According to recent estimates, the daily turnover of the global foreign exchange market hit a mark of 7.5 trillion (April 2022). The spot foreign exchange market is unregulated mainly due to its nature. This lack of regulation made this enormous market a breeding ground for forex scams of different sizes, shapes, and colors. In this article, we will review different types of forex trading scams. We will not review any specific forex scammers or make any lists or a list of scam forex brokers. That’s not the purpose of our article. Its purpose is to review the main types of forex trading scams and their “modus operandi.”
How do scams with Expert Advisors (EA), aka Trading Robots, work?
Forex trading robots are automated trading systems. As their name suggests, they take trades automatically without human intervention. However, in this article, whenever we use the terms expert advisor or a trading robot, we always mean trading systems written using MQL4 or MQL5 programming languages for MetaTrader4 and MetaTrader5 trading platforms, respectively.
If you think about it, automating a trading system is incredible. We couldn’t put it better than the famous philosopher Sarah Conner:
“…… the Expert advisor would never stop. It would never leave a trader and would never screw up a trade because it got emotional or drunk or said it needed to step away from the monitor to go to the bathroom. It would always be there….”
Sounds too good to be true. Exactly! Like any other piece of software, an EA is just as good as a person or a team that created it.
However, we should give this forex scam some credit for its level of sophistication and creativity. But how does this forex trading scam work exactly? Usually, the creators of an expert advisor advertise their trading system as something unique that nobody has ever seen before. Frequently, companies selling EAs spring up overnight, advertise it aggressively everywhere, and then disappear forever without a trace, while others can continue scam people for many years.
To peddle their “unique” forex trading robot scams, sellers often use aggressive marketing tactics, making outlandish claims about creating algorithms or neural networks that can detect and exploit “loopholes” in the forex market. These clever marketing strategies are designed to attract unsuspecting, novice traders.
Fun Fact: Sure, markets do have their moments of loopholes and inefficiencies. But here’s the deal: as soon as word gets out, traders swarm these opportunities like they’re going out of style, making them disappear in no time. You know, it’s a lot like fishing in a way. Imagine you’ve got this secret spot on a lake where the fish just can’t seem to resist your bait. It’s your goldmine. But the moment the secret’s out and everyone starts showing up, it’s like the fish decide to pack up and move. Before you know it, that hot spot’s just another part of the lake.
They pitch these trading robots as a “set it and forget it” kind of thing. The idea is you set it up, hit the “Start trading” button, and it makes trades in your sleep. And sure, it does trade while you’re off dreaming, but let’s just say the results aren’t always what the hopeful trader signed up for.
They’ll even toss in some “proof,” like trading statements where their system appears to rake in profits hand over fist. Sometimes, they even have these statements “verified” by a broker to sweeten the deal.
“According to history backtests from 2010 till date and from live trading results, FXXXXRBO EA makes 96% of winning trades. You can always run backtests by yourself to check that.”
Frequently, you will see dozens of reviews on their website or social media from people who allegedly used the robot, and it made fortunes for them. But obviously, there is no way to verify their statements. And yes, those statements are fake.
This type of forex trading scam usually targets people who are complete newbies. The reason is simple and it is very easy to impress someone new to the market with claims of high profits, sophisticated terminology, and seeming simplicity.
“Nothing to set up or configure! XXXTurbo™ 3 Comes fully Pre-installed on your BrokerName Plug & play solution. Real no-brainer! For other brokers, you will receive an easy installer.”
How Managed Forex Accounts Scams Operate?
Let’s break down this Forex trading scam to basics. A money manager is either a person or a company that takes care of your investment portfolio for a fee. Now, in places like the EU, the US, or the UK, these guys need a special license to do their job. And getting this license? It’s no walk in the park. They have to pass a bunch of tests to prove they’re qualified to do the job.
If we’re talking about a company playing the role of a money manager, it has to be set up in a specific legal way and, of course, have that crucial license. These licenses come from government regulators and cost a pretty penny to keep active. Basically, money managers have a lot on the line if they mess up.
Their job is to make the best moves with your money, charging a fee for the trouble. They’re supposed to keep you in the loop about what they’re doing with your cash, minus the trade secrets. And when they make a move, like picking one stock over another, they need document why they made that call, offering a peek into their decision-making process. Let’s just say money managers are the adults in the room.
You might also hear them called “portfolio managers,” “asset managers,” or “funds managers.” But here’s the thing. In the Forex world, “money manager” can have a bit of a shady vibe. That’s because some self-proclaimed money managers have been caught up in Forex scams.
These Forex money managers promise to handle your investments with the same grown-up responsibility, charging a fee—often a standard “2/20” cut or something close. But then they dangle the carrot of unrealistic returns from Forex trading, usually targeting folks who are either too busy or too green to trade on their own.
Hang in there. We hope this wasn’t too much of a snooze fest. Please stick with us!
Alright, let’s dive into the juicy part of this forex scam. When it comes to what they’re charging, our Forex money managers can play it cool, sometimes asking for a hefty 30% or 40% as their cut. Yep, you read that right, and we’ve seen it firsthand. But hold onto your hats because the real kicker isn’t just the fee; it’s the kind of returns they claim they can make for you. They throw around numbers that are, frankly, pie-in-the-sky—like saying you could rake in a 10% return daily. Yeah, right. And sometimes, they even dare to guarantee profits. If that doesn’t scream “scam alert,” we don’t know what does.
Of course, they’ve got all the usual trappings to sell you on this fantasy. A slick website plastered with their “money management” spiel, not to mention their blasts across social media and various messaging apps, drumming up business.
So far, we have established that these forex trading scams promise huge profits to lure naive, unsuspecting traders in. But that’s not the end of it. How so? As a money manager, you need a place (a broker) and the appropriate infrastructure (MAM, PAMM functionality) to “manage” the funds of their victims.
That’s exactly why these so-called “managers” gravitate towards forex brokers offering certain accounts. This forex scam kicks off with them nudging you to sign up with a broker they’re cozy with. Sometimes, they’ll drop you a link to make it happen; other times, not. Once your account is up and running, the next move is to get you to pour some money into it. A minimum cash deposit might be needed to get in on their “master account,” usually dictated by their broker’s rules.
Forex brokers and these money managers are in a mutual admiration society. Why? Because when a money manager rolls into town, they come with a whole crowd of clients in tow—clients the broker didn’t have to lift a finger to attract. For brokers, it’s a dream scenario. And this isn’t just a one-way street; money managers and brokers have a give-and-take going on. After all, when one wins, so does the other.
How Do Forex “Gurus” Operate?
Ever stumbled upon those Forex motivational videos, the ones with rags-to-riches tales? They come in many flavors, but the core story’s always about some guy from a dirt-poor background striking it rich through Forex or crypto trading.
These videos aren’t shy about flaunting the good life—think flashy cars, sprawling mansions, yachts, private jets, and all that jazz. They’re designed to make you think, “Wow, Forex trading snagged them all these goodies.”
But here’s the catch: if you’re watching one of these videos, chances are the person behind it is hawking trading courses, partnering as an introducing broker (IB) with some Forex platform, or running their own brokerage. Bottom line? Their wallet isn’t getting fat from trading—not directly, anyway.
In our opinion, this is the worst type of forex trading scams.
They never talk about the risks of trading and focus exclusively on the benefits of forex trading. Whenever you try and ask them about their trading strategy, risk management, and other minutiae of the forex trading, they try to be intentionally vague, or they get defensive like this guy:
These guys use the full potential of social media (e.g., Facebook, Instagram, etc.) and messengers (e.g., WhatsApp, Telegram, etc. ) to lure people in.
If you watch trading-related videos on YouTube, check out the comment section. People often praise some “wonderful” trader who traded their money and made them a millionaire overnight. For some reason, they felt the urge to share their name and contact details with the world instead of keeping it on the down low. Obviously, all those comments are fake and made by bots.
Trading Courses
As the name suggests, this scam is built around forex trading courses. If you try to search online for forex trading courses, you will find many different ones. Not all of them are scams, so let us get that out of the way first. There are many legitimate ones where you can learn a lot of useful stuff, sometimes free of charge.
But how can we distinguish the good from the bad?
Like in all previous cases we have reviewed above, these forex scams make many bold claims on their websites. Their ads usually try to sell you “exclusivity.” For instance, they usually claim to know the secret to trading that no one knows, and they are ready to share it with you for a moderate fee.
So, you have fallen victim to their marketing tricks, your greed overpowered your common sense, and you bought one of these courses. What happens, then? Where does the scamming happen? Well, there are at least two places. The first one is the fee you paid for the course. Consider yourself lucky if it is the only place.
Very often (but not always), these guys also act as Introducing Brokers. So what this means is they work together with a broker and get compensated for the clients they refer to that broker. As you progress through their trading course, they may suggest you open a trading account to practice the different concepts they teach you. That’s the second place where this forex trading scam can get you.
They will gently “nudge” you to open an account with a “partner” broker they conveniently happen to know. Sometimes they may operate a broker of their own because that way, they will be able to pocket both the fee they charge for the trading courses and the profits from your trading.
Why do people fall for Forex Scams?
The temptation of quick financial gains often leads unsuspecting retail traders into the traps set by Forex scammers. These fraudsters exploit the common lack of deep knowledge about the Forex market, presenting it as an easy route to wealth. They seduce potential victims with visions of luxury lives funded purely by Forex trading, a narrative that, while enticing, is frequently far from reality.
Scammers employ sophisticated tactics to lure individuals. They create a sense of urgency and cloak their schemes in legitimacy through professionally designed websites and fabricated success stories. The promise of substantial, sometimes “guaranteed,” returns on investment can cloud judgment, making it difficult for people to recognize these offers for the scams they often are.
The journey through Forex trading is rarely a solitary one, yet those without a network of informed traders can easily fall prey to offers of exclusive, insider strategies that promise much but deliver little. Once invested, many traders fall victim to confirmation bias, dismissing any signs of the scam in favor of the illusion of profitability.
Financial desperation amplifies vulnerability, making the siren call of a quick fix all the more irresistible. However, the most effective defense against falling into these forex trading scams is education and a healthy dose of skepticism. Thorough research and a critical eye are crucial in navigating the Forex market safely. Remember, if an offer seems too good to be true, it likely is. A measured approach, grounded in knowledge and caution, is key to avoiding the pitfalls of Forex scams.
Disclaimer! In our article, we covered four main types of forex trading scams. To be fair, not all EA developers, money managers, or trading classes should be automatically labeled as scams, and there are legitimate ones out there. So, you have to exercise caution.
Our lust consists of four forex scam types. Is this an all-inclusive and exhaustive list? Surely no. These are just the most common ones. There are different sub-species and cross-breeds of these four. They all, however, share some common features.
Almost all of them:
- Promise unrealistic returns on your investment over a relatively short period,
- Try to avoid the subject of risks,
- Try to be as vague as possible about their trading strategy or risk management
The bottom line is if you see an investment offer associated with one of the above that sounds too good to be true, it most like is.
“The only free cheese is in the mousetrap.”
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