Choosing a Broker - 4 Rules to avoid Foreign Exchange Trading Scams
Avoid foreign exchange trading scams with these 4 rules
Trading has it’s risks, but it’s not just price volatility that you need to watch out for; many individuals lose money before they’ve even made a single trade. With lower regulation than other markets and no central regulatory body, there are more opportunities for scammers to pass themselves off as legitimate and ensnare would-be investors.
The foreign exchange market isn’t open to individuals, so finding and choosing a broker is an essential step for every investor; this is also where many scammers make their money. A scammer posting as a broker can easily rip you off because they handle your money and make trades on your behalf.
How to Spot A Scam
Most scammers appear legitimate, and many victims don’t realize there is a problem until they try to withdraw their money. However, practice and a little bit of education make it considerably easier to spot potentially risky opportunities.
Look for the following:
- Misleading marketing and the hard sell – 100% guarantees, ‘quick and easy’ returns, and secret systems that will make you rich; Trading is a high-risk investment with no guarantees and anyone saying otherwise is at best misleading, at worst a scammer – avoid.
- Unverifiable information – Lack of transparency in any area is a key sign of a scam. Look for verifiable proof for income claims, information on where your funds are held and how you can get them back, and clear risk disclosures that give it to you straight. Scams look good at first glance, but rarely have the detail or proof to back up their claims.
- Unregistered with key authorities – If a broker appears legitimate but isn’t registered as a company or with the relevant regulatory body in that country, it’s probably a scam. Don’t take these claims at face value: always follow-up and check legitimacy.
Four Key Rules For Avoiding Foreign Exchange Scams
Scammers are looking to make quick money, and the best way they can do that is to go after the low-hanging fruit. They don’t have to convince everyone, just the people who are desperate to make money and who don’t know better.
You can significantly reduce your risk of being taken in by a scam by following these four rules:
Rule #1: Don’t Be Desperate
Desperation is a powerful motivator, but it makes for poor decision-making. Desperate individuals are easily lured in by offers that promise quick profits, the opportunity to purchase secret trading systems, and guaranteed returns. These individuals don’t stop to do their due diligence because they just need to start making money straight away.
If you are that desperate for money, Foreign Exchange isn’t for you. Get a second job or do some freelancing. It is extremely unlikely you’ll make a quick profit and you should never risk money you can’t afford to lose.
Rule #2: Educate Yourself
Scammers are relying on the fact that people looking to get started with Forex don’t know much about it. If you don’t know any better, many of these scams appear to look like great deals offered by legitimate brokers; your best defense is to educate yourself.
Read articles, join online forums, and find out as much as you can. There’s no rush to start trading real money; open a practice account and learn by doing, risk-free?
Rule #3: Check and Verify Everything
Most scams can’t withstand scrutiny; that’s why they use scarcity and urgency to draw in people who don’t know to check their credentials.
You should check:
- Company registration – check that the company they claim to be exists and confirm that they are not pretending to be another company.
- Standing with relevant regulatory bodies – g., the Commodity Future Trading Association (CFTC) in the US or the Financial Conduct Authority (FCA) in the UK.
- Reviews and online reputation – do they receive glowing recommendations or are they reported as a possible scam?.
Rule #4: Limit Your Losses and Maximize Your Recourse
Even with these tests you still need to be careful; it’s your money on the line. First, protect yourself by choosing a broker registered as a business in your country. This will make it easier if you ever need to use legal channels to get your money back. Secondly, limit your losses by starting small. Deposit a small amount and then try and make a withdrawal; if you can’t get your money back, don’t give them any more. Even if a scam has duped you, you’ve minimized your losses.