Forex Trading Scams: How To Avoid Becoming a Victim

Forex trading is a legit way to make money, but it can also be one of the easiest ways to lose money too.

Over the last few years, foreign exchange trading has grown popular and more investors have flocked to the concept. Yet, many people who have little to no experience with forex have also gained interest.

The challenge is with the rising popularity, comes many forex trading scams as well.

Many beginners or people looking for ways to make money fast, may get caught up in the glamour that these forex scams promise.

But don’t worry, I’ll share the common forex scams with you below and additional tips to identify any red flags before you put any money into trading.

What is Forex Trading?

The concept behind forex trading, or foreign exchange trading, is pretty simple: you exchange one foreign currency for another. Currency exchange happens all around the world every day. It’s a largely invisible process without which international trade, commerce, and travel would be impossible. 

Foreign currency

Think about it: your favorite sushi restaurant has to exchange USD for JPY to buy fresh fish from the markets in Tokyo and the maker of your favorite merino wool sweater has to pay the sheep farmer in AUD to import the wool. 

If you decide to cross the border to Canada, you can’t order poutine without either exchanging your USD for CAD or paying a foreign transaction fee to have your credit card company do it for you.

These are just small examples of the millions of similar transactions that happen every day.  Recent reports indicate that the average daily forex trading volume is over $5.1 trillion, making it the largest asset market in the world. So how exactly do people make money trading currencies?

Forex Trading Example

There are several strategies, including forwards and futures trading, but most activity takes place on the spot market. Currencies are traded in pairs such as USD/JPY and EUR/CAD. 

Let’s say you’re trading in USD/CAD. If you purchase 1000 CAD at a USD/CAD exchange rate of 0.79, you’ll pay $790.  If the exchange rate later goes up to 0.82, you can exchange your 1000 CAD for $820, giving you a profit of $30.

This example is straightforward, but forex trading is complex. Currency exchange rates are influenced by global supply and demand, as well as interest rates, economic performance, and geopolitical factors all over the world. 

The market is risky and volatile and it’s easy to lose a lot of money if you don’t understand what you’re doing.

Despite rumors to the contrary, forex trading is not a pyramid scheme. It’s possible to trade currencies on the spot market and to make money doing so. 

And there are plenty of legitimate success stories out there, but there’s also a ton of misleading information.  If you want to try forex trading, you must learn how to distinguish legitimate opportunities from scams.

Can you get rich by trading forex?

Forex trading can make you rich if you can afford to get involved, work in a hedge fund, or have deep expertise as a currency trader. However, for the average trader, forex trading can cost you substantial losses and is not an easy path to take.

What Kind of Forex Scams Exist?

While forex trading itself is not a pyramid scheme or a scam, the foreign exchange market is huge and mostly unregulated. And because of that, unfortunately, there’s plenty of room for unscrupulous people to set up scams to trap unwary investors. 

The people behind the scams are clever and ruthless — you’ll need to be on your guard to recognize and steer clear of their tactics. You might be tempted with 6-figures, 7-figures, etc., and promises of easy money, but that should be your initial red flag.

However, let’s take a look at the five most common forex trading scams.

1. Signal sellers

Be very wary of people or companies promising to give you all the advice you need to beat the forex markets and make big money in exchange for a recurring fee. These people are known as signal sellers. 

Singal sellers claim that they can tell you exactly when to buy and sell particularly currencies based on their “proprietary algorithms” or “deep insider knowledge.” But more often than not, you’ll get nothing in exchange for your money on the “advice.”

Signal sellers are good at presenting themselves as experts, showing huge profit numbers, and sharing rave customer reviews. Don’t be taken in — all those things are easy to fake or misrepresent and the internet is full of this type of scammers.

2. Robot trading systems

Everyone wants to believe in a magic formula that will help you get rich or wealthy with no effort at all.  Forex scammers prey on this desire for easy money by promising you an automated robot trading system that will make the correct buy and sell decisions for you. 

All you have to do is put your money in and let the robots do the work to make you rich!

These robot trading systems have not been proven or vetted by any legitimate agency.  Plus, no computer can reliably predict changes in a forex market that depends so heavily on global events and subtle political and economic signals. Just say no to forex robot trading systems.

3. Broker frauds

To buy and sell currencies on the foreign exchange market, you need a broker to grant you access to a trading platform. 

There are legitimate brokers, but there are also plenty of dishonest brokers who will either take your money and do nothing or charge you exorbitant fees for your trades.  

Before choosing a broker, take the time to do thorough research and make sure their operations are above board, including making sure they are affiliated with a reputable governing body or regulatory agency.

The Background Affiliation Status Information Center (BASIC) website is a great place to start.  You should also read all the fine print on any disclosures or documentation when opening an account.

4. MLM forex scams

Multi-level marketing (MLM) forex scams contributed to the association of forex trading with pyramid schemes.  And there are several popular MLM businesses focused on forex trading. 

Forex MLMs provide daily trade advice and forex training materials, but they also charge members a monthly fee and pressure them to recruit more people by offering commissions. The more people you recruit to join the MLM program, the higher your commission and the more money you make.  

Most people in forex MLMs make little or no money trading because the real goal of the company is to recruit as many people as possible and collect their monthly fees, not to help you become an expert forex trader. 

If you want to be a serious forex trader, stay away from these MLM scams.  You don’t need them, and they don’t offer you anything worth paying for.

5. Fake forex funds

Scammers offer fake forex funds to tempt individual investors, who might like the concept of mutual funds better. These funds are promised and typically boast huge annual returns that are difficult to walk away from, but you should steer clear. 

Repeat after me: if it seems too good to be true, 99.99% of the time, is.  That 0.01% is not worth the risk — invest your money in the proven index funds or mutual funds instead.

Plus, there are many alternative investments that will provide much better value.

How to Identify Forex Trading Scams

Now that you know some of the common forex scams, how can you easily spot these sooner, rather than later? Below are a few signs that should signal to you that something is not right.

Guarantee of large profits and success

This is always red flag in anything you do. And this is a definite red flag with forex.

The forex market is volatile and there are certainly no guarantees — ever.  Anyone who guarantees specific results is a scammer or looking at you as an easy target.

Vague background 

It’s not hard to fake results or to alter charts and statistics by leaving out key data points or time periods. 

Before purchasing a product or following someone’s advice, ask for detailed background information on profits and losses. If they can’t or won’t provide it, walk away.

Persistent spam marketing

Scammers often try to create a fake sense of urgency to push you to make purchasing decisions quickly before you have time to think about what you’re doing. 

They also request personal information with the intent of selling it or using it for identity theft.  If someone is pushing you to make a decision fast or asking for personal information, it’s best to avoid them

Using fancy words to confuse you

Fake forex experts dazzle their audiences with fancy words to demonstrate their advanced expertise. It’s easy to assume their snazzy acronyms and clever phrases mean they must know what they’re talking about, but it’s all for show. 

Successful forex trading is difficult, but there’s not a lot of highly complex concepts and terminology involved. 

Real experts make a point of communicating their advice transparently and in a way that’s easily understood. Don’t be taken in by a scammer’s way with words.

Asking you to pay for trading software

If you’re tempted to buy an “expert’s” forex trading software, ask yourself a question: if this guy really knows how to guarantee huge profits on the forex market, why is he trying so hard to sell me software instead of using it to make a fortune himself? 

Most of the forex trading software being marketed to beginners is unproven, unregulated, and not worth your money.

Avoiding Forex Trading Scams

Forex trading is definitely for real and you can make money in this category, but it is not for the faint of heart. And it’s also easy to fall for forex scams.

Personally, I think 99% of people are better off investing in the stock market, real estate, starting a side hustle, and invest in other alternatives.

But if forex trading is something you want to explore, it’s important to do a few things:

  • Do your research and lots of it
  • Talk to a trusted financial advisor or wealth advisor
  • Don’t follow for forex scams
  • Know how much money you are willing to risk