A forex scam occurs when a forex broker convinces traders that they can make windfall profits in the forex market. There are many scams, but the most common involve:
- Broker running fake online brokerage, accepting deposits and keeping your money
- The broker who charges excessive fees to trade
- Broker charging excessive fees processes wire transfers when you request a withdrawal of your money
- The broker takes an inordinate amount of time to issue you a payment when you request a withdrawal
- The broker that encourages excessive trading
- The broker manipulates stop loss orders or ignores buy or sell orders to maximize the broker’s profits
Before choosing a forex broker, you should do your research. Taking a look at the reviews and guides of various brokers online can be very helpful. Looking at some of the online forums for broker trader reviews can also be a worthwhile exercise, as these reviews are often extremely unbiased and unfettered. You should go through several of these forums to get a complete picture of the online broker being reviewed. Also, please note that some reviews do not reflect the typical traders experience with the broker and a negative experience may be due to the broker’s lack of trading experience or simply poor or aggressive decision making. Try to find information about the reviewer’s trading experience.
How do you know if a trader is really scammed or just inexperienced?
When reading reviews and trader posts on online forums, it is a good idea to keep in mind that some negative reviews are due more to the trader having little trading experience and less to an online forex broker providing a poor service or product. In addition to the tips listed above, there are a few ways to tell if a trader is inexperienced. 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 for more than a day and thereby pay to “reset” their account at the full bid/spread price. An inexperienced trader can also use a margin of 0.5 – 2% (instead of the safer 10%) to try and make a huge 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 accepts the trader for a hefty sum on each trade; experienced traders are less likely to trade with these types of brokers. . Lastly, inexperienced traders are more likely to write about problems with their mini accounts and complain about losing their first deposit of $50 to $200. More experienced traders are more likely to open larger accounts and trade larger sums.
How to protect yourself as a forex trader
There are some important points to remember before you jump into trading. Be sure to read the fine print before investing and understand the limits of what a broker offers. What commissions or spreads will the broker charge on a trade? Are there any hidden costs or fees, such as settlement fees, transfer fees, account maintenance fees, etc.? Check your trades to see the time it takes to execute orders. Find out how long it takes to get paid when you decide to settle your account. If your broker does not allow you to withdraw your investments immediately, consider it a warning and do not invest with them.
Unfortunately, forex scams are a reality, so do your research before opening an account with an online forex broker. Find the right broker for you by reading online reviews and online user forums. Be sure to educate yourself on the brokers’ trading terms and conditions – read the fine print. If in doubt, contact the broker’s customer service. If you are new to online forex trading, open a practice account before trading with real money. If you find a forex scam, post a detailed experience online for others to read so no one else gets burned.