What Are Forex Broker Scams & Why Are They So Dangerous For Investors?

Category: Forex Scams
Length: 9 pages
Reading Time: 15 mins

Excerpt: This market is home to a lot of scammers and many innocent traders and investors get scammed through the types of scams discussed in the article. Forex traders easily get scammed because they are beginners and face problems in understanding the market hence they easily experience scams.

June 9, 2022

Introduction

Now for all those who are unaware of what Forex is let me take you through the basics to make it easier for you to understand. 

So Forex is commonly known as the Foreign Exchange Market which is mainly a global decentralised or in simple terms an over the counter market for trading various types of currencies. This forex market is an unregulated market that determines the foreign exchange rates for all types of currency.  It is in simple words a market for buying and selling of national currencies and these markets are considered to be the largest and most liquid asset markets in the world.

The forex market is mainly where traders speculate the increase of a currency’s price to make profits. Now since Forex is an unregulated market there are higher chances of scams and fraudulent brokers emerging. This market is not supervised by the government or any other financial institution which makes it difficult for traders as there are numerous scams and there is a higher chance of fraudulent brokers. This market is slightly complex and most traders have a forex broker that guides them along and helps them navigate through this tricky market. 

Since many traders have limited knowledge of forex in the beginning their brokers can easily scam them and they could lose tons of money. This is mainly because a few traders are new and inexperienced hence they fall victim to these vicious traders. Now let’s dive into the different types of Forex scams ranging from Forex Mutual funds scam (PAMM),Trading signal Forex scams, Holy Grail Forex scams, Guaranteed Returns scams, E/A trading robots scams and Unsegregated Client Bank accounts.

7-10% of the U.S. population are victims of Online Scam each year, and 21% of those experience multiple incidents of Internet Scam/Fraud.

CNBC News

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Table of Contents

CHAPTER 1: The Many Types of Forex Broker Scams

Consultation

Forex Mutual Funds Scam (PAMM)

PAMM Accounts are mainly known as Percentage allocation management module/ management which is mainly a form of pooled money forex trading. 

Let’s talk about how this PAMM account works and how it functions. An investor mainly gets to allocate their money in their desired proportion to the qualified traders or the money managers of their own choice. Now these traders or money managers can manage multiple forex trading accounts by using their own capital and aiming to generate profits. Now there are mainly three participants in this PAMM account set up which includes the Forex broker/ Forex brokerage firm, the trader or the money manager and the investor. 

Now the main role of the forex broker is to provide secure and reliable platforms that provide money managers and investors to communicate and to interact. In addition to this, the Forex broker facilitates and aids the trading activities of the money managers within the allowed regulations. The forex broker is also responsible for aiding account keeping, deposits, withdrawals and all other related activities. Now let’s talk about how PAMM scams occur and how innocent people get scammed through PAMM accounts. 

forex chart

PAMM accounts operate on a few principles which mainly include that PAMM accounts are created by managers by dispersing their first contribution to every account as the Managers Capital. Moreover, for the investors to choose a manager they mainly put their money with a manager who has good PAMM account rankings.  Once the investor invests in the manager’s PAMM account, the manager immediately starts trading in the account with their own money and money from  the investors. Now the gains and losses of the funds are divided between the management of the fund and the investors.

If your money was stolen from a forex scam then contact us to help you get your money back!

PAMM Scams: What are They and How Do They Work?

Now PAMM accounts are legitimate practices and they include a limited power of attorney which is quite often abused. Now there are countless services that have inflated or fake results which can include a PAMM owner who is mainly an unregulated offshore broker. Now through the brokers’ access to the software it is quite easy to manipulate the showcase account and hence lure investors into this trap. Now once there is adequate amounts of money in the fake account the account crashes and hence the client’s money is stolen. Now these PAMM accounts  are often subject to scams because these accounts allow brokers or the money managers to manipulate and lure in investors through their tactics.

laptop on table

Trading Signal Forex Scams

Now let’s dive into the basics and the main definition of trading signal scams . Now trading signal fraud is only possible due to the increased distribution of information that is wrong and false combined with technological advancements. 

Traders can often fall victim to these trading signal scams due to traders thinking that they know everything and are immune to all types of scams. These scams are mainly focused on people that enter the Forex market and are beginners to this market hence they misunderstand the dynamics.

 In addition to this, there is no one defined way through which this type of a scam occurs as there are several fraudulent organisations that are known for selling trading signals that seem like actual websites and are considered to be a legitimate source for Forex tips. Now these trading signal scams may also occur through several social media platforms which include Instagram. These scammers use Instagram as a platform to mainly show the profits that are being earned.

phone with cfd chart

Holy Grail Forex Scams

Let’s go over what Forex holy grail scams are since many people are unaware of what it is and how it works. Let me take you through the basics of this type of scam. So Forex holy grail  is mainly  a scam auto trading software that ensures almost 750-1500 pips in a week. 

It is sold at almost 497 dollars per licence  and this is being sold using a secret system. Now you might be wondering who the trader is and what is this software? The name of the trader behind this system is “Maurice Campos”. This so-called trader who invented the system has no reputation in the trading industry and till date remains a secret. This just goes on to show that this entire thing is a scam and nothing else. 

Now the forex holy grail is mainly a scam that claims to share with the investors the secret to trading on forex. This software is like you’re putting your car on auto pilot and enjoying the ride. It allows traders to sleep at night with the assurance that all their traders will be kept safely at night at the designated times. This software appears to be and is marketed as the solution to all your Forex trading problems and it is marketed as if it’s the secret key to trading which sounds pretty simple and almost too good to be true.

Now let me give a brief disclaimer to all the traders out there, if some software or broker makes it too pretty and easy it’s most likely to be a scam. There’s no easy way out or into Forex. It’s your luck, effort, knowledge and experience. You aren’t in Disneyland so please don’t fall for such scams!

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How do they work?

Now this software claims that it will get you almost 600 pips a day which is impossible to achieve. This is a scam to attract traders and lure them into this trap. 

This is not a new software or something out of the blue as there have already been tons of such scam software robots in the trading industry, now any trader who has even a tiny bit of knowledge of this market will be able to tell and identify this as a scam simply because there’s no shortcut to forex and you can’t expect to make such impossible things in a day.

 In addition to this, Forex holy grail relies upon the strategy of making quick money which in a market such as forex is impossible. This market is dynamic and ever changing due to price fluctuations hence anybody who believes in the motto of this software is a fool! All experienced traders are aware that this is a scam and it’s an absolute stupidity to believe that you can actually achieve these results through such a scam. 

man on computer

These holy grail softwares are nothing new and yet still are scamming and taking money from several traders mainly due to traders being new to the market or getting too greedy. Therefore, it’s best to avoid such scammers and any other softwares that is marketed with huge and ludicrous amounts of money. You’ll lose all the money that you have instead of making double the amount! So beware and stay away from all such scams!

Guaranteed Returns Scams

Now if you’re not aware of what guaranteed returns scams are let me take you through them and explain the basics to you. 

So guaranteed return scams are mainly scams that promise you huge returns and in the end you end up with less money that you had before. Now guaranteed returns are the most common types of Forex scams mainly because traders get greedy and to be honest everyone is looking for a huge payday. The name guaranteed returns should be a warning sign for all the traders and they should stay away from any software or broker that promises you guaranteed returns or predicts a certain amount that you will earn.

How to identify guaranteed returns scams?

investment on phone

Now let me talk about a few ways through which you can easily identify whether this is a guaranteed returns scam or not! There are promises of low risks with considerable returns and it simply seems too good to be true. 

Moreover, these scammers contact innocent traders out of the blue and they’ll either send a call or a message through social media and they’ll give you unsolicited advice on your investments. These scammers use high pressure tactics and they are continuously contacting people to invest quickly and to take quick action. Other ways through which these scams take place are if strangers or people you don’t contact you and start offering their advice. 

Guaranteed return scams also use celebrity endorsements and they use pictures of celebrities to lure people and to show that the company or broker is established. Now any scammer or company promoting their service as being the best out there and guaranteeing that you’ll make huge sums of money and profits on your trades if you trade with them is most likely to be a scam. Guaranteed return scams operate on the principle of promising high investment returns which are accompanied with little or no risks and these guaranteed return scams are mainly a classic sign of Ponzi schemes.

Fathers Day Scam

Target audience for guaranteed return scams

Moreover, these guaranteed returns scams are mainly targeting young traders and they scam traders that are inexperienced. 

These scammers lure in new traders since they have little to no experience and are looking to make money with little to no effort. These scammers are targeting young traders and scamming them so it’s best to avoid any scammer or any company that states guaranteed returns. 

These young traders as well as traders who are just looking for a huge payout are targeted and thus scammed. So let me give you a quick tip for anyone trading or about to trade on Forex. There are no shortcuts and there are simply no easy way outs to trading. You need time to actually learn the dynamics of trading and thus you need to give it time to actually flourish. 

Don’t expect huge payouts within a few hours or a few days of trading. So here’s your warning for all future trades. Beware of scammers that promise you high returns or that state you’ll make money within a day or so because they’re definitely scamming you and you’re going to end up broke! Any company that promises guaranteed returns or has guaranteed returns is not to be trusted and is most likely to be a scammer that’ll end up with only losses and no profits. So avoid and refrain from trading with any such companies.

crypto market stocks

E/A Trading Robots Scams

Forex robots or commonly known as expert advisors are mainly programs that claim to automate forex trades. Now let’s dive into Forex robot scams which are also known as Expert advisor scams. 

Now a lot of traders rely on  these robots and these mainly indicate what the financial markets are doing and these are commonly known to be the best tool for accurately forecasting the future trading performance. These robots make it possible for traders to purchase information products that mainly contain useful indicators of which way they should trade. 

These are mainly scammers who often take advantage of and a lot of scammers create falsified signals that mainly look authoritative however they are taking the traders along the wrong paths and only prove to be lucrative for the brokers. Now let’s dive into the basics and the main definition of Forex robot scams . Now robot scams are only possible due to the increased distribution of information that is wrong and false combined with technological advancements. 

crypto graph

Now traders can often fall victim to these robot scams due to traders thinking that they know everything and are immune to all types of scams. These scams are mainly focused on people that enter the Forex market and are beginners to this market hence they misunderstand the dynamics. In addition to this, there is no one defined way through which this type of a scam occurs as there are several fraudulent organisations that are known for these robot scams  that seem like actual websites and are considered to be a legitimate source for Forex tips.

Forex Pyramid Schemes

Now Forex pyramid schemes are yet another common type of Forex scam. Lets go over this type of scam and understand what this truly is and how it takes place. 

These are some of the most common types of affinity fraud.  These mainly take place in  exchange for a small initial investment up front and these scammers promise huge returns. Now the main target for such scammers are early investors who almost always see some sort of return on their investment and motivated by their success, they go out and recruit their friends and family to participate in the scheme as well. Truth be told, the ‘investment opportunity’ does not actually exist, and the money used to fund their initial return comes from other members of the scheme who have contributed money to the scheme. 

coinbase currency

After a certain number of investors withdraw their funds, the scammers close the scheme and pocket the money. Forex trading is the world’s largest financial market, with trillions of dollars in transactions taking place every day between large corporations and individual investors. Because of the internet and computer technology, the forex market is now accessible to the general public through the use of a forex broker online. If you’re wondering, “Is forex a pyramid scheme?” you’re not alone. However, pyramid schemes have been developed in the forex market, just as they have been developed in the stock market, real estate, and virtually any other legitimate type of financial investment. 

For the most part, people will search for the best forex broker, open a forex trading account, and begin practising forex trading strategies. Unfortunately, a small number of people will attempt to take the easy way out in order to become wealthy quickly through forex trading and will end up being scammed. When it comes to life, there is a rule that you will follow when considering a foreign exchange investment. “If something appears to be too good to be true, it almost certainly is.” The one thing that all forex scams have in common is that they all promise unreasonably high returns on investment. 

The forex market has the potential to generate large returns, but there is always a risk of losing money. As a result, if someone promises a large amount of upside with little or no downside, it is most likely a scam. If someone had a foolproof method of trading forex, why would they ever want to share it with the rest of the world? They would keep it to themselves and make a fortune in the forex market. And let’s just say there was some extremely generous trader who decided to share this guaranteed trading method with the entire trading community in a massive act of generosity – everyone would have heard about it and would be using it. 

man with mcbook

Don’t expect huge payouts within a few hours or a few days of trading. So here’s your warning for all future trades. Beware of scammers that promise you high returns, ask you to recruit more friends or that state you’ll make money within a day or so because they’re definitely scamming you and you’re going to end up broke! Any company that promises guaranteed returns or has guaranteed returns is not to be trusted and is most likely to be a scammer that’ll end up with only losses and no profits. So avoid and refrain from trading with any such companies.

Key Takeaways!

Conclusively, scammers have found new and advanced ways of scamming and looting people especially on Forex due to the nature of the market. 

This market is home to a lot of scammers and many innocent traders and investors get scammed through the types of scams discussed in the article. Forex traders easily get scammed because they are beginners and face problems in understanding the market hence they easily experience scams. 

Moreover, it is imperative for traders to realise the importance of protecting themselves and their trades by ensuring that they have some experience in this market and have adequate knowledge about the functioning of Forex. Every trader that enters the Forex market must be aware of the nature of the market, how the market works, which broker to find and having enough information about the broker before actually starting to trade with the broker. 

Therefore, I would advise all newbies and beginners to investigate, research and then enter this market. Your returns are not guaranteed in such a dynamic and complex market hence do not believe any broker who tells you otherwise. Another piece of advice for all the traders who think they’ll make immediate returns and profits from Forex please do not go with this mindset. Yes a lot of people become super rich from the Forex market however it takes time and effort as well as experience to actually get there.

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