Forex Scams: Identifying Fraudulent Forex Brokers and Traders

2024.05.07 2024.05.07
Forex Scams: Fraudulent Forex Brokers and Traders

Oleg Tkachenkohttps://www.litefinance.org/blog/authors/oleg-tkachenko/

Scam on the Forex market is defined as targeted actions aimed at obtaining money from potential victims through deception, misrepresentation, psychological manipulation and emotional pressure. It includes pseudo brokers, scam artists selling software and training courses, income guarantees, and so on.

In this review, you will learn about the most common Forex scam models. You will also learn how to recognize a scammer and what to do if you have already fallen for their bait.

Key Takeaways

Common Forex Scams To Avoid

One can often hear that Forex is a scam and trading on the Forex currency market is like going to a casino. But that’s not true. Forex is an international over-the-counter market where traders, investors, speculators and representatives of market makers enter into transactions with each other. These transactions are supported by brokers, banks, and liquidity providers. However, sometimes there are scammers among those.

Forex scam is a scheme that is used to deceive traders in order to extort money or gain access to personal information. For this purpose, scammers use direct deception, as well as psychological approaches and emotional pressure.

Most common scams on Forex:

• Unlicensed Forex brokers whose website is a payment gateway that is disabled after collecting money.

• Sale of custom software, tools and trading signals with “guaranteed income”.

• Manipulation of prices, quotes, spreads, and execution of transactions in order to worsen conditions for clients and increase own profits. There may be deliberate advertising of high leverage, which can lead to losses due to an error in calculating the value of a point.

• Financial pyramids. They attract new investors in order to attract income to the previous ones. They offer to earn money quickly and easily, but at some point the payments stop.

• Psychological pressure, playing on a person’s emotions in order to convince them to invest more money and avoid withdrawing and complaining about problems.

Let’s take a closer look at these Forex scam models.

Fake Trading Educators

Scammers from this group can be divided into two groups: pseudo educators and info marketers. The “educators” have several goals:

• get money from a potential victim as payment for a foreign currency trading course. One can only buy the introductory course. They don’t care how useful it will be and whether a person will be able to apply the acquired knowledge;

• sell books or video lessons during the training – anything they can make money on;

• convince listeners to invest money in a project casually advertised during the training. For example, opening an account with a certain broker in order to make money through an affiliate program.

Trusting nature is a key quality that scammers play on. If a person is trusting, even their rational mind telling them not to get involved in the scam might not be enough.

One of the most common broker scams starts with the message: “You have received a free certificate for 2 weeks of training from top traders.” Next, the victim is taught how to trade on a demo account and given the chance to feel the excitement and taste of success. After this they are offered to switch to a live Forex account with broker X, which is a dummy platform.

Info marketers have a simpler task – to show the potential victim what opportunities they will miss if they do not take advantage of the invitation to this training session. The methods are different: from stories of a beautiful wealthy life to convincing offers to register on the website of a “unique project”. They have one thing in common: false promises and unrealistic expectations. Everything they show in their presentations looks too good to be true.

How to avoid Forex trading scams? Ask yourself a few questions:

• What will this training give me? Can I find similar lessons for free?

• If this coach is so successful, why don’t they earn money themselves? And if they make money, why would they be coaching?

• Why can’t I find real reviews of previous buyers of this course?

There is a category of people who like to work with audiences and share their expertise. But there are relatively few of them. Most “educators” only have one task – to get your money.

Unreliable Trading Signals

Unreliable trading signals are one of the most common and effective scams on Forex. They work great for the following reasons:

• many novice Forex traders subconsciously want to trust professionals. Scammers take advantage of that by showing off;

• people want to get rich fast. Traders are in no hurry to develop knowledge on their own, hoping to make money using the experience of others;

• scams are difficult to prove, because scammers give recommendations without guaranteeing the result or guaranteeing it only in words. The victim voluntarily uses signals whose accuracy is questionable and loses money.

Let’s look at the most common Forex scams of this type.

Paid signals in Telegram

There are many groups online that publish signals for entry and exit, stop levels and explanations.

You pay a monthly subscription and get signals to buy and sell, but they do not work. The signal seller explains this by saying that you used it late, you have a bad quote provider, and so on. You lose money, and the group organizer looks for the next victims.

The influx of new victims is ensured by two factors: a small subscription fee and the desire for easy money. People fall for scammers hoping for instant income without effort. Losing a small amount is not a big deal for them, which scammers take advantage of.

• How to avoid scams on the Forex market. Not all paid channels are scams. Pay attention to how many users there are in the group, how many of them actually view the signals and participate in the discussion. If comments are closed, such signals should not be trusted. If there are 50 thousand people in a group, and there are several hundred views, there is a sign of cheating.

Free signals on Telegram

Free signals have two goals: to lure a person into a paid group or to convince them to sign up on a specific platform, to invest in a future scam, etc.

Recently, the following scheme has become increasingly common. A person texts on Telegram and offers to earn money with them. They promise to teach, show and give signals for free. In return, they ask for a percentage of the profits, counting on your honesty. But you need to earn money only on the platform that they recommend. The result is easy to guess – the trader loses money.

• How to avoid Forex scams. There is no free lunch. Do not follow recommendations that require payment. Double-check free signals on a demo account. If in a sample of 50 signals 80% are successful, you can think about subscribing.

Copy trading

Signal copying services are available from many brokers. But not every broker approaches ranking responsibly. Therefore, they may contain accounts with inflated results, fake signals or fake accounts.

Perhaps a retail trader actually managed to earn +2,175% in 4 years. However, even large investment funds cannot boast of such profitability. It is prudent to ask which asset volatility brought such large profits, taking into account the losing trades that were covered.

• How to avoid Forex scams. If possible, contact the signal provider personally and then decide based on the situation on hand. You can request an investor password and ask questions about the strategy. Use any means to make sure this is a real person with trading experience.

Offers from specific trading signal providers

For visual effect, the signal provider develops a website and offers paid signals from their brand. Alternatively, they supply signals to the broker’s website and get a commission. Occasionally you get recommendations from Forex brokers to use a specific signal provider. 

Personal experience. Several years ago, while searching for a job on a local website, I came across an opening for a Forex Analyst. The employer was a developer of relatively simple platform which has a signal delivery function. The notifications look like this: “Expected/Probable price rise/fall upon rebound from resistance/support level.” 

The platform is designed exclusively for graphical analysis: patterns, levels, trend lines. Assets include currency pairs, several indices, gold, and oil. The bare minimum.

My job is to give at least one signal with a graphical justification once every 30 minutes (no more, no less, permissible deviation is up to 5 minutes). Main requirements: generate signals constantly, show a beautiful convincing graphic picture. Then these signals with a picture were sent to brokers or signal providers. How exactly they did it was not disclosed. I asked: “Do you need a picture or a result?” and got the following answer: “We need a beautiful convincing picture and a recommendation. We are not interested in the result.” I didn’t pass the trial period then, but I got a clear picture showing the quality of the generated signals.

Unlicensed Brokers

An unlicensed Forex broker does not necessarily mean a scammer. But the lack of a license increases this likelihood, since the broker is unregulated. Sometimes licensed brokers also turn out to be scammers, but control by regulators reduces the possibility of scams to a minimum.

Forex broker having a license means:

• this regulated Forex broker actually exists. The authorized capital has been contributed, the broker has a physical office address, and the personal data of the organizers has been provided to the regulator;

• the account segregation rule is observed and monitored – client accounts are separated from brokerage accounts. The risk of abuse by the broker is reduced;

• a legal broker is regularly audited.

If the broker has no license, it may turn out to be a fictitious website that could shut down at any moment or simply refuse withdrawals.

Checking the license on the website of the CySEC regulatory body

Find information about regulation on the Forex broker’s website. It can be in the page footer of the main page, the FAQ, or the “About the Company” section. Please note that registration and license are two different things. The broker is only regulated when it has a license.

Enter the license number on the main page of the regulator’s website.

Open the card and study the results. Pay attention to the following:

• legal name on the regulator’s website is the same as in the offer (User Agreement). In one scam option, the broker offers you to enter into an agreement with another legal entity;

• contact details, broker domains match;

• countries in which the broker is allowed to operate;

• types of financial and trading services permitted by the license.

Here on the regulator’s website you can submit a claim against the licensee.

Scam brokers review websites

Numerous reviews and “independent” rankings topped by brokers who are ready to share commission with the ranking website are a classic Forex scam. This is the promotion of affiliate links from which the rating is earned. Whether this can be called fraud is a moot point. But the attempt to mislead the user is a fact.

Recently, another type of fraud has become widespread – companies offer victims of fraudulent brokers to “help” return their money.

This scam works as follows:

• The scammer creates a blog website with prepared reviews of scam brokers. They appear every year in the hundreds and go bankrupt at the same rate. Therefore, there is no shortage of material. The aim is to create the appearance of professionalism and the impression that the authors are “in the know.” The website also casually offers a paid service of returning from a fraudulent broker;

• The victim usually does not know where to turn. As a rule, you need to contact the law enforcement authorities at the place of registration of the broker. But when one does, they encounter the language barrier and distance problems;

• Instead of involving lawyers, translators, and preparing requests to regulators, the victim chooses a simple path and turns to those who promise to return the money.

The scammers extract as much money as possible from the victim for “operational services”, after which they report that nothing can be done or disappear.

Another version of this Forex scam:

• scammers offer a refund service without prepayment and payment for “operational services”;

• they explain to the client that the regulator, for example, the Central Bank, has a register of active and blocked brokerage accounts, which in fact does not exist. If there is evidence of the broker’s dishonesty, the regulator allegedly helps to return the money. The user needs to enter the registry and make a technical payment to activate an account in the system. Next, the “law firm” together with the regulator withdraws money from the broker’s accounts and returns it to the victim;

• the victim receives a link to the registry, which leads to a phishing site.

At best, the victim loses money on the “technical payment”. At worst, they enter all the card details, essentially giving access to it to the scammers.

Forex Pyramid & Ponzi Schemes

Pyramids are companies or platforms that pay profits to current customers by attracting new ones. On Forex they exist in the following forms:

• B-book brokers are platforms that do not display traders’ transactions, executing them within their system and often acting as a counterparty to them. Such a broker is not interested in the client’s success. Payments can be made from deposits of new traders.

• Marketing platforms attract investors with some unique tools. For example, a proprietary advisor, a trading model, etc. They put together a website in a few hours with an attached payment gateway. At best, only the first investors get the promised profits. At worst, no one gets anything.

Here the scammers didn’t even bother to change the year and make sure the pictures are displayed correctly.

Scam is the deliberate deception of a potential victim. Pyramids are classified as scams, but there is an exception – High Yield Investment Program (HYIP). These projects are highly profitable platforms operating on a pyramid principle with one difference – the project warns in advance that it is a pyramid. HYIP organizers create a website using special engines, come up with a legend and promote the project using word of mouth.

Example of a legend. The platform makes money on Forex using a unique automatic trading algorithm. The higher the guaranteed profitability, the shorter the life of the project. Those who manage to withdraw money before the jig is up are the winners. There are even aggregators that tell users whether a particular hype project is still paying. Users take part in HYIPs voluntarily and perceive the investment process as a game of chance.

Hidden scams

Ponzi scheme victims are mostly novice traders and fans of get-rich-quick schemes. The rest see no license and a guaranteed income and close the website immediately. This type of scam has another hidden model.

Algorithm for the hidden scam model:

• the broker gets a license from an offshore regulator (FSCA, SCB). On the one hand, this is technically a license. This has a positive effect on potential traders. On the other hand, offshore regulators do not require full disclosure of information;

• the broker creates a high-quality website, gets a Metatrader license, attracts traders;

• traders work, but positions are closed at a loss.

The reason is that the broker manipulates the spread and candlesticks behind the scene. The indicators are redrawn on the chart, showing the signal is false. Long shadows appear, the spread suddenly widens, and slippage appears. Trades are closed at the most inopportune moment, stop loss orders are not triggered, and leverage is changed unilaterally. Ultimately, the trader loses money.

The danger of trading within this scheme on the Forex currency market is that at first a person blames themselves for the loss and continues to deposit. Scripts and comparison of quotes help to identify manipulations on the part of the broker. But even in this case, it is difficult to prove the fact of fraud. Therefore, returning the money is off the table. The trader can only stop using the services of the scam broker, who will continue to attract new victims and take advantage of traders’ ignorance and lack of experience.

One way to identify and avoid Forex scams is to work with brokers licensed by strict regulators (CySEC, ASIC, FCA, BaFin, ESMA). For the US, these are the SEC and CFTC (Commodity Futures Trading Commission). You also need to monitor the accuracy of quotes and spreads. You can find many free tools for this online.

Managing traders

Another classic Forex scam, presented in several models.

Promotion of the managing trader

This scheme comes down to the use of marketing techniques from newsletters to individual offers to invest in a managing trader. Methods of persuasion may include phrases such as “1,000 traders trusted…”, “start trading without investment”, “return over the last year was 100%+, make sure of this by looking at the statistics.” And it doesn’t matter that the statistics are “drawn” on a demo account. Fake backtests are also common on accounts linked to MyFxBook.

On Telegram, the persuasion is even simpler. The trader is asked to view the history of successful signals, the “forecast” for which is written when the signal has already been processed.

PAMM accounts

The model involves transferring money to a PAMM trader on the broker’s trading platform.

PAMM accounts are a working model for passive investors and managing traders provided that the broker controls the actions of managers and forms their ranking responsibly. Unfortunately, scams are common here. A PAMM account can be created under the control of the broker, and the “manager” drains investors’ money in their favor.

What do you do? Do not transfer money to third parties, especially if they do not have the status of legal entities. Instead of PAMM accounts, use a copy trading service where an investor can disconnect from the trader’s account at any time.

Sale of trading software

Novice traders often fall for this type of scams expecting competitive advantages with unique software for fundamental or technical analysis, or algorithmic trading. Scammers offer trading advisors, indicators, and scripts. Backtests are offered for persuasion. However, in reality a paid advisor may turn out to be a slightly modified version of a free advisor, the backtest may be fake, and the software may not work.

What to do if you are a beginner:

• do not rush to invest in something that looks too good at first glance;

• do not blindly trust guarantees and promises of quick profits. Software that works on quotes history does not guarantee future results;

• ask the seller as many questions as possible and try to find inconsistencies. If the conditions seem too good, there may be a catch;

• look for reviews.

Reminder: before you buy something, consider whether the purchase will be worth the cost and look for free alternatives.

How To Identify Forex Scams

Detecting scams at an early stage not only saves you money and time, but also mental health. Spending 1-2 hours doing a full analysis of the product and the supplier is much better than desperately looking for ways to get back even some of the money transferred to the scammers. You can spot red flags in the first 5-10 minutes of research.

Guaranteed profitability

No investment asset can guarantee a stable income. Any trader has losing trades and losing periods. Therefore, when you see a promise of guaranteed income in a week or a month on the broker/platform’s website, it is most likely a pyramid scheme.

Important! Every regulator will warn you that investing is a risk. There can be no guaranteed income. If the broker or company contradicts the regulator, do not engage.

Unsolicited Contacts & Offers

Aggressive Marketing:

• cold emails or calls with an offer to invest in an unknown company;

• being added to a group in a messenger without your consent. Scammers find contacts in trading groups and send targeted offers with promises of wealth.

The latter model has recently become especially popular. Scammers take advantage of the fact that in messengers people often follow unfamiliar links or are automatically added to groups. After this they start receiving financial spam.

A more complex scheme can open access to the user’s contacts if they click on specific link. Then the scammer creates a fake account with an avatar of a person familiar to the user and convinces the user to invest on their behalf.

Important! No matter what the offer is, you always have unlimited time to think. If they indicate there is a rush to make a decision and use phrases like “the offer is valid only for 1 hour” and “there are only 15 places left in the group”, ignore it.

Suspicious Behaviors

Possible scams:

• invitation to unfamiliar groups to which you did not apply. “Encrypted chats” where only group members can see the messages. If you cannot comment on posts in the group, this is another reason to suspect scam;

• invitation to follow an unknown link with suspicious characters in it;

• payments where the recipient is a third party.

• persistent attempts to convince you to invest in the project by any means;

• active advertising of affiliate programs. The more sellers promote referral links instead of promoting the product itself, the higher the likelihood that it is a pyramid.

Try to take everything with a big grain of salt. Consider your potential partner’s goals.

Important! The less transparency and the more marketing activity, the more likely you are to lose.

Website & Document Warning Signs

Signs of scam:

• spelling and grammar errors on the website. Honest companies make sure their website is in order;

• the company name is not in the top 10 positions in a direct search in search engines (search query: “XXX company website”);

• lack of transparency in the offer. Lack of details, vague wording in the section on dispute resolution. Emphasis on the “Trader’s Responsibility” section (or analogous item);

• differences in the name of the legal entity in the offer/User Agreement and the name indicated on the website;

• broken links, layout errors.

If you see at least one of the signs listed, it means there is a possibility of scam.

Important! Suspicious details may be a sign of phishing – an attempt to copy the original website, its design or name. Never enter payment card or wallet details if you have any doubts about the website. Always read the User Agreement and look for pitfalls.

Protecting Yourself From Scams

Interesting statistics: in developed countries, 74% of victims of financial scams do not take any action. Here are possible reasons:

• the victims are certain the scammers cannot be found and punished;

• they do not want to waste their time;

• they don’t know where to turn and what to do.

The remaining 26% of victims go to:

• 43% – the bank that carried out the transactions;

• 34% – the police, authorities working with economic crimes, and regulators;

• 19% – providers and mobile operators in order to obtain information about the scammers;

• 4% – to higher-level organizers. For example, the owners of the group on Telegram, where the scammer was a participant.

There aren’t really any statistics on how many applications were resolved in favor of the applicants. Therefore, preventing scams is much more effective.

Use Security Tools (VPN, Password Manager, Antivirus)

Scammers can gain access to your passwords, bank cards, and financial accounts if you’re careless. How to protect yourself:

• use two-factor authentication. This is password confirmation using a code sent to your email or phone;

• use different passwords and encryption methods for different software. Scammers gained access to your brokerage account? If the email password is the same, two-factor authentication will not help. Use password managers so you don’t have to write down each one;

• use paid VPS. There are many examples of leaks of free VPS databases containing personal user data;

• use antivirus software. Automatic malware scanning helps avoid bad websites and infected software in downloaded archives;

• use a VPN. Constantly changing your IP address makes it impossible to track your location and complicates the work of scammers;

• If you are working on someone else’s computer, do not save passwords in the browser. Make sure to disable this option.

Never click on unfamiliar links from email or instant messengers. If curiosity is stronger, copy the link to another computer with no access to data (for example, a child’s tablet with limited network access or an old spare computer).

Transaction Reversal Challenges

Chargeback is a procedure for returning money to the payer if they are not satisfied with the product or service that they paid for using a bank card (interbank transfer). It can be initiated for various reasons: scams, low-quality product or service, double debiting, unauthorized transaction, and so on. This procedure is regulated by the rules of payment systems such as Visa and Mastercard.

Chargeback only works if the money is transferred to the broker through a bank or payment systems and only if there is 100% proof of fraud. If these conditions are met, you contact the bank to report illegal actions. It may take more than 6 months to complete the paperwork, but you can get your money back almost in full.

Forex Market & Scam Summary

Forex is the largest financial market in the world, but it is decentralized. Unlike the stock market where all transactions go through the exchange and strict control of regulators, Forex, as a CFD market, doesn’t have complete transparency and sufficient regulation. According to statistics, every year more than 1,000 scam platforms appear on Forex and disappear with clients’ money.

Warnings by regulators are just warnings. Regulators do not have absolute power to force a scammer to stop collecting clients’ money and also cannot track the legitimacy of a trillion transactions a day. Besides, most traders do not go to regulators’ websites and do not read warnings. Hence the many scammers.

The scam problem on legitimate Forex has recently been complicated by the emergence of freely available artificial intelligence (AI) tools. With their help, scammers can generate content for mailing lists and multi-page websites in a few minutes. They can even write code. Therefore, it takes much less time and money to create fake groups simulating user dialogue, as well as fake websites and content for them.

With the help of AI, scammers have learned to create deepfakes that are almost perfectly similar to the original. When people see a video with “Elon Musk” or another influencer convincingly talking about investing in a no-name project, it often works on them.

Final Guidance

How to check in 20 minutes whether a broker or investment company is a scammer or not? Here is the algorithm and red flags to pay attention to:

1. Check their license. If the broker doesn’t have one, leave. If the broker is licensed and regulated, go to the regulator’s website and check the validity period using the license number and company name. Pay attention to exactly what services the company is allowed to provide.

2. Check their contacts. Scammers often get caught because:

• they only have a postal address on the website. No phones, no email. A feedback form is provided for communication;

• their physical address or phone number do not exist or are fake when checked. For example, there is a supermarket where the office should be, or the office address is in the US and the phone code is Nigeria.

3. Check the website registration date using a special platform. They are free. If the website was created a few months ago, and the company positions itself as having “more than 10 years of experience,” this is a red flag.

4. Look through the brokers’ trading offers. If the company guarantees profit and actively promotes affiliate programs, there is a possibility of scam. Also, scammers are in no hurry to reveal the essence of the proposed product. They mostly focus on advertising slogans, enticing phrases, past successes, number of current clients, and so on.

5. Investigate the website. Scammers can make a beautiful landing page but a further inspection may reveal that some pages have a layout failure, some external links do not open, and search windows do not work.

6. Chat with support. The chat may turn out to be a dummy, and the support may be a bot.

7. Look for company reviews. If this is an obvious scam, people may have already written about it.

Avoid promises of guaranteed returns. Doing due diligence will save you money in the long run.

Forex is a market of opportunity. It’s quite possible to make money and get adrenaline here. But remember to be careful.