In forex trading, forex traders should not be fooled by false promises, there are many about forex scams that target both retail and retail traders, and these scams continue to proliferate. As an investor, you may see forex ads on social media in various forms, full of synonyms for luxury cars or luxury homes, and some scammers even go to celebrity endorsements with the aim of turning social media followers into customers.

A trader who suffers losses due to forex fraud may change from victim to perpetrator and continue the forex fraud. The FCA reported that more than £27 million was lost to online forex and cryptocurrency scams in the UK in 2018-19. Although most traders are now educated and have some awareness of anti-fraud, there are still many novice traders who fall prey to fraud, probably because the types of forex fraud are constantly changing, which is hard to protect against, but more because of traders' overconfidence.

Today, Tian Yan Jun gives you some types of forex scams and how to effectively identify them.

Scam 1. Unlicensed Forex broker or dealer

Generally speaking, forex trading is heavily regulated in some parts of the world. For example: the National Futures Association (NFA) in the United States, the Financial Conduct Authority (FCA) in the United Kingdom, the Australian Securities and Investments Commission (ASIC), the Cyprus Securities and Exchange Commission (CYSEC), and the South African Federation (FSCA).

However, there are still some forex trading that is not regulated in many countries, so any Forex broker operating in an unregulated region does so through a foreign license from an offshore regulator. A study by Secure Forex Brokers in the UK found that in most parts of Africa and Asia, Forex trading is unregulated, yet many foreign CFDS brokers still accept clients from this region while still actively promoting Forex without trading restrictions.

While there are some well-known forex brokers with good regulatory records in multiple regions, there is still a certain trading risk for them operating offshore in regions where forex trading is prohibited. Then, we should be more worried about which unlicensed forex brokers provide trading platforms to the public, and when traders inject funds into their accounts or make large profits, they are likely to face the problem of being unable to withdraw cash.

Therefore, as a rule of thumb, before choosing any Forex broker, you should go to the website of the relevant regulator and check the list of licensed Forex brokers in your country, or licensed companies that are heavily regulated overseas. If Forex and CFD trading is banned in your country, there may be a grey area.

For example, lack of regulation, but it is not illegal, if you still want to trade, in this case, to avoid any unregulated broker. It is also important to verify the Forex broker you intend to open an account with on the regulator's website to ensure that they are authorised and legitimate.

Scam two, false signal seller

In recent years, trading signals and intelligent trading robots have become very popular, and hardened fraudsters will certainly not miss this opportunity to cash in. These Forex EAs automatically provide traders with signals when to trade or close positions, which seem to make it easier to make money, but are full of tricks.

The seller may say that their signal offers a 98% success rate and ask the trader to pay the fee up front. In most cases, however, these signals are not guaranteed to work. These scams are more often aimed at inexperienced traders who are desperate to make a profit and want a way to trade while lying down.

Before the use of trading signals, traders may only make a small number of manual trades per day. But high-frequency trading signals can mislead traders into making frequent trades, which not only increases fees, but also puts your own principal at greater risk.

In other words, these forex robots are best used for technical analysis to help you capture some trading opportunities, but they should not be relied on to predict the market or as a basis for final trading decisions.

Scam 3. Managing trading accounts

An investor who is inexperienced or does not have much time to trade forex may open a trading account and give it to a professional account manager to trade on his behalf, who charge a fee for their services. Scammers also take advantage of this by offering to manage accounts for traders, who may make trades that are not in the client's best interest or simply run away with the client's money.

Therefore, traders should investigate the account manager's history, learn about his past success rates, and look at their risk management strategy, past retracements, to check how efficient the fund manager is. In addition, the account manager must also obtain the business license of the relevant departments, and the unqualified are not credible.

Scam 4. Price manipulation

Most Forex brokers have standard accounts with only spreads and no commission, but they make up for it on spreads. A spread is the difference between the bid price and the ask price of a currency pair. Major currency pairs like EUR/USD have smaller spreads because they are heavily traded, while emerging market currency pairs have larger spreads when prices are manipulated, you will see major currency pairs like EUR/USD have very large spreads.

Brokers can say their spreads are higher than those offered by other brokers because they are dealing with banks in the back office and can even make up other reasons. Traders should check with other brokers to see what spreads they offer for the currency pair in question. Under normal circumstances, the spread of EUR/USD with standard accounts and no fees is 0.7-1 points.

In addition, the buy and sell prices of a currency pair can change instantaneously between the start of a trade and its execution, which is known as the slip point. It can happen as a result of a network glitch that slows down the execution of trades, and sometimes this is just the currency risk that traders face in the volatile forex market. Are there too many slips? Bad Forex brokers can take advantage of this by refusing to execute orders in a timely manner until the exchange rate of the currency pair falls, thus triggering the trader's stop loss order.

To avoid this, some brokers, such as CMC Markets, offer guaranteed stop-loss orders (GSLOs), which allow traders to hedge against the risk of slippage, but may be subject to some additional fees or higher capital requirements.

Traders should always do as much background research on Forex brokers as possible and read user reviews of the brokers to see if there are any complaints of price manipulation or any illegal activities, although the authenticity of many user reviews is still to be confirmed, it is still a reference factor to measure and compare.

Scam 5. Promises of rewards and bonuses

The Forex market can be very volatile and margin trading carries a high risk of loss. This is why major regulators require brokers to publish risk statements on their websites, warning potential traders of the dangers they face when trading Forex and CFDS.

So if you see brokers promising high deposit bonus events, that's a flag. The promise of these rewards may just be a decoy, and most major regulators do not allow brokers to offer any benefits.

However, small bonuses or rebates in general increase the tolerance rate for experienced traders and can also reduce trading costs. So the more critical thing is to look at the trader's own trading experience, bonuses and bonuses should be a double-edged sword.

Scam 6. Managing trading accounts

An investor who is inexperienced or does not have much time to trade forex may open a trading account and give it to a professional account manager to trade on his behalf, who charge a fee for their services. Scammers also take advantage of this by offering to manage accounts for traders, who may make trades that are not in the client's best interest or simply run away with the client's money.

Therefore, traders should investigate the history of the account manager to find out his past success rate, and look at their risk management strategy, past retracements to check how efficient the fund manager is. In addition, the account manager must also obtain the business license of the relevant departments, and the unqualified are not credible.

7. Social Media scams

Most of the motivational forex videos and advertisements popular online usually show luxury yachts, cars, etc., the purpose of which is to make the viewer feel that the speaker or trading guru obtained these items from the proceeds of forex trading. These so-called masters do not talk about the disadvantages of forex trading, only the advantages. Some of them operate or partner with unlicensed brokerage firms and end up defrauding investors.

Market regulators around the world have made it mandatory for forex brokers to publish risk statements on their websites. The statement highlights the risks traders face when trading, and some regulators go even further by requiring brokers to state the percentage of people who have lost money trading with them, which usually appears at the bottom of the broker's website page. Regulators have even put limits on the amount of leverage CFDS brokers can offer to retail traders.

Exaggerated propaganda, promises of benefits, and any seductive advertising by the media are not in compliance with regulatory requirements. This is impossible if the claimed project has little risk. If true, there is no way they could have come out and shared the so-called winning formula.

Therefore, don't blindly trust any advice on social media, the risk of forex trading is very difficult to manage, and trading with margin is very dangerous.