Identifying and avoiding Forex scams is a challenge for the average investor. However, this article will explain how to spot a scam, and how to avoid it. This article will also discuss HYIPs and agency trading. By following the tips outlined here, you’ll be on your way to a profitable forex career.
Identifying and avoiding Forex scams
While a large portion of Forex trading is legitimate, there are a number of pitfalls to look out for. Many of these scams are highly difficult to identify, even online. Foreign exchange fraud, for example, is a common form of investment fraud and involves deception to lure investors. In many cases, scammers will promise high returns but the reality is much different. Ultimately, investors end up losing money, so it’s imperative to protect yourself and your money from these schemes.
The best way to spot forex scams is to research potential forex traders carefully. Those who claim to be well-established will usually have an established online presence but be wary of any broker who lacks this presence. You should also be wary of any Forex broker who references a legitimate financial institution but later requests transfers to an account that’s unrelated to the company.
When researching forex brokers, look for customer reviews on reputable websites. Those who post fake reviews should be avoided. In addition, it’s a good idea to contact any user who has posted a complaint on a broker’s website. This will give you an idea of whether the broker is reliable or not.
You can check the legitimacy of a broker online by comparing their website terms and conditions with the terms and conditions of the regulatory body that regulates them. Also, always make sure to read the fine print of any contract you sign. If a broker is not licensed, you should look elsewhere.
Identifying and avoiding HYIPs
Identifying and avoiding HYIP scams is a must for forex traders. Most HYIPs are Ponzi schemes and operate by promising high returns for a small initial investment. The funds generated from the new investors are used to pay off earlier investors. This is how Ponzi schemes continue. The owners of these schemes often employ multiple people to lure new investors, who then contribute to the scam. This practice is illegal and results in losing investors’ money.
To avoid the pitfalls of HYIPs, investors should study the literature on fraud in the forex industry. This information should focus on factors such as the harmfulness of the scheme, its feasibility, profitability and defeatability. It should also include trend information. HYIPs and Ponzi schemes are common scams, but not the only ones.
Another common scam is a forex system that promises massive investment returns by computerized manipulation of the bid-ask spread. This type of system often targets the less experienced trader, claiming to provide a passive trading technique that is impossible to replicate. These systems usually have high spreads, which make them difficult to trade and result in commissions being paid to the brokers.
Identifying principal and agency trading
The Forex scandal has highlighted the importance of clearly defining the roles of principal and agency traders. Failure to do so could lead to further foreign exchange scandals. To avoid further problems, global regulators are taking action to improve their FX trading practices. A significant portion of FX trading is carried out on an agency basis. This means banks act as brokers for their clients, not taking on the principal risk of the transactions.
Agency trading involves the broker finding another party wishing to assume the opposite position at the same price. The broker then makes a transaction between the two parties and records it on the ticker tape. The two parties exchange money and securities at the end of the transaction. Clearly, agency trading is a way for brokers to profit from the spread.
However, it is important to understand that every trader experiences losses. If you encounter a disgruntled customer complaining about a broker or an EA, be wary of the feedback. It may be a sign of fraud, and may not be entirely true.
Another scam in the Forex market involves the positioning of a company as a broker and collecting deposits from traders. These scams increase the spread between the sell and bid price by up to eight or seven pips. This is way beyond the normal spread between two and three pips.