Common Tactics that Scam Forex Brokers use to Defraud their Clients
Most of us like to think that we can spot a fraudster from a mile away.
However, some of the tactics that are being used these days are so complex and sophisticated that it can be hard to know when you are being taken for a ride.
The forex investment sector is no stranger to con artists and scams, as nefarious individuals seeking a quick buck from a thriving industry take advantage of those a little naïve to their schemes. That is the last thing you need, as being a profitable trader is hard enough in itself.
By the end of this article, you will have a better understanding of forex frauds, how they are committed and how you can spot them before you are on the receiving end.
Secret formulas and guaranteed gains
One of the common tactics used by a scam broker is to promise clients the earth without being able to deliver.
Whether it’s in ‘super low’ fees (which later turn out to be hidden in other ways), the best spreads or zero commission, you have to check the reliability of such claims before you begin investing with that broker – before you even sign up for an account, in fact.
Some forex scams will promise guaranteed returns from a market ‘edge’ that, when pushed, the scammer is always unable to quantify. Don’t fall for the tricks of these snake-oil salesmen!
Size does matter
To make themselves look more legitimate, some scam brokers will proclaim that they have offices here, there and everywhere. They often claim that their business address is in the heart of the trading centres of London, New York or some other bustling city.
The reality is that scam brokers can be one-man bands, with all of the office telephone numbers you see listed re-routed to the con artist’s own phone.
It’s really cheap to register a business address even if there is absolutely no proof that the broker even operates from there.
Flashy websites that deploy inadequate security – possibly deliberately – can also be rife, so do your due diligence. You’d be amazed at how many scam brokers reveal themselves in the most basic of ways.
Mind the gap
A forex broker with a twisted mind knows that they can con naïve but good-hearted traders by using some simple techniques.
One way is that they can essentially ‘sell’ a forex trade to an individual, claiming a position is X amount of pips on the spread when, in actual fact, the spread is Y. In these cases, the broker will cream the small amount of profit margin off the top for themselves.
One of the worst kinds of forex scams is when a broker basically sub-lets a trade out, quoting a price that is inflated or deflated and then hedging their position with another broker offering a more agreeable rate.
This is a scammer that is scalping their clients, rather than the market, and sadly this is a con tactic that can be harder to prove.
That’s why it is recommended that you have active accounts with a small number of brokers, always checking the prices of their forex pairs and creating an average across the board. If a broker appears to be trying to upsell their lines to profit off the top, you will know that they are a scam broker.
So, protect yourself and your investments by only trading with brokers that are regulated, time served and not deploying any of the scam strategies outlined here.