How to Spot a Forex Scam and What to Do About It

By  //  April 24, 2020

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The Forex financial market is massive (over $5 trillion/day turnover in 2016), extremely volatile, and comes with few to no regulations.

The Forex financial market is massive (over $5 trillion/day turnover in 2016), extremely volatile, and comes with few to no regulations.

While numerous independent and governmental bodies around the world are playing watchdog, Forex frauds are more frequent than one would like to think.

As a beginner, you may find the promise of easy money appealing, but you need to know how to identify a potential Forex scam from a brokering company. Moreover, you should know what to do if your suspicions seem to be true.

Learn More about the Broker

If a company contacts you to make promises of fabulous profits with little financial risks, you should become wary.

When it comes to the Forex market, a broker will always tell you about your risks and will offer no guarantees. Moreover, a trustworthy brokering company will provide you with the chance to attend webinars and workshops on forex trading for beginners, access online courses, and discuss matters with real professionals. 

Reliable brokers will never tell you to sit back and relax while they make piles and piles of money for you. Why would they? Instead, reputable companies will offer you the instruments to use so you can be in control of what is happening. 

Regulation by a national governing body

In the U.K., brokering agencies need to have the Financial Conduct Authority (FCA) approval. In the United States, the SEC supervises and regulates trading activities.

In case you feel that your broker sounds too good to be true, you can check the company against the FCA’s warning list. If that brokering firm is on that list, avoid it altogether. Proof of the broker’s legality is crucial. It is the first thing you should learn about your potential broker during the initial conversation.

Live track record 

The second thing you need to ask your potential broker is to provide you with verified statistics from active trading accounts. You should worry when the company offers you only demo accounts’ data or no data at all. 

Learn More about the Software

If a so-called broker tells you that they have Forex trading software packed with a “secret formula” guaranteeing your success, it is a red flag.

Generally, you have a limited number of professional, established trading platforms, each with its strengths and limitations.

Check them all out and understand how they work. If your broker suggests you install unverified programs on your computer, you should refuse. 

Learn More about Your Funds’ Management

Forex scammers usually do one or both of the following:

Pressure you into depositing your funds

A reliable, regulated broker will never pressure you into depositing your funds early in the conversation. First, you will have a demo account for you to learn.

Then, the company will wait for you to understand how things work. You should become comfortable with the broker and the trading process before you deposit any funds. Whoever tries to push you or guilt you in doing so is probably trying a fraud scheme.

Promise you to earn tax-free money

The problem with Forex traders’ taxation is thorny. Traders need to pay taxes, just like everybody else. However, there is the spread betting and CFD trading loophole that allows some U.K. traders to dodge the capital gains tax. What you need to know is that a “non-taxable profit” is not 100% true and does not apply to everybody. 

The U.K. government indeed deems Forex and CFDs gains as tax-free until traders surpass a certain threshold. It is also true that if you hear promises about becoming a millionaire overnight and pay to taxes for it, your broker is probably lying to you. 

What to Do When You Spot a Forex Scam?

If your suspicions are growing, you should report that broker/company to the appropriate governing body – in the U.K., there is the FCA.

Moreover, to make sense of the tax/no-tax issue when it comes to Forex trading gains, you can directly contact the HMRC. They will be more than content to tell you how and where your financial obligations stand, especially in our post-Brexit context. 

If a broker already defrauded you of some money, always discuss with an attorney. While the Forex market lacks regulations, brokers can and will answer to the law.