400% Profit in 3 Days or How to Spot a Forex Scam

The spot Forex market alone trades about 3 trillion USD a day. Combine this with currency options and future contracts and the amount can triple on any given day. Because of the inherent characteristics of the market spot, Forex basic trading is largely unregulated. Trades placed over the counter have no accountability, hence allowing the increase in the number of Forex scams today. While many unscrupulous brokers get weeded out, some of them still exist, hence any new trader must learn how to spot a Forex scam.

The old scam
In the past, Forex scams consisted of the manipulation of bid/ask spreads.  Brokers get their commission from the difference in the bid and ask price (the spread). Scams occur when brokers charge more than 3-point spreads to their investors. Thanks to the 400% Profit in 3 Days or How to Spot a Forex Scamnternet, this scam is now easy to detect.
The modern day scam

At present, Forex scams are performed by retail companies who promise huge returns to their investors. Some of brokers offer outlandish guarantees such as 400% profit in only 3 days or earnings of 2,000 pips per day. While these claims are ridiculous, many new traders fall victim to these scams simply because they have no idea about the Forex market and trading in general.

How to spot the scam
Most of these scams appear as newspaper advertisements, online pop-ups and even in classified sections of business magazines. Keep in mind, however, that not all Forex advertisements are scams, there are others which offer real income, but it is important you detect which ones are real, which ads aren’t.

The first step in doing this is by learning how legitimate Forex trading is done. You need to realize that Forex traders must place their bets through a credible financial institution – a bank, a registered broker, and even an insurance company. If you wish to deal with a broker, make sure that they are registered with the Commodity Futures Trading Commission (CFTC).

The CFTC has the authority to investigate and prosecute Forex brokers violating the CFTC rules. They have also released several guidelines on how to spot Forex scams. Here is a summary:

1.    If an opportunity sounds too good to be true, then it probably is. It is best to stay away in this case.
2.    Forex trading is not a get-rich-quick scheme. Avoid companies offering large profits for a short period of time.
3.    Forex trading is risky business. Do not trade with brokers offering little or no financial risk.
4.    Do not trade on the margin unless you understand what it is.
5.    Learn what trading in the interbank market means.

Many of scamming companies will tend to seek out investors by calling them on the phone or sending them emails. Some of them will masquerade as an agency you already know. Needless to say, it is best to check out their claims – either call the company or do a quick research on the background of a chosen broker through the National Futures Association’s Background Affiliation Status Information Center.