The foreign exchange market is the largest financial market in the world, with over $9.5 trillion traded daily. There are over 100,000 Australian forex traders – the largest market per capita in the world, making Aussies a lucrative target for forex trading scams.
Due to the accessibility of high leverage, forex attracts inexperienced traders who often think that trading forex is a get-rich-quick scheme. They’re often the first target of forex scammers.
Australians were diddled out of $158 million in investment scams in the first half of 2022, a 314% increase since the previous year.
Let me show you how to avoid forex scams by recognising warning signs and fortifying your defences.
An entire industry of forex scammers is preying on middle-class men (and it’s almost always men) who are trying to escape their day jobs through retail forex trading.
1. Fake Trading Educators.
Forex trading “experts” will try to entice you with “proprietary” trading “systems” or “AI-powered algorithms” that generate winning trades while you sleep.
Above: Silver-haired white men making casual trades from a yacht, a golf course, or their beachside condo are a red-flag.
What would you do if you knew how to make $25,000 monthly with forex trading?
- Double down on forex trading with the aim of growing your profits.
- Become a YouTuber, revealing all your strategies online in a $1,000 forex trading course.
Most forex trading educators have failed to make meaningful profits from trading, resorting to selling their “expertise” instead.
Don’t fall for the seductive lifestyle videos of charlatan forex trading educators promising you financial freedom and quick returns.
If you see a video of a guy standing in front of a castle, a Lamborghini, or a hotel pool, telling you about a software program that utilises algorithms to automatically buy and sell currency, leading to a passive income from forex trading, run.
Legitimate forex trading algorithms exist; look for them when opening an account with a major forex broker like Vantage and Pepperstone. They are bundled in with platforms like Meta Trader 5 and cTrader. Treat anything else with a grain of salt.
2. Signal Seller Scams.
Signal sellers can be legitimate businesses, but most are shady operators.
They offer trading alerts that identify favourable times for buying and selling major foreign currency pairs and help you “grasp the forex market”.
Some allow you to follow and copy the trades of “expert” forex traders, so you don’t miss out on those big forex moves.
Mmost of these signals are unreliable, with some providers churning out fake insights or insights of dubious quality.
They usually charge a monthly fee, and because the price is relatively low (usually $10-$50/month), beginners don’t make a fuss after experiencing unprofitable trades.
Some signal scammers can appear very convincing.
They’ll earnestly show you screenshots of their trading history, demonstrating a “track record of profitability”.
Remember – this “evidence” is easily faked.
Charlatan trading signal sellers rely on fake reviews for legitimacy. You can spot fake reviews by checking the reviewer’s history (see if they’ve reviewed anything else) and looking for similar phraseology across multiple reviews.
How do you spot signal forex scams?
Start by looking for dodgy guarantees. For example, this famous signals provider offers a “100% Satisfaction Guarantee”.
If you read the headline only, you’d assume he will offer you a refund if you’re unsatisfied. But if you look closely, you’ll realise he’s merely promising the option to unsubscribe from his service. How nice of him.
Next, be wary of inflated accuracy claims. Promises like “90%+ accuracy” are a red flag.
Can You Trust Broker-Specific Trading Signals?
Some trading platforms (e.g., AvaTrade) offer signals from within the platform. Always be sceptical of such services, as your interests are not aligned.
Asking your broker for trading insights is not unlike asking your casino for poker strategies.
3. Fake Broker Scams.
Look out for scam brokers.
Beginner investors are often the target of fake brokers offering to handle trades on their behalf.
Typically posing as a decision-maker at a legitimate brokerage or a fund that handles forex accounts, the fraudster requests a commission in exchange for his services.
Some fake forex brokers will mimic the brand of a legitimate broker, sometimes creating a duplicate website to gain your trust.
What are the signs of a fake forex broker scam?
- Sketchy qualifications and licensing. By law, financial services need a license to operate in Australia.
Above: Verify all brokers through the ASIC website (yes, the irony is that the ASIC website itself looks stodgy and dodgy).
Ensure the broker is regulated by ASIC and holds an AFSL (check the AFSL register to ensure the broker’s name matches the license number).
If the company is based overseas, check that they’re licensed with the regulatory body in that country (e.g., FCA in the UK).
Inflated returns. Look out for “evidence” of obscene profits that beat market norms.
- High management fees. Top fund managers charge 0.5%-2.5% per year. Excessive costs and unreasonable exit clauses (e.g., your funds are locked in for 2 years) are red flags.
Moneysmart, a project of ASIC, has provided a list of Australian investment companies you should not deal with, but it’s not exhaustive. Just because a forex broker isn’t on this list doesn’t mean it’s not dodgy.
4. Forex Pyramid Schemes.
The mere mention of “pyramid schemes” raises a few eyebrows, regardless of the industry.
In the forex market, these trading scams focus on recruiting new members into groups that claim to offer insider tips and advice.
When these forex trading scams are exposed, they decline and then get shut down without any advanced warning. The leader disappears with the funds.
The leader usually has a few of these groups active at any given time, always burning some and starting new ones.
5. Forex Market Ponzi Schemes.
This type of forex scam collects money from new investors and pools it into a forex fund before distributing it to existing investors
This is illegal, of course.
They’ll usually start by asking for a modest initial investment from new investors, which they use to pay out existing investors.
A record of payouts makes the scheme look successful.
Do you want to know the scary thing?
These scammers aren’t just overweight, bearded incels living in their mother’s basement; they’re often corrupt industry experts.
Back in May 2023, Anthony Constantinou was convicted for his involvement in funding a luxury lifestyle with investors’ funds in an AUD$95 million Ponzi-style forex scheme.
How To Spot Forex Scams.
Are your spidey senses tingling? If something doesn’t feel right about a proposition being made, it could be for one of these reasons.
1. Unsolicited Offers.
Forex scammers come out of the blue with their promises of vast wealth, with little or no financial risks involved.
Remember the Nigerian prince email? It’s one of the oldest online fraud schemes, and it still cons people out of over $700,000 (USD) a year.
While not a forex scam, the email was unsolicited, asking unassuming victims to transfer money for a much grander reward.
If it’s too good to be true, it almost certainly is.
2. Requests To Join Telegram Or WhatsApp.
WhatsApp and Telegram are two platforms that provide end-to-end encryption (E2EE), which offers greater security for scammers. E2EE makes it challenging for law authorities to monitor chats.
If you’re ever using another app, forum, or website, and someone is directing you to WhatsApp or Telegram, remain vigilant.
3. Transferring Funds To Sketchy Accounts.
A scammer will rarely use a domestic bank account to request funds. They’re more likely to use an overseas account to distance themselves from local regulators.
It’s an amber flag.
Here are some other payment methods that are red flags:
- Wire transfers like Western Union and MoneyGram are difficult to trace and almost impossible to reverse.
- Peer-to-peer digital wallet transfers, especially cryptocurrencies, due to the ability to remain anonymous.
- Online payment services like PayPal, Cash App, and Venmo are used because accounts with fake identities can easily be set up with little verification (generally just an email address).
4. Poor Grammar.
Regulated brokers and financial institutions have highly literate team members in charge of their customer communications.
Some (but not all) scammers are from overseas, where English is spoken as a second language.
Keep an eye out for the following:
- Spelling mistakes.
- Excessive capitalisation.
- Incorrect punctuation.
- Bizarre diction (word choice).
- Convoluted sentences.
Corporate literature goes through many rounds of proofreading before customers see it. If you spot a high frequency of errors in any communication, dismiss it.
Which Tools Can Prevent Forex Scams?
Consider using these security software products to protect yourself against scams when you trade forex.
1. Use A VPN For Anonymity.
If you’re using a VPN, you’ll be much less visible to fraudsters. You can hide your location and encrypt your online data. Malicious actors won’t be able to spy on your internet traffic and browsing history.
You can be traced everywhere you go. If that data falls into the wrong hands, more than just your foreign currency trading is at risk.
(Related: 12 Best VPNs In Australia).
2. Use A Password Manager.
Hackers who install malware on your devices can access login credentials. If hackers gain access to your accounts, they can wipe out your balance and investments.
Password managers provide a strong defence against cyber scammers with strong encryption. Google’s password manager is decent and can be used across different devices.
If you work as part of a team or want to share certain passwords with family members using just one piece of software, you can permit and restrict access with these:
You won’t have to stick to the same memorable password because the password manager stores lengthy and complex passwords.
Each of these has a free account too!
3. Antivirus Software.
Antivirus is often baked into most operating systems nowadays, like Windows Microsoft Defender on Windows or Xprotect on MacOS, and they’re almost as effective as anything you can pay for.
Even so, you can bolster your defence by using one of the following:
- Norton 360 (which outperforms Windows Defender in every category)
Prices range from about $100 to $150, which is decent considering you get access to all the security tools you need under one roof.
Do Forex Scammers Use Phishing To Obtain Your Data?
Yes. You must never open an attachment unless you’re absolutely sure that it’s from a trusted source. This is exactly how fraudsters install viruses on your tech and gain access to your trading systems.
Opening an email or message is (mostly) safe, but clicking a link or opening attachments can trigger malware and ransomware infections.
Also, these links will often direct you to bogus websites that look identical to forex trading platforms, and you’ll then be asked to enter your login credentials.
If you do, you’ll be handing over your credentials to scammers.
Can I Get My Money Back If I’ve Been Scammed?
Sorry to be the bearer of bad news, but victims of fraud rarely get their money back – especially when the scammers are based overseas.
If you’ve transferred funds via bank transfer or credit card, there’s a slight chance your bank might be able to reverse the transaction.
Other than that, you’re pretty much screwed.
Once money has left Australia, it is hard to recover. Unfortunately, ASIC cannot assist in getting the money back.
The only thing you can do is:
- Lodge a report of misconduct with ASIC.
- Report the matter to the police.
- Report to the Australian Cyber Security Centre at ReportCyber.
Your insights might prevent future forex scams, but they won’t get your money back.
Is The Entire Forex Trading Industry A Scam?
No, but the forex market sometimes gets a bad rap because many unregulated brokers, scammers and charlatan educators operate in the industry.
Whether you like it or not, the dark web is crawling nefarious characters. Rather than throwing out the baby with the bathwater, you must learn how to separate them from legitimate brokers.
Final Word On Avoiding Forex Trading Scams.
The highly revered Sun Tzu, a Chinese general and military strategist born in 544 BC, says you must “know your enemy.”
Those who don’t will succumb in every battle.
Okay, you can sheath your sword.
Nobody is marching off to war just yet. But the principle is still the same. If you know who your enemy is and study their tactics, you can prepare for their eventual advances.
Never believe promises of short-term profits and easy money. Forex trading is complex and risky.
Expert traders make money slowly and have realistic expectations, while novices have unrealistic targets and want to make money fast, which makes them vulnerable to forex trading scams.