How to Recognize a Forex Scam

It’s not hard to find information about how to spot a forex scam. There are dozens of articles just like this one. However, many of these articles are short and incomplete, leaving readers with more questions than answers. That’s why we’ve created the ultimate guide to spotting a forex scam. In this article, we’ll answer common questions and provide useful tips that will help you avoid being scammed by a forex broker.

Back in the Day: The Point-Spread Scam

In the early days of forex trading, point-spread scams were common. This type of scam is where a broker quotes a spread that is too good to be true. For example, let’s say the EUR/USD pair is trading at a bid price of $0.9050 and an ask price of $0.90550. A legitimate broker would quote a spread of $0.0010, or ten pips. However, a scammer might quote a spread of only five pips, which would be much more attractive to traders.

The problem with this type of scam is that it’s very difficult to spot because there’s nothing illegal about quoting tight spreads. Many brokers do quote tight spreads, particularly on major currency pairs. So, how can you spot a point-spread scam?

The easiest way is to check the broker’s website and see what their minimum spread is on the EUR/USD pair. If the broker quotes a minimum spread that is lower than the average spread, then there’s a good chance that they are using this as a marketing gimmick to attract new clients. Another way to spot this type of scam is to check online forums and see if other traders have had problems with the broker in question.

Pump and Dump: The Forex Trading Scam

Another common forex scam is known as pump and dump. This type of scam happens when a group of scammers tries to artificially inflate the price of a currency by buying it in large quantities and then selling it at a higher price. They do this to make a quick profit before the price falls back down to its original level.

Pump and dump scams are relatively easy to spot because they often happen in small, isolated markets where there is not a lot of trading activity. For example, if you see a sudden spike in the price of the GBP/USD pair on a Sunday night, with no apparent news or economic data to justify the move, then there’s a good chance that pump and dumpers are at work.

Another way to spot this type of scam is to look for sudden changes in trading volume. If there is a sudden increase in the amount of trading activity in a particular currency pair, with no obvious reason why then this is another red flag that pumps and dumpers are at work.

How to Avoid Forex Scams

The best way to avoid forex scams is to do your research and use common sense. If something sounds too good to be true, then it probably is. Be wary of brokers that quote tight spreads on major currency pairs, and be especially careful of brokers that seem to be using marketing gimmicks to attract new clients. Also, keep an eye out for sudden changes in trading volume or price movements in small, isolated markets. If you see anything suspicious, then it’s best to stay away from that particular broker.

By following these simple tips, you can avoid being scammed by a forex broker. Remember, if something sounds too good to be true, then it probably is. Do your research and use common sense, and you’ll be able to spot a forex scam from a mile away.

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