You may have seen some talk that Forex is a scam in itself. This is not the case. You can actually make profits from legitimate Forex trading. However, it’s not a quick and easy money-making solution. You need to work hard, and be diligent, in order to make your trading profitable.
You also need to be aware of Forex scams that can end up costing you a lot of money. One of the best ways to avoid issues with scams is to check that a broker is reputable by using the Background Affiliation Status Information Center (BASIC) website created by the National Futures Association (NFA). In addition, you should learn how to recognize a potential scam. This is not always easy to do. However, there are certain signs that you should look out for.
The promise of massively high returns
If there is a promise of returns of 20%-40% of your capital investment or more, it’s likely that there is a scam involved. This is especially the case if you are promised that little effort is required on your part.
PAMM accounts that are not legitimate
There is such a thing as a legitimate Percent Allocation Management Module (PAMM) account. These accounts allow your Forex trading to be managed by expert traders. You are unlikely to get returns of more than 2-5% per month when using one of these accounts.
However, some scam PAMM accounts offer returns of 30%-50% on investments. These scams often try to draw people in by providing fake data and promising that small trading accounts can be linked with larger ones in order to make large profits.
High priced automatic robots
There is no doubt that automatic robots can work in certain markets. However, there are scams around which offer robots for sale for thousands of dollars. You should not be taken in by these offers as even if you do decide to use robots they should only cost around $500.
Manipulation of Forex point spreads
This is one of the oldest Forex scams around. If the point spread of a broker is vastly different to that of other brokers, there is likely to be a scam involved. Recognizing this issue helps you to avoid disreputable brokers.
Unreliable signal sellers
There are reliable signal sellers that can provide you with signals which alert you to favorable trading opportunities. However, there are also scammers that sell signals without ever checking their validity.
If you want to check the legitimacy of a signal seller, you should ask them to provide you with three demo signals that you can test in your demo trading account. This helps you to determine if they are trying to scam you or not.
Promises of 100% success
Any broker that promises 100%, or other exceptionally high rates of success, is attempting to scam you. They draw you in with unrealistic promises. Once you start to trust them you become trapped in a cycle.
Any of these scams can seriously damage your capital. So, you need to be careful not to be caught out by any of them.
Disclaimer: This content does not necessarily represent the views of IWB.