robots – are special programs, designed to trade automatically based on a certain set of rules derived from indicators and trading algorithms. The owner of an EA simply needs to switch it on to enjoy his free time and monitor profits occasionally.
Such EAs in general are not forex scams. In fact, a whole following exists in the Forex space, typically called automated, or algorithmic trading. However, all EAs are unique, and are usually created based on the personal vision of their developer, and are fine tuned to his style of trading. Such trading systems, despite being automated, require constant monitoring, as they don’t always consider market sentiment and fundamental factors in their calculations.
Where’s the scam, you would ask then. Most scams begin where a developer decides to aggressively sell their EA. Numerous developers will tell you that by investing just 10$ (20/200/1295634)$ you will get a miraculous system, thanks to which your life will only know one problem: where to spend the money you earn.
Of course, there’s something wrong with this. Why would a person that owns a Hoy Grail of income, need to sell anything? Especially for a sum of money that he can earn using his software in just a couple of minutes or days? Isn’t it better to just hide in quiet place, and methodically pump money out of brokers, feeling yourself like George Soros?
Of course, under certain conditions and over a short period of time the robot that you buy might show some amazing results, but what will happen afterwards?
The conclusion is simple: stay away from automated live trading until you get a feel of what it is to you. Any automated or manual strategy needs extensive testing in the long run to prove itself!
- Signal and Indicator Forex Scams
Here, the situation is quite similar to EAs. The main difference, is that signal services and indicators do not open trades of their own accord, but only provide trade signals that you may use to your liking. When you see an advert for a super profitable trade alert service, ask yourself the same questions, as in the above section.
P.S. If you really like an indicator that you find for sale – try looking up something just like it on public resources. Scammers often sell freeto use products after rebranding them. 😉
- “Stop Loss Hunting” Forex Scams
There are many scary stories among traders about unscrupulous brokers, which like to “reap” deposits through manipulating the price quotes in their price feeds against the customer. Unfortunately, such things can happen, but things are not that bad. Why? Let’s have a look:
Many of these stories are made up to say the least. Some of them can simply be fake and created by concurring companies. Here’s what they all have in common:
- – No solid proof
- – Made on demo accounts
- – Created from fake account with just one post.
Nowdays, such “black marketing” is a pretty common thing, done professionally, and is well paid for, therefore can be very hard to detect. Be cautious. This does is true not only for “stop loss hunting”, but also other aspects of the brokers actions.
If you own a small deposit, think about it – are your 10/100/150$ that important to the broker, so as to manipulate it’s price quotes just for you? It’s a totally different thing, if you won a large account. But in this case you should always take care of diversifying it over several account with different brokers! Besides, with a large account, you may afford to use a reliable broker, or even an institutional account type.
- Risk of broker bankruptcy
Sure, many of you have heard the stories of ForexTrend, MMCIS, DivenFX and RVDMarkets. Problems with paying out withdrawals that certain brokers have are spoiling the reputation of Forex far more than intrusive adverts or scam sellers. Pay attention to your broker of choice and how it operates, and make sure to check some of the reviews that we regularly post to make an informed decision when selecting your brokerage.
This is all we have for today. If you know of any other scam mechanics which we didn’t mention here, feel free to share them in the comment section!