People look at the Forex market for making quick and easy money. In the internet age, there are ample opportunities to make money; however, many impersonate and commit broker scams.
The daily volume of Forex trade is approximately $6.6 trillion, one of the most lucrative markets. People from all walks of life are attracted to this liquid market. Since there is high volatility, making a profit is easy, requiring as low as $100 to start trading.
Due to the current economic situation, many people who lost their jobs as a result of the pandemic are now searching for alternative sources of income. Unfortunately, as people are desperate to make quick money, some scammers lurk on the internet like sharks in the sea, trying to lure in potential victims.
Scammers impersonate a Forex broker and run adverts on social media platforms like Twitter, Instagram, and Facebook. Then, they bait their unaware victims by promising a deal too good to miss.
The other reason many fall prey to broker fraud is that there is a general perception among the public that Forex trading is very easy and does not need any prior understanding. Many, if not most, view Forex trading as a gambling pub in Las Vegas.
However, none of it can be further from the truth. Forex trading is indeed straightforward, but there are many factors that you need to understand. Without prior knowledge, it can be like trying to cook a great dish you have tasted in a restaurant without any accurate knowledge of the ingredients that go in.
Since there is a general lack of awareness of how the Forex market works, many scammers impersonating a broker make good use of this information. They will spin a yarn around to make it look legit when they are just trying to impress you with their sweet talk, further pulling you and getting you stuck into their web.
In this article, we will educate you on the different types of broker scams so that you can avoid them if you ever come across them.
Different types of broker scams:
These are based on manipulating the Stop-loss feature, a common financial risk management tool.
Stop-loss is a feature that allows traders to mitigate losses if the downward trend of the currency pair continues. Therefore, the Broker manipulates the currency pair’s price by initiating many Stop-loss orders, thus triggering an unnatural currency pair volatility.
The unethical Broker benefits from this currency pair manipulation movement while the traders struggle to regroup. This practice is also called a stop-hunting Forex scam.
Point-Spread Forex Scam:
Similar to Market Manipulator in the sense that Point-Spread is not just restricted to the Forex market.
The Broker artificially manipulates the Point-Spread between the bid and ask prices of the currency pair. Naturally, this leads to more brokerage, which reduces your reward if your trade is booming.
Although such scams are not as prevalent as it once was, few still use these illegal tactics to earn money at the expense of their clients.
Signal-Seller Forex Scam:
This is another classic Forex scam that lures potential victims on the pretext of assured profit. Here the clients follow the instructions laid by the so-called “Experts.”
These “Experts” know a thing or two about Forex trading. They research currency pairs and lay down their analysis. These “Experts” may also be automated. The accuracy of these supposedly “tips” is questionable, and the chances of them succeeding are less than your research.
In the end, the Forex trading testimonies for these so-called “Signal-Sellers” on the website claim tall tales about the success rate of the information they provided.
Suppose such information originates from a regulated license and a well-known or reputable Forex broker, in that case, they are worth collaborating with as they have their firm’s reputation on the line. The only drawback is the high price for the services offered by the renowned firm.
Technology has advanced to such a great extent that our entire surroundings are dominated by machines in one way or the other. If devices are so good, they can also trade on our behalf, right?
The answer is “yes” there are many reputed, licensed, and regulated brokers who offer in-house trading bots that trade on your behalf. These brokers pour a lot of money into creating a bot that takes care of your trade affairs.
After years of research and development, few brokers have cracked the trading code. These resultant trading bots trade in the market based on historical data and various algorithms that give the user the best price prediction to trade and minimize the risk of loss. These trading bots have a higher success rate compared to seasoned traders. Thus awaiting such services can be very pricey. In the end, some human intervention is needed when you activate these bots as they keep trading until and unless you command them to stop.
On the other hand, Imposter brokers offer their version of “trading bots” at a competitive price. Never fall for such offers. These are one of the most prolific broker scams. These trading bots are based on algorithms that have never been field-tested. And you are bound to lose more money than you can afford. So to avoid falling prey to what might seem like buying a trading bot at a discounted rate, you should study the bot, its services, and its reliability before cashing in on them.
Guaranteed returns Forex Scam:
These scams are also known as “Honey Pot” Forex scams. They entice victims to step into their broker fraud on the pretense of earning a huge amount of money, an offer hard to resist.
It is also called the Honey Pot Forex scam as the honey is compared to the lucrative offer in the context of Forex trading, and those victims are like Winnie the Pooh, finding honey irresistible.
You cannot blame people for getting victimized by such fraudulent activities. The ever-growing inflation subsequently reduced the purchasing power of the people. Combined with a lack of knowledge of the financial instrument they invest in, these people are frustrated and find a quick solution to get rich. The get-rich dream is only fulfilled for the scammer at the expense of their clients. Leaving these victims shattered after the sham.
Impersonating brokers entices people with cheap ways to get rich by stating that it is quite risk-free. However, one should remember that these things are never free in this world.
Every business has its ups and downs. And if these scammers claimed that there is no risk. Then don’t you think they would have multiplied their wealth without letting other people know? Remember, no business runs a charity; they have opened up their business to expand and grow by rendering their services to you.
So Forex trading is also risky, and people lose money on a bad trade.
Forex Mutual Fund (PAMM) Scam:
Percent Allocation Management Module or PAMM is similar to mutual funds where multiple currencies are used instead of stocks from various companies combined with the process of hedging the risk and reaping profit.
There are Forex Mutual Fund Experts who do research on various currencies and chalk out the best currency combinations to maximize profit potential. They are just like Mutual Funds Experts who keep tweaking the stock basket to give their clients the best results.
This is ideal if you cannot actively participate and need a broker to make a profit on your behalf. Thus there is a considerable profit-making potential if one were to go for PAMM.
However, scammers skillfully take away their fully combined money, not to mention the extra cash from fees imposed for purported “fund management services.”
Deposit Bonus (or Double Bonus) Forex Scam:
The deposit or double bonus forex scam involves, as its name implies, offering cash prizes for completing particular acts, such as opening a forex margin account, trading a specific number of times, depositing a specific amount of money, or launching a forex trading account.
Technically, this is a different kind of Forex “honeypot” scam. Simply put, the honey jar represents the deposit bonus or double bonus. The foreign exchange trader is like an impatient bee trying to get to the honey to check the pot’s integrity.
Now that you know how to spot broker scams. You now need to know which Broker is genuine and which one is the imposter.
Scammers imposed to be a broker scams are generally unregulated, operating without a license to deal in financial instruments. The brokerage business is certainly a scam if they operate and offer their services in the United States and have their headquarters located outside of the United States.
Before committing to a brokerage service:
- Check if they have a valid license and a regulated certificate from any authority, private or centralized.
- Go to their homepage, then go through their review page, and check the quality of the service that they offer.
- Remember, it is a service industry, and they are bound to have some disgruntled clients. But you can gauge the overall client management of these brokers.
Always go for a reputable broker. Do some research before settling for one. Try adding words like broker scam who has contacted you in the search engine. Check if the company proves to be reputable but is under the scrutiny of any disciplinary action.
Last but not least, check how old is the Broker or firm offering you services. If these brokers or firms claim to have trophies, check if they are real or fake in the search engine.