Forex Scams

Learn to avoid Forex Scams

There are bewildering numbers of Forex brokers online, some of them unscrupulous. How does a novice trader choose a reputable broker and avoid falling victim to a scam? One Asia Capital, a pioneer and innovator of the retail Foreign Exchange and Commodities Exchange provides the following answers:

What exactly is a Forex Scam?

The definition is wide-ranging. Wikipedia describes a Forex Scam as "any trading scheme used to defraud traders by convincing them that they can expect to gain a high profit by trading in the foreign exchange market." In practice, a scam can be failure to return money owed to traders (such as when you wish to withdraw funds or terminate an account), a lack of transparency in the pricing and execution of transactions, unresponsiveness to customer complaints, and the targeting of vulnerable individuals.

What should I look out for?

Here is a checklist which can help for easy references:


☰ Promises of high profits

Promises of high profits are often a sign of a Forex scam. One Asia Capital always reminds their investors of the risks involved in Forex and Commodities trading.


☰ Offering Margin Interest

Margin Interest is described as High Alert of a Forex Scam. One Asia Capital always reminds their investors that there is no such of interest paid out as offering.

☰ Regulation

Is the principle regulated with the relevant authority in the region? If not, there is a good chance you are not adequately protected. Capital Market Investments Ltd is regulated with New Zealand Financial Services Provider (NZFSP) under licence number: FSP284605 and it is also a member of New Zealand Financial Dispute Resolution (NZFDR).

☰ Education and training

If you are a novice, it is absolutely essential to equip yourself with knowledge before you start trading. How educational is the broker? Is the trading method easy to understand? What tools and resources are available to help you learn? For example, is there a comprehensive library? What is the market information like and does the broker use world-class newsfeeds such as Reuters?

☰ Transparency

Does the broker disclose all relevant fees? Are the spreads for currency pairs fixed and clearly stated? Brokers that offer low or no spread can be seen to be Forex Scams as their spreads may widen when the market is volatile.

☰ Flexibility

Your relationship with your broker is a two-way street. Is the broker flexible enough for you to start off small with low leverage and grow more sophisticated in your trading when you are ready? For example, does it offer tiered accounts? A good broker will ensure that you are supported by a personal account service manager who acts as a guide as you take your first steps in Forex trading. Once you are more confident in your trading you will have the opportunity to have your own personal dealer to support you in your trading and to be better understand the Forex market.

☰ Community

With the rise of social media it has become even easier to find out how genuine a broker is. Does your broker participate in open communication with their clients through any of the more established networks like Facebook or Twitter?

High Yield Investment Programs (HYIP) Scam

One type of Forex Scam traders may encounter is the High Yield Investment Programs (HYIP), which is nothing more than a type of Ponzi scheme. These are scams where traders are lured, and then defrauded with the promise of impossibly high ROI’s – often as high as 70% or over. These scams may involve Forex, stocks, or any other kind of investing instruments.

Named after its creator, Charles Ponzi, these schemes have proven very successful over time, climaxing (although by no means ceasing) with the recent exposure of the massive $65 billion Ponzi scheme run by Bernie Madoff.

While Ponzi schemes have reached mind boggling sums, the model is extremely simple. The con artist takes money from new investors and distributes it back to other investors (or even the same investors) stating these are returns on their investments due to the con artist’s unparalleled investing acumen. The model is unsustainable and invariably implodes – but often only after they have run for years and ruined the lives of the vast majority of participating investors. Given the scam’s model, early investors may see some initial profits but are often stung when the scam implodes and may be pursued in court for profits made off fraudulent schemes.

How can this type of scam be avoided?

These broken dreams can be avoided first and foremost by understanding that these kinds of low risk, high yield returns simply do not exist in the financial markets. If someone you have just met is offering you an exclusive golden offer, one that has to be taken up immediately, while he bamboozles you with industry terms and jargon, alarm bells should be ringing in your head. As they say, if something is too good to be true, it probably is. However, it is also important to note that many Ponzi schemes now offer lower returns, knowing that the promise of unrealistically high returns will turn off some investors. As a practical step (and this applies to all investments, not only for HYIP’s) always question the techniques of the Money/Fund Manager and constantly keep track of where your money is. Don’t trust a referral or recommended name just because it came to you through a trusted source as the source himself could have been duped. Do your homework! For example, check the website, the payment system, the principle’s country where the company is incorporated – these little details might indicate that you are dealing with a scam artist.