Foreign exchange trading, or forex trading, is a legitimate way to make extra money. However, with its growing popularity, there has also been a rise in forex scams.
It’s important to know how to identify a forex scam. You should do this before you decide to engage in trading. So in this post, I’ll share exactly what to look for to avoid falling prey to a forex scam.
What is forex trading and is forex trading legit?
Forex trading is simply the practice of exchanging one currency for another. Currency trading is important for things like international travel, conducting international business, and foreign trade.
Because there is no one universal currency, there must be a way to exchange the equivalent value of one currency for another. So this is where foreign exchange comes into play.
With that being said, you may still be wondering, "Is forex legit, and is forex trading legit?" Yes, they, but there are many scams to be aware of. Let's dive in and discuss the details of how forex trading works.
Is Forex legit?
For the question, "Is Forex legit", the answer is yes, Forex is legit. The Forex or FX is essentially a global marketplace where international currencies can be exchanged. Currencies from every country make up the foreign exchange market. So as a result, it is the largest and most liquid market in the world and it is also a legitimate marketplace.
Currencies are traded based on what is known as an exchange rate which is the value of one currency for another.
So, for example, say you purchase 1,000 Euros at a EUR/USD exchange rate of 1.18. This means that you will pay approximately $1,180 (USD).
Later, the exchange rate increases to 1.20 and you exchange those same 1,000 Euros back for US Dollars. In this case, you will get back $1,200 (USD)—for a profit of $20.
Since central banks are responsible for maintaining the value of their individual countries' currency, they are also active participants in the Forex market.
How Forex trading works
Forex trading takes place in the Foreign Exchange Market or Forex (FX) and traders seek to trade foreign currencies for a profit. The market is however a mostly unregulated, over-the-counter market and not tied to a formal "exchange" despite the word exchange in its name.
This means currencies are bought and sold through a network of banks and trading can take place 24 hours a day. Unlike with an exchange where financial assets are traded based on specific rules, regulations, and times of the day. With that said, the answer to the question, "is forex trading legit?" is yes.
The Forex is also the largest global trading market with $5 trillion on average being traded by Forex traders each day.
Like many things, the internet has made forex trading accessible. Individual investors who engage in forex trading are doing so in hopes to create profit from their trades. So the whole point is to exchange your currency for one that you expect to go up in value, earning you a profit.
As simple as this may sound, forex trading is actually quite complex. Many factors play into the value of a currency and, ultimately, exchange rates. Some of these factors include a country's inflation rate, interest rates, economic and political stability, national debt, and more.
These factors make the market very volatile and risky to engage in if you don’t know what you’re doing. So new investors should probably avoid this.
What kind of forex scams exists?
With so much activity and no centralized governing body, there is ample opportunity for individual traders to fall prey to a forex scam. A few are fairly common that you should be aware of if you decide to trade.
Robot trading systems forex scams
The promise of earning money in your sleep is alluring. After all, we all want to earn passive income. Well, in the case of forex, there are scammers who will promise trading systems, or robots, that will do the hard work for you.
Computers conduct this trade and automatically make buy and sell decisions based on specific parameters. Needless to say, these forex robots aren’t tested and vetted by any outside source to confirm their legitimacy.
In any case, it isn’t a good idea to fully rely on any system to make decisions about your money and investments. As much as we tend to believe that computers are mistake-proof, they aren’t.
Furthermore, no one (not even a computer) can predict world events or other economic signals that will impact the market. So although having a robot trade for you may seem appealing, you may want to avoid them as it could be one of the robot scams.
Signal sellers forex scams
Signal sellers are companies or individuals who charge to provide advice on when to buy and sell a particular currency pair. Typically, these signal sellers require that investors pay some sort of recurring fee in exchange for this information. These people often make guarantees of outperforming the market and claim to have trading down to a science.
A signal seller scam will collect money from traders without providing any information. Even worse, many aren’t even qualified—through experience or otherwise—to provide advice. In fact, a quick Google search will expose how easy it is to market yourself as a signal seller.
It may be hard to identify these signal sellers as scammers, as they often provide rave reviews and quote a history of making large profits. Regardless of what information they present, beware.
Multi-level marketing forex scams
The popularity of forex has been perpetuated by the emergence of multi-level marketing (MLM) businesses centered around forex trading. These businesses already come with their fair share of skepticism and it’s no different when it comes to forex. Some popular forex MLMs require members to pay a monthly fee in exchange for daily trade signals and forex educational materials.
Members are then incentivized to recruit more people by receiving tiered commissions. With these companies, the emphasis is less on trading and more on recruiting new members. The fact of the matter is that you don’t have to join a business or even pay a membership fee to trade in the forex market.
A forex broker is a company that grants you access to a trading platform to buy and sell currencies. You will need a broker in order to do forex trading. Unfortunately, not all brokers are honest and legitimate—finding ways to take your money or inundate you with fees.
Some are even unregulated, which means that they do not answer to any governing body. So, in the event of a scam, there’s not much hope for legal recourse.
It is always a good idea to do your research on any broker that you plan to use. You can do a background check of sorts on the Background Affiliation Status Information Center (BASIC) website created by the National Futures Association.
Fake forex funds
You may come across forex funds that promise guaranteed returns on your initial investment. Fake funds will boast abnormally large annual returns that seem very enticing. But, as the adage goes, if it seems too good to be true, it probably is.
Instead, consider less risky and proven index or mutual funds for your investment endeavors. And don't fall for the tricks of forex scammers.
How do you identify forex trading scams?
As you would expect, scammers do a very good job of trying to conceal their dishonest practices. Nonetheless, there are a few things that can serve as clues that something is one of the forex trading scams.
1. A guarantee of success and/or large profits
Nothing about the market, specifically the forex market, is a guarantee. Too many factors that can change at any moment influence the market.
So if someone is boasting of huge gains, guaranteed profits, or specific results, they are peddling a scam.
2. No substantial proof or background information
It’s very easy to come across pictures of charts showing profits. Scammers are savvy and they will only show profits and not losses within a period of time. In worse cases, they may even show charts from demo trading accounts that aren’t even a reflection of real trading.
Do not base your decision to work with someone or purchase a product based on this or any other limited information. Ask for background information and full disclosure of the profits and losses. If they refuse or remain vague, it’s probably a forex scam.
3. Unsolicited marketing
Unsolicited and persistent marketing is typically a sign of fraudulent behavior. If you find yourself being pushed to purchase a product or service with little information and time, it may be a scam attempt.
Be particularly cautious if they begin to ask for personal information that can be used for things like identity theft. If it feels uncomfortable and pushy, avoid it.
How to avoid a forex scam
The best thing that you can do to avoid a forex scam is to educate yourself. The more you know, the less likely you are to be taken advantage of.
Do your research—learn more about the foreign exchange market, terminology, and the legitimate resources to assist you with trading. Consider setting up a demo trading account with a trusted broker to practice before putting actual money on the line.
As with any type of investing, take your time before you make decisions with your money. You should also consider talking to expert advisors or even hiring a financial advisor who can educate you and help you develop a holistic financial plan. Moreover, ask lots of questions!
What to do if you get scammed
Maybe this information is getting to you a bit too late, and you realize you've been scammed. And maybe a withdrawal has already been taken from your account. What are your options for getting your money back?
Who to contact
Getting your money back can be complicated. To start, contact the Commodity Futures Trading Commission here (CFTC).
You can also try to get funds back after a scam transaction. The FTC has some helpful guidelines including getting your bank to reverse the transfer of funds, and asking for refunds.
Alternative ways to earn income
Is forex legit, and is forex trading legit? Yes, but it isn’t the only way that you can deposit extra income into your account. There are much easier and less risky ways to generate more money.
If you’re unsure about forex trading, consider picking up a side hustle. There are many work-from-home jobs that are available to make extra cash. A few to consider are:
Freelance writing is a very good way to earn extra money. The hours are flexible and it's not hard to get started if you have a natural talent for writing and have an internet connection.
Proofreading is reading through someone's writing to make sure it all flows and there aren't errors from spelling or grammar. It's a simple side gig to do in your spare time.
Data entry is just what it sounds like - entering data. This isn't difficult work and you can make an extra income.
Social media manager
If you love social media, become a social media manager. Help businesses plan their content, market, and reach their audience.
Virtual assistants complete a wide range of tasks for individuals or companies. You can make a great income from this once you get some experience.
If you're skilled at a particular subject, use your knowledge to help others. Tutor people in language, math, science, or anything else that you're qualified to teach.
These are just a few ways that you can leverage your skills to make money online on the side. You should also look for opportunities to negotiate a pay increase. Also, eliminate unnecessary expenses from your budget and remember to save money efficiently.
Final thoughts on forex trading scams
As you try to find ways to earn extra money with forex trading, you may run into a forex scam. So, it’s important to do your due diligence and research before engaging in the market.
Remember, if it seems too good to be true, it probably is. And it could be one of the forex trading scams.
If you want to learn more about investing, be sure to check out the Clever Girls Know podcast. You can also get investing information in the latest Clever Girl Finance book, Clever Girl Finance: Learn How Investing Works, Grow Your Money.