How to Spot Forex Scams

by Kevin Berry
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More and more people in a difficult economic situation conclude that the best option to protect their savings is an investment. The increase in the number of investors and accounts opened by them confirms it. However, many people in search of more profitable variants accept offers from very dubious companies that actively advertise their services and sky-high profitability. They promise that you’ll spend only a couple of hours a day trading different assets. And that’s how you will be able to earn hundreds of thousands of dollars. The problem is that most of them are not even real brokers. One concept — the Forex scam can characterize all of this. There are a lot of schemes that scammers can use to deceive you. How to spot Forex scams and avoid them so as not to lose your money? We will give you all the answers.

What Is Forex Trading?

“Forex” is a name formed by merging the initial parts of the words Foreign Exchange. In simple words, when we talk about the Forex market, we mean the market where currency exchange operations are performed. In fact, the history of this market began in 1971 with the unilateral rejection of the “gold standard” by the United States.

However, it is believed that the Forex market arose and finally formed only in the period from 1975 to 1978. At this time an agreement on a new organization of the world monetary system was adopted in Kingston (Jamaica). According to it, the participating countries of the IMF (initially the largest ones) completely abandoned the peg on gold or the dollar. As a result, the exchange of their national currencies had to be carried out at a free exchange rate. In 1978, the IMF finally agreed to this. The result was a worldwide currency exchange system, which was called Forex.

In the late 1990s and early 2000s, the interest of private investors in financial markets increased. Many of them would like to make a profit on the Forex market. However, because of market specifics, they couldn’t do it. To meet the demand, so-called Forex dealers have appeared, more about which we’ll talk in the next section. Such projects work exclusively on the Internet. It is their services for retail traders that are now called the Forex market for individuals. Since this is not an Interbank Forex market, but its imitation, regulators did not pay attention to it immediately. That has created a field for illegal activities and all kinds of fraud. By the way, you can watch a more complete video about the history of the Forex market.

It is impossible to calculate exactly how many losses were caused by the actions of Forex scam projects. Not all of the victims turned to law enforcement agencies. However, the amount for the past 2021 alone has already exceeded a billion dollars.

How do they manage to cheat people for such a lot of money? It’s all about how the Forex market works.

How Does the Forex Market Work?

It would be naive to think that a private investor with a couple of thousand dollars in the account can become a participant in the Forex market. There is currency exchange at the cash desks of banks or purchase/sale assets on stock exchanges for them. This part is only a drop in the ocean, compared to the actual volume of currency exchange transactions. Forex is an interbank, over-the-counter foreign exchange market with a turnover that already exceeded $10 trillion daily in 2020. Its real participants are:

  1. Central banks of states. They perform operations to ensure the optimal exchange rate of the national currency (currency interventions).
  2. Commercial banks performing conversion operations (payment, deposit-credit, hedging) in the interests of customers. Additionally, banks also exchange currencies from their funds to meet the demands of retail customers and finance their investment activities. They are the main market participants (they account for more than 90% of the daily trading volume), so the international currency market is rightly considered interbank.
  3. Currency exchanges. In some countries, such exchange platforms operate separately, providing conversion operations between traders.
  4. Companies engaged in international trade or investments abroad. Only some of them have direct access to the market, and the rest work through commercial banks.

The real Forex currency market is served by a limited number of large information-dealing companies (examples are Bloomberg or Reuters). In these networks, participants receive quotes and make deals. Some of them do not provide gateways and routing of the flow of client applications to trading platforms at all. Incoming orders are processed manually by the back offices of commercial banks participating in the system. At the same time, the cost of one operation can range from $100 to $500. And a subscription to only one Forex platform costs at least 2-3 thousand dollars per month. Naturally, in such a system, millions of applications from retail customers with a volume of several thousand dollars each will not be processed. The minimum lot here is $1 million, and the standard one is 5 million.

Retail clients will be able to trade on the real Forex market only if they have a capital of several million dollars. At the same time, they will work without leverage through the bank in which they have an account.

What is Forex, which is available to retail investors, and what is traded on it? Forex, where individuals with small capital are offered to trade, is a market where transactions for the actual purchase and sale of foreign currency are not concluded. The investor here only tracks exchange rates and, usually, makes bets on their growth or fall. The intermediary here is the dealer company (always a legal entity), which enters into transactions with all participants (buyers and sellers).

forex market

Most of these companies call themselves Forex brokers. Although they do not perform any real intermediary functions (to bring together a seller and a buyer). However, this formulation has caught on even in official sources. So it is used along with the correct version of “Forex dealer”.

Forex dealers can use several technologies for organizing trades for clients.

Technology Specifics Conflict of interest
Dealing Desk (DD) The dealer acts as a counterparty to all trades of the bidders. Organizers of the Forex auction get maximum freedom. They set spreads, commissions, and leverage and can even change the quotes coming into the client terminal. The technology assumes a conflict of interest. If the trader makes a profit, the dealer is at a loss. And, conversely, the trader’s loss becomes the dealer’s net profit.
No Dealing Desk (NDD) Some of the requests were satisfied with counter orders from other traders. The uncovered difference is consolidated and sent to the real foreign exchange market (independently or through a broker working on it). The dealer’s profit consists only of spreads and commissions. Conflict of interest is practically excluded. On the contrary, the dealer benefits from a significant turnover that increases its earnings.
Straight Through Processing (STP) The dealer combines the bids of the participants and transmits the final one to the liquidity aggregator. Applications from liquidity providers (in fact, market makers) are also sent there. They set the basic level of supply and demand. So, they are the ones who set the spread and earn on it. The dealer’s income is the commission of the participants. Conflict of interest is excluded.
Electronic Communications Network (ECN) The dealer actually becomes the organizer of the similarity of an electronic exchange platform. The system receives applications from traders and liquidity providers. A common order book is formed, which is visible to all participants. The spread is formed at the best order prices, the dealer earns on commissions. Conflict of interest is excluded.

Thus, Forex brokers get an excellent opportunity for almost risk-free earnings. However, for traders and investors, trading even in such a surrogate market looks quite attractive. For scam projects, this is a great opportunity, too.

Is Forex Legitimate?

As we have already mentioned, the real Forex market is not available to a retail trader. Is it legal to trade in its surrogate likeness? Is Forex scamming?

No, Forex is not a scam. It is legitimate. You can trade in this market as a retail customer. Of course, if you are not from the USA. Because citizens of the United States can only trade with companies that are registered in the United States and have the permission of local regulators. Any trade with foreign companies is illegal for them. Several countries have such restrictions. For example, Japan. Before you start trading with a foreign Forex dealer, you need to study the laws of your country. However, if this is allowed in your country, then there is another nuance that is worth paying attention to.

Forex trading is safe only if the client works with a licensed Forex broker or dealer. A Forex broker is an intermediary who brings together a buyer and a seller in the market. However, it does not participate in the transaction itself. Forex dealers, unlike a broker, always act as a party to the transaction. That means that they buy from the seller itself and sell to the buyer.

There are no real Forex brokers in online Forex. All of them remain in the real Forex market with huge trading volumes. Retail customers can only trade online with Forex dealers. However, as you already know, people have confused these two terms, and then equated them with each other.

There is also a third participant in the online market — a CFD broker. As the name implies, it offers CFD trading. What is CFD? It is the same online bet on the rise and fall of asset prices. In this case, the asset is not a currency, but any asset in general. You can enter into a contract for the difference in prices for stocks, indices, gold, and wheat, for any instrument provided by the broker. At the same time, you do not become the real owner of the asset. For example, if you are trading with a crypto CFD broker, you won’t be able to withdraw the purchased Bitcoins to your cold wallet. If you turn out to be right and the asset grows in value (or falls), you will receive a profit. It is equal to the difference between the price of your purchase and the price of your sale.

It is under the third category that all kinds of scam most often disguised. For them, there is a real expanse here. They offer you a lot of assets to trade, ask for a small minimum deposit, and of course, give you high leverage. At the same time, these CFD brokers modestly keep silent that you won’t become the owner of real shares, or, for example, silver on their site. Your task is to learn how to distinguish such scam from real Forex dealers, or, as we say today, Forex brokers.However, before that, you may have another question.

Is It Not a Fraud That People Are Losing Money With a Licensed Forex Broker?

Yes, with a licensed Forex broker, traders also often lose capital. Why is this not considered fraud? Because investors themselves are often to blame for the loss of money. The main mistake that haunts almost everyone at the beginning of their career is the desire to increase the deposit as soon as possible. Brokers don’t even need to do anything illegal to make these inexperienced traders lose their savings. The lack of a good trading system and the craving for risk are doing their job well enough.

You Cannot Beat the Market

Beginners often think that the Forex broker charges too much money as commissions, spreads, and other fees. Even on Wikipedia, you can read that retail traders are not capitalized enough. However, the problem is not that you can’t beat the market, but that you can’t beat it fast. Even institutional investors pay commissions. Additionally, spreads are valid for everyone. Different fees may be slightly less because large investors have large trading volumes.

A retail Forex trader works in the same way as an institutional investor. Your only problem is less money. If you want to earn a lot at once, naturally you will want to take risks, and the probability of losing everything will increase. If you have a good trading system, and you follow the rules of money management and risk management, then, your chances of making money in trading are no less than those of large companies. In other words, you can beat the Forex market, but only if you take it seriously. If you just intend to open as many trades as possible to guess the right direction without any trading system, you’ll lose.

Let’s imagine that you came to the Forex market for the first time and don’t know anything. Your chances of guessing the right price direction are 50/50. However, at the same time, you pay a spread, a brokerage commission, a swap, and interest for using margin funds. As a result, you find yourself in the same position as in the casino. Your chances of earning less than the chances of losing everything. How to increase the chances of earning money? Take your time, learn what Forex is and how it works, and familiarize yourself with the technical analysis. Then you need to come up with a trading system that will increase the mathematical expectation. You can even use a ready-made trading strategy. Be sure to follow the rules of capital and risk management and here you are. Your chances of profit have increased rapidly.

Forex Brokers Use High Leverage

We’ll tell you a secret. All brokers know that you want to earn a lot at once. Your losses are always the earnings of a Forex dealer. Therefore, it is in their interest to make sure that you use all available opportunities to increase risk. Yes, now we are talking about leverage. In the European zone and in other countries where Forex is tightly regulated, you are unlikely to find leverage for a retail trader higher than 1:30. And it’s still quite a lot.

leverage in forex

In other jurisdictions, for example, offshore, leverage can even reach high-sky values: 1:500, or 1:1000, etc. That, by the way, is a trick that even licensed companies like to use. They say: we are European brokers with a reputable license, and your funds are protected. At the same time, they have several more branches opening in offshore states. And if you are unlucky enough to live in Europe, they will open an account for you, not in a European jurisdiction, but an offshore one.

Of course, in this case you will get gigantic leverage. Often, they do not even give customers the right to choose what leverage will be in their accounts. How to avoid losses in such a situation? Even if you are assigned giant leverage, for example, 1:500, you can control it yourself. Just calculate the size of your trade correctly. You don’t have to open an order for the entire allowed amount with a five-hundredth leverage. Calculate the size of the trade so that its amount exceeds your available funds by no more than 20-30 times. Or another option: use no more than 3-5% of your deposit to make an order. That will be equivalent to the fact that you have made a purchase of an asset with a leverage of 20-30.

And remember: whatever tricks licensed Forex brokers use, you can avoid losses. Your two main friends in this matter are money management and risk management.

Most Common Forex Scam Schemes

Yes, you can also lose money with a licensed Forex broker. However, in this case, you know what you need to do to reduce the risks. With a competent approach to money management and constant self-education, you can earn a profit. The opposite is true if you fall into the hands of a scam company.

You will be surprised how many types of scams exist in the Forex industry. For many scammers, nothing is sacred, and they use the most unscrupulous opportunities to help you lose your money. As a rule, such scam brokers have nothing in common with Forex at all. They just hide behind beautiful names and promise you a lot. However, don’t worry. We will help you learn how to distinguish them.

Forex Brokers Scams

One of the most common scams is fake trading websites. Oh, if you only knew how many such scams we expose a day! By the way, you can find a list of companies that you definitely shouldn’t transfer money to here (link).

Externally, such scam projects are very similar to ordinary Forex brokers. However, pay attention to their websites. As a rule, they are noticeably worse than the sites of real companies. Why? Well, they need your money. They are not going to spend money on creating a good website, buying a perfect platform, and other amenities for customers.

Also, Forex scam companies do not have a legal registration. They are just the fiction of a real broker. As a rule, their platforms are completely manipulated and they can do anything with your deposit. At the same time, there is no regulator over them. So they feel almost omnipotent. Do not contact such brokers.

Sometimes it happens that you can find some legal information on the pages of the broker’s website. Unfortunately, that does not mean that this company is not a scam. Pay attention to where the broker is registered. While the regulation of Forex is being tightened in Europe, the USA, and other jurisdictions, offshore zones have become the place for all possible scams.

Why is this happening? Regulators in these states do not license international Forex dealers. All that a company can get in such an offshore zone is a certificate of incorporation. No one cares about its further activities, because a company does not even pay taxes to the offshore state. There is no supervision over such firms, which means they can do whatever they want with client accounts. Hence, there are huge leverage, high-sky deposit bonuses, problems with money withdrawal, and other scam troubles. Avoid such companies. There are enough good brokers in the world.


Forex broker’s website Looking poor Most probably a scam
Registration Missing or offshore Most probably a scam
License Missing Most probably a scam
Additional services Ridiculous or too expensive Most probably a scam
Minimum deposit Too high Most probably a scam
Contact details Not enough or missing Most probably a scam

Signal Sellers And Forex Robots Scams

The next type of scam that beginners most often encounter is signal sellers. If you think that someone in their right mind will share a profitable trading strategy with you for a small reward, leave the Forex market. Trading is not for you. No, really, imagine the situation. You have worked hard for a long time on creating good signals. Finally, they begin to bring you profit, and out of the kindness of your heart you are going to sell them.

Come on, no one really does that. All signal sellers actually take money for nothing. They sell their pathetic strategies only because they do not bring any benefit to them. Never buy this scam. Another one of your best friends on the Forex market is to do your own research (DYOR).

At some moment you will realize that the market is a complicated thing and the human factor even prevents you from profitable trading. It’s true. Many institutional investors rely on additional software in their trading, namely trading robots. And when you first think about acquiring or buying such a program, you will encounter another kind of Forex scam. Many companies will promise you $1,000 a day of profit. You won’t need to do literally anything for this. What a great opportunity, you will think. Not at all!

What do such scam companies offer? You will need to register on their website, pay for the robot and then watch how it trades for you. Here is the deal. Let’s imagine again that you have been working on creating a good program for years. Wouldn’t it be a pity for you to sell it for a couple of hundred dollars? That’s how much, by the way, all these scam robots cost. As a rule, they work according to the Martingale method. That means that the mathematical expectation is less than one, and the probability of winning tends to be zero. In the end, you will still lose all the money. By the way, never use the Martingale method in Forex trading.

Really good trading robots that have been tested for years cost hundreds of thousands of dollars. Moreover, always check the robot’s statement. Some scam companies do not publish trading results at all. If the company has nothing to hide, it will show in the public domain what its robot could earn.

Forex Pyramid Scams

Surely you have heard of such a scam as a Ponzi Scheme. Have you heard anything about Forex pyramid scams? In short, it’s just a combination of all the worst that can be. Such scam brokers offer not only Forex trading, but also to earn an additional yield on the account. However, if you ask them how this is possible, they will not answer you. According to the rules, all the money in your accounts must be segregated. The company has no right to take them and invest. How does the additional profit appear on your accounts? It is paid to you from the deposits of new traders. It is a clear scam Ponzi scheme that will operate until the company finally becomes a scam.

pyramid scheme scam

There is another kind of similar Forex fraud. In it, you will already invite new traders and receive a percentage of their deposit for this. Many projects offer to participate in such multi-level marketing. You don’t even have to trade on the site for this. Just become an introducing broker and invite new referrals. There is a small detail here. Your referrals will not be paid profit and will not return the deposit. Are you ready to make a bargain with one’s conscience?

Finally, some scam companies do not return anything to traders at all. Usually, trading conditions and other important things are not described in detail on the websites of such brokers. They insist that you immediately leave contact details and call the manager. Meanwhile, managers will try to convince you to fund your account with as much money as possible. They will promise you full education, support, signals, forecasts, and a huge profit. As a result, after your deposit, you will find that your account is blocked and you will never be able to contact those managers again.

Managed Forex Accounts (PAMM Scams)

Sometimes you may be disappointed in your trading skills. Some investors decide that they do not know how to trade at all. However, this is not a reason for them to give up the profits they can get in the financial markets. Then they look for an alternative. Managed Forex accounts can become such an alternative. Of course, if it’s not a PAMM scam.

Only companies that have a license to manage investors’ funds have the right to offer PAMM accounts. In all other cases, you’re just playing with fire. Forex scammers are very fond of offering this type of investment. You supposedly don’t need to do anything. Just transfer the money and see how their manager trades for you. And again, take your time. Ask for the qualifications of this manager. Ask what trading results he has achieved this year. Can he or she confirm this in any way? Scammers will not have an answer to these questions, by the way, as well as licenses.

Moreover, in general, you should know that PAMM accounts are quite a controversial thing even with Forex-licensed brokers.

  1. The commission on such accounts is very large.
  2. The manager will never reveal the strategy. He or she will only show you the profitability for the previous period. Therefore, you won’t be able to understand whether his/her strategy will be effective in today’s market situation or not.
  3. The investor does not affect the results in any way. At some moment, you may notice that your manager is opening deals against all logic. Your loss on the account will grow, but you won’t be able to do anything about it.

Therefore, licensed Forex dealers very rarely offer PAMM accounts.

Another option not to trade by self is copy trading. However, it also has its drawbacks. Firstly, buying profitable Forex signals is very expensive. The more the provider shows profitability in previous periods, the more expensive it sells signals. Secondly, the provider does not talk about his/her strategies. The buyer sees only a signal to make a deal.

copy trading scam

Thirdly, most copy trading services do not allow you to change the transaction volume. As a result, traders have no guarantee that they can earn by following someone’s signals. At the same time, they will pay a lot more.

Clone Forex Firms

Finally, you may encounter the most dangerous type of scam — Forex clone firms. Externally, they look almost perfect. They have legal registration, often even in European states. Sometimes there is even a license. In fact, the registries of most States are open. These scam projects skillfully use it.

They use the data of other real-life firms and pretend to be them. As a rule, small family firms related to finance become their masks. It is quite difficult for a beginner to notice such a scam because the Forex fraudsters show real certificates of incorporation. Therefore, it is so important to carefully check all the documents and the reputation of the company before you start working with it.

How Can I Identify Forex Scams?

It is still possible to identify a scam. There are several obvious signs of fraud. We have already talked about the first one: a low-quality website. Additionally, you should know that most of the forex scams exist for less than a year. Therefore, such pseudo-brokers almost always have new domains. You can check this by using the Whois service or by looking into the Web Archive.

Also, always check the contact details. They are usually fake. It turns out that there is no company at the specified address or no one answers the phone call. Another major red flag is depositing only in cryptocurrency. If your Forex broker accepts only bitcoins or other tokens, feel free to close its website and never regret it. It’s a forex scam.

No License or Legal Information

If you are generally satisfied with the site, and you have not found the primary signs of fraud, proceed to the following actions.

  1. Look at the footer or terms and conditions. You should check whether the Forex broker has an official registration in your country and a license to work with clients. Take a look at the registry and check whether these documents are really there and what kind of activity the company has been licensed for.
  2. If the company is registered in another country, find the registry of that country and check if there really is such a firm there. Check if the broker has a license from the local regulator.
  3. Look at the warning list. The regulator of each country conducts it. Perhaps you will find your broker among scam blacklisted Forex brokers.
  4. Finally, read the Forex trading reviews. You should be alerted if there are practically no reviews about the company. Another warning sign is positive reviews without specific data. Usually, the purchased reviews have one goal — to praise the forex scam broker at any cost. You won’t find descriptions of trading conditions in such comments. Sometimes writers of such reviews do not even understand what the broker really offers. Such comments can be absurd. And of course, if you find negative stories about the broker not withdrawing money and cheating, do not trade with it.

How to report a Forex scammer? The regulator of each country has a form for appeals. Fill it out and describe the scam in detail. Give a link to the website. Forex fraud complaints are dealt with fairly quickly. Soon, the regulator will blacklist this scam broker and may even restrict access to its website to other visitors. That’s how, for example, the FCA regulator’s warning sheet looks like.

scam company list

High Returns And Guaranteed Income

If you have seen promises of guaranteed income on the Forex broker’s website, then you are facing another scam. Brokers cannot make any promises of stable yields. Financial markets are unpredictable. Whether you get a profit or lose money depends on many factors. Only banks can promise you a certain rate of income. At a licensed broker’s website, you will only find a disclaimer that will indicate how many percent of investors lose money by trading on this site.

No guaranteed profit. You have to remember this as a mantra. Also, such forex scams like to ask you to fund your account for a certain amount. They assure you that, for example, with $5,000 you will get more profit. Remember a simple rule. Only you can decide whether to fund your account with an amount higher than the minimum.

Aggressive Marketing

Finally, the Forex scam market is simply huge. You don’t even guess what size it catches up with. You may encounter fraudsters when you are looking for a good broker. At the same time, most people aren’t even looking for investment opportunities. Scammers find them in different ways. It could be:

  • Phone spam
  • Email spam
  • Online advertising
  • Phishing/social engineering.

In the age of social media, Forex scam companies keep up with trends. Often you can find ads for additional earnings on Instagram and Facebook. You will be shown a beautiful video where a newcomer like you got rich in a short time, and bought a house and a yacht. All he did for this was to choose the right broker, of course, the owner of the advertisement. Never trust such videos. A self-respecting broker will not desperately order commercials to attract newcomers. They already have enough customers and a good reputation. If you see such an advertisement, then check which broker is in front of you.

Another dangerous type of social media scam is the Romance Scam. If your new crush talks a lot about Bitcoin, don’t jump to conclusions. We do not envy your happiness. It may turn out that you are being deceived. How do such fraudsters act? They set attractive photos on their profiles and then choose a victim. They get acquainted with young guys and girls and unobtrusively continue to communicate. They can even play the role of your lover. However, any scam sooner or later becomes obvious.

romance scam

They may ask for access to your bank accounts and credit cards. If it comes to Forex, then such scammers may ask you to register on the website of a certain broker. Of course, we are not talking about any feelings. All they need from you is just your money. At the same time, these are usually not even real people. It will be quite difficult to find them since their social media accounts will turn out to be fake. So be careful and don’t trust too much in new acquaintances who talk a lot about money and investments. Watch this useful video with exposed love scammers conversation techniques.

Can I Return Money if I Have Been Scammed?

There are some cases in which you can actually return the deposit. However, it’s possible only if you have funded your account through a bank. If you transfer money in cryptocurrency or through electronic payment systems, you can’t return them.

If you made a transfer from a credit card or using a wire transfer, then you can contact your bank and ask for a chargeback procedure. The bank will review your situation and possibly cancel your transaction. It is important to understand that there are certain conditions for a refund. Therefore, it is not always guaranteed.

And one more important nuance: never apply for a chargeback in a company from the Internet. Only your bank can return the money to you, not a forex scam. All other intermediaries are just the second level of the frod. Sometimes they promise that they will be able to return the money even in cryptocurrencies. In any case, do not believe in it. Avoid such scam firms.


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