While Forex is a legitimate financial market, just like the stock market or any other type of financial trading, it does suffer from its share of scams.
Collectively, scammers have conned thousands of FX customers over the years out of many millions of dollars.
The victims of Forex-related scams are not all foolish; many are intelligent, careful people who still manage to get reeled in by clever con artists.
In fact, the most foolish thing you can do as a currency trader is believe yourself to be above being scammed. The more confident you are that you are safe, the more likely you are to fall for a scam.
In this guide, you will learn how to spot a Forex scammer. That way, you can protect yourself from the bad actors out there.
Forex pig butchering scams
Knowing how to spot a scammer starts with understanding the various types of Forex scams that exist. Perhaps the most widespread are what are known as Forex "pig butchering scams."
A pig butchering scam can take place in any financial market (in fact, they are very common in the crypto market right now as well). With this type of scam, con artists feed their marks false promises, leading them "like a pig to the slaughter." After they build up sufficient confidence, the victim will invest, and the con artist can take their money.
Here is an example of how an FX pig butchering scam might unfold:
- A conversation begins. Maybe you stumble on the scammer's website, or maybe they contact you on social media.
- At first, the conversation might be more general about investing, or it could even be on unrelated topics (pig butchering scams can even overlap with romance/dating scams). But eventually, it will progress to a discussion about the investment scheme in question.
- The con artist will attempt to make the pitch, telling the victim that they should make a particular investment. They will sell a lot of false promises at this point, and usually rely on urgency, i.e. "this opportunity is once and a lifetime and won't be here for long; you need to act now."
- Once the victim decides to invest, they will send their funds to the con artist. A variety of payment platforms may be used, though crypto payments are common since they are hard to track.
- The victim will never see the funds again. If they try to make a withdrawal, it simply will not go through. In many cases, the con artist will simply disappear immediately, leaving no means to contact them.
Other common types of Forex scams
Along with pig butchering scams, here are a few other types of foreign exchange scams that are especially widespread.
Ponzi schemes
A Ponzi scheme is a type of scam that is similar in some respects to a pig butchering scam, except it can go on a lot longer. Unlike a pig butchering scam, a Ponzi scam can pay out to its victims for a while. Here is how a Forex Ponzi scheme works:
- A con artist establishes trust and lures in a victim with false promises.
- The victim sends their money to the fraudulent investment company.
- The con artist may or may not invest the victim's money. But they will claim they did.
- The con artist will pay the victim, at least within their account. But rather than the money coming from gains in the investment, it will actually just be the funds invested by other victims. For some time, they may sometimes even allow withdrawals, especially if the victim does not attempt to remove a large part of their funds.
Meanwhile, the con artist will likely be spending a lot of the funds invested on themselves.
If they did invest any of the funds, there is a good chance their investments are tanking.
- Eventually, the con artist will be unable to continue to sustain the illusion of legitimacy, and will abscond with the remaining funds.
Signal seller scams
Another type of scam in Forex is the one that involves trading signals. This is pretty simple; someone who has zero basis for generating reliable trade alerts might advertise a signal service, hoping some people will buy into it. You send them your money, and they deliver useless signals or no signals at all.
To lure unsuspecting traders, fake signal sellers organize multiple outlets that advertise different but random signals. If you have enough channels to start with, one of them will get lucky enough to show a legit record of successful signals to attract traders.
Phishing scams
A phishing scam is one where a scammer convinces you that they are someone they are not, in order to trick you into sending them money.
For example, you could get an email in your inbox that is supposedly from your broker, or a regulatory agency. It may look legitimate, and direct you to do something (i.e. click on a link, provide sensitive information, etc.).
You may do so, and then end up with your account being taken over, identity theft, your device hacked, or some other issue.
What is not a scam
Now that we have gone over some common examples of types of Forex scams, let's quickly go over a few things that are not scams.
- The foreign exchange market itself: A surprising number of people like to declare that Forex itself is a scam. This is not true. Just as there are scams that target investors in the stock market, but the stock market itself is not a scam, the same is true regarding Forex.
- Low quality brokers: There are FX brokers and services out there that are poor in quality, but are still legitimate businesses. These are not scams, they are just not good options for trading.
- Your own poor investment decisions: A lot of currency traders pretty much end up scamming themselves. They build false confidence in their own poor systems or misleading assumptions about how trading works. They then rob themselves blind of their own money by funneling it all into bad trades or poor money management. Nevertheless, losing your money in this manner does not mean you have been the victim of anyone else's scam—just your own foolishness.
Red flags for Forex scams
Now that you are familiar with the different types of Forex scams, you can study the list of red flags and warning signs to be on the lookout for while you are browsing FX brokers, signal services, course sellers, and so on. Following are some indicators that you should be cautious (and possibly run for the hills).
- Unsolicited offers: Not every business cold pitching customers is a scam, but this is often a red flag if it shows up in the investment sphere. And it is almost certainly one if it happens on social media. If some random person contacts you on Telegram or WhatsApp, or other messenger app about investing in Forex, there is a good chance it is the start of a scam.
- High pressure: If someone is subjecting you to high pressure sales tactics, i.e., "This is a once in a lifetime opportunity," or "You only have three days to sign up for this offer," it is highly likely you are being scammed.
- Unrealistic promises: Any promise of guaranteed returns is a sure sign of a scam. Responsible services should always remind you that "Past results do not guarantee future outcomes." Anyone who is not doing that, or is telling you that profits are a sure thing, is out to steal your money.
- Lack of regulation: Not every Forex-related service needs to be regulated (e.g., signal services and prop firms do not), but Forex brokers should be regulated by legitimate government authorities. Those that are not cannot be counted on to comply with the regulations set by government authorities to protect consumers. So, they are more likely to be scams.
- Spelling errors, language issues, etc.: If you spot unusual spelling errors or grammar problems on a website or in an email or text, that may be a sign that you are dealing with a scammer. Legitimate companies can generally afford to proofread their copy. Quality issues involving graphic design or layout also could be a concern.
- Secrecy: If you ask a question about a Forex service, you should be able to get clear answers from customer service. For example, if you ask a broker if they are regulated, the support person should be able to tell you the authority and the license number. If they dodge the question instead, especially repeatedly, they are displaying a suspicious lack of transparency. They may be a scammer.
- Your own emotions: Sometimes you might realize you are about to fall victim to a scam if you check your own emotions. If you feel totally desperate to believe something, to the point where you feel an urge to disregard evidence that it is "too good to be true," you probably are being hooked by a con artist.
That is not a full list of all possible red flags, but now you know some of the most common ones. If you see one or more of these red flags when you are researching Forex services, you should be cautious.
General tips for avoiding falling victim to Forex scams
To wrap up this post on how to recognize Forex scammers, here are a few best practices to follow when you are choosing Forex services:
- Before you sign up for an account with any Forex broker, always check if they are regulated. Look up the status of their license directly on the website of the government authority in question.
- Be on the lookout for any of the red flags of scams you read about in this guide.
- Check customer reviews for the service in question. Look for good, but realistic reviews. Be wary of those that sound like they may be fake.
- Try not to be swept up in overconfidence when you badly want something to be true. But do not ignore warnings from your gut either.
If in doubt about a Forex service, it is best to move on and looking elsewhere to spend or invest your money. Whether or not it is a scam, there are plenty of alternatives out there. It should not be hard to find Forex brokers and signal services that you can invest in that do not show any warning signs of being scams.
