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Understanding Forex Scams and How To Ward Them Off

Forex broker scams are pretty common now, and with the right knowledge, you will be able to know what to look out for to ultimately gear up against forex scams. Last year ended with the FBI netting their biggest catch so far with 47 illegal Forex operators who already cost millions of dollars to trade. The FBI called the raids their most “sweeping infiltration” of all time. The “47” came from big banks, small banks, boiler rooms, and even the Federal Reserve Bank itself.

The FBI also stated that this type of fraud is prevalent in the Forex marketplace and probably has been around for decades. And if you are an eager, aspiring, active Forex trader, you are just as likely to get scammed. So, how will you avoid it?

The most recent widespread series of FBI sting raids preyed on financial institutions of all sizes as well as individual investors. “Millions of dollars” does sound like a fat haul even when split 47 ways, but the global forex marketplace reports $5.1 trillion in transactions daily, meaning transactions worth trillions every day.

So with the staggering amount of transactions crossing numerous international borders in every way possible and every single day, it is easy to believe there are a lot of sharks in the water.

Now, let’s equip you to spot and dodge forex scams with this guide. But with every precautionary step you take, there is a well-equipped criminal who is plotting his way around it.

And with the forex marketplace rife with scams, you might start doubting forex as a whole. But forex in itself is not a scam. As long as you take precautions, you will be able to steer clear of con artists. Here is some basic stuff you will need to do that will act as your own homework to verify the legitimacy of different forex brokers. Now, it is in your own hands to check every forex broker thoroughly before you go ahead.

Now, let’s dive in.

What are forex scams?

The foreign exchange marketplace has been such a risky and volatile investment that forex trading itself has been called a scam. So much so that forex itself has also been called a sophisticated form of gambling.

The forex marketplace has the following characteristics:

  • Never closes entirely ( 24 hours/ five days a week)
  • Decentralized
  • Lack of regulation
  • Liquid and volatile

Before you start forex trading, know that it is a wildly risky business. The marketplace itself can go against you at any given moment. You also need to know that when you encounter an investment with high risks, it also holds the potential for high rewards.

Why is the forex marketplace rife with scams?

The answer lies in high rewards. Criminals seem to naturally flow towards the crazy, busy and volatile marketplace, as compared to any other more stable and steady investing and trading platform. This is because the marketplace is overly crowded and fast-moving, and it is not easy for regulations to reach the scams.

Scammers often trust the cover of the hectic market to not let the law enforcement catch them. And hence, scammers are overconfident, and it can work in your favor if you know what to look for to tell the genuine ones from the fakes.

Forex might even look like a pyramid scheme from afar, but if properly regulated, forex trading is a legitimate marketplace and not a pyramid scheme. However, there are a number of criminal activities associated with Fx scams. For example, the forex scammers picked up were a part of various other scams as well, including bank fraud, mail fraud, write fraud, etc.

Where do forex scammers operate?

The ones who were caught working at every level of the forex marketplace, banks, the Federal Reserve Bank, financial institutions, intermediary brokers, boiler rooms, etc.

Most of the 47 forex scammers were working inside banks and financial institutions as employees and exploiting the internal position that protected them while they conducted illegal activities.

There is often a whole network of criminals working together through whole networks of entities and institutions.

How do forex brokers work?

Forex broker scams operate in two major kinds, traditional scams, and evolving scams. You can look at it from the point of view of data security. Criminals back then were limited to breaking into the building to steal sensitive data and nick the hard copy files. But now, data breaches have become quite common, and nearly all of them are carried out online. Cybercriminals can steal sensitive data from anywhere in the world. Traditional scams are widely known by many traders and the FBI, and they are all alert when it comes to those scams. But when it comes to evolving scams, they are evolving with technology and are hard to see coming.

The bottom line

No matter the kind of scam they attack you with, know the basics, do your research and be ready to tackle them. A few basic steps can go a long way. Traditional or modern, if you are careful enough, you will be able to see the early signs of a scam.

Read also: Top 6 Forex Chart Patterns You Should Know About