Discovering what are Foreign Exchange Frauds


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Forex trading is one of the top global opportunities to make an additional share of income. However, as a vast, active, and evolving market, it is not free from the interference of the ill-intended participants.

As traders and brokers crowd the space intending to secure earnings, deceptive firms and scammers leap at every chance they get to rob money from the unwary ones.

What are Foreign Exchange Scams?

A forex scam is any trading strategy, business, scheme, or plan that operates illegally to defraud traders and acquire their money. A forex scammer’s most persuasive and familiar mode of operation involves warranting the trader that they could expect whopping profits when trading with them.

According to specialists from the Commodity Futures Trading Commission (CFTC), early 2008 witnessed forex trading as the most recurrent category of scams.

The Fx market works on a kill-or-cure policy; either a trader makes a win or secures a loss. Concurrently, when one trader in an exchange earns a profit, the other settles for a loss.

Additionally, any broker fees such as transaction fees or commissions are deducted from the outcome of the trade, resulting in negative results.

Actions Undertaken by the US Government

After observing the rising scams in the foreign exchange market, the CFTC felt the need to form a special task force. By August 2008, they set up a task force to tackle the growing forex frauds.

The CFTC focused on firms or service providers that operated with a series of unacceptable services. It included brokerage businesses that administered hidden fees, ambiguous pricing structure, unclear transaction history, failure to respond to consumer grievances, an undersized net worth, solicitation frauds, targeting of the older age group or beginners at forex trading, etc.

New regulations governed these suspects of a forex scam. The CFTC ensured that they follow a leverage restriction from 10 to 1 depending on the extent of their unethical approaches within the retail forex space.

The Notorious Forex Frauds

Foreign exchange frauds cover services that;

  • Churn customer accounts or misguide them to obtain more commission,
  • Sell off software claiming that they could render guaranteed and huge returns,
  • Offer mismanaged account managing services,
  • Falsely promote their undertaking,
  • Take up Ponzi schemes or Pyramid marketing,
  • Promises trades with lower risks,
  • Do a business by rendering fake trading signals, misleading advice, built-to-fail strategies,
  • And any outright scam within the retail forex market.

It may further include any foreign exchange broker or platform, licensed or registered, but making invalid claims of high-profit earning and low-risk trading.

The Inflaming Forex Frauds

Although the foreign exchange market has been a decentralized trading practice, the rocketing forex scams pushed the governing authorities to come out in defense of the participants; traders, or brokers who were losing money to deceitful agents. As a result, the CFTC overlooking the forex market in the US noticed a climb in the number of exploiting activities within the non-banking forex sector.

From 2001 to 2006, the CFTC initiated legal proceedings against more than 80 illicit representatives involved in scamming over 23,000 users, who lost approximately a lump sum of $350 million. By 2007, the number of people defrauded grew to 26,000, and the total amount lost to forex frauds equaled $460 million.

Can You Beat the Market?

We’ve learned that the forex market is a Do-or-Die sequence for traders. It is something that established and experienced traders within this domain understand best. Trading in foreign exchange requires daily research, attention, and analytical decision-making. It is not everyone’s cup of tea.

Trading isn’t a commendable option for a full-timer who has no time to spare. For instance, a trader who has been in the retail forex market for ages will be more well-versed with how the market moves, and that’s the disadvantage that a new trader would have to tackle.

Generally, the market is full of small-scale traders who have insufficient funds to put out there. Hence, they are often preyed upon by gamblers. While small-scale traders step in for fair play, their lack of awareness and low capital stance makes them more vulnerable to the market and more likely to get wiped out of their finances.


Foreign exchange frauds often target retail traders, beginners, and elderlies. Therefore, this article emphasizes all the reasons a trader should be cautious. The need to research shouldn’t be limited to the financial asset or market but should spread out to incorporate the service you endorse as a forex trader.

Knowing how the forex market and broker functions can also help identify the sorts of misappropriations. The market volatility and loss vulnerability are enough uncertainties to hold against your stake. There’s no reason to tolerate swindlers or illicit business.

There are only three bits of advice a trader could take under three distinct situations;

  1. If you haven’t dealt with any such nuisance, it doesn’t mean that the world is free of scammers or that you are unattackable. You still need to watch out and practice caution.
  2. If you have identified any red flags of a forex scam, then refrain from further back and forths. Reporting them is yet another crucial step that you shouldn’t skip. It could help someone alike.
  3. If you’ve already fallen for a foreign exchange fraud, you should first report the culprit. You can also consider fund recovery solutions that assist in getting your money back.