Forex trading is one of the most prevalent financial activity the world over. It is easy to get into because anyone with cell phone, computer, tablet, and minimum of $10 dollars can get started. It is available for trading daily. This explains why forex trading has been popular among young Nigerians in the last few years.
What is forex trading?
Forex market also referred to as foreign exchange (FX), is the world’s largest and most traded market with over $6 trillion traded daily according to The Bank for International Settlements.
Forex trading means buying and selling of currency pairs which implies that once you sell one currency, you also buy another currency at the same time. For example, EUR/USD, here you are buying the euro at the same time selling the US dollar with the intention that the euro will strengthen against the US dollar to make profit.
Forex trading involves predicting the actual rising and falling of currencies and leveraging from it. Exchange rates are not stable because of factors like Economic, political, and industrial events. These events help the trader to make decisions to buy or sell a currency. Forex traders try to predict if the exchange rate will rise or fall with the aim to buy a currency at a lower rate and resell it at a higher rate for profit making. It is normal for forex traders to hold on to a particular currency until it has risen for them to sell such currency.
Forex Trading is not centralized, and this means that there is no central location. Traders are scattered all over the world.
Types of Forex scams
Forex trading is legal however, it is a zero-sum game, meaning that one trader’s gain is another trader’s loss. Since large well-financed corporate institutions are better informed and direct a lot of the currency movements, the individual trader is always likely to lose. Furthermore, due to the steep learning curve required to master trading, fraudsters are always on hand to take advantage of newbie traders or those uninformed about the market looking to make quick cash. If you are interested in investing or trading in the forex markets, below are a few scams you need to be conversant with.
Pyramid schemes masquerading as Forex training academies. Fraudsters set up faux training academies where they claim to teach people how to trade forex. These “training academies” might teach the rudimentary aspects of trading currencies but they always have options to allow a “master trader” to trade on your behalf or pay money for referring others to register. It is the referral money paid instead of actual gains made trading currencies that make these academies pyramid schemes.
Get rich quick forex groups on social media. Scammers are aware of the situation of the economy and take advantage of that to introduce some juicy looking schemes just to defraud their victims. They use some social engineering techniques, advanced advertisement techniques stationed in different media platforms, including the internet, social media platforms such as Facebook, Instagram, and Twitter to lure victims. They advertise for high returns with images of luxurious items such as expensive cars, houses, and jewelry. They claim to guarantee fictitious high profits, promising little or no financial risks. They promise unrealistic profits on any investments made and in a short period.
Automated trading and signal sellers. These are the most advanced and rapidly growing scams in the forex industry. Fraudsters often claim to sell legitimate automatic trading systems which are supposed to guarantee automatic trades every hour of the day, 7 days in a week. They promise that these automated systems can trade even when the trader is attending to other things. These systems are purportedly guaranteed to earn investors profits irrespective of the market situation. Another ploy fraudsters use is to offer “signals” which are illegitimate manual or automated systems that they claim can identify favorable times for buying and selling a currency pair. These signals supposedly rely on technical analyses, professional forecast, current news, or the combination of the three. They then charge a daily, weekly, or monthly fee for their services. Obviously, these signals do not help the trader make any money and if it were possible to use these methods to predict the market, no one with this information would make it widely available, given its competitive advantage.
Unscrupulous Brokers. These are online forex brokers that use various sharp practices to defraud traders of their funds. Top of these are churning trader’s accounts that results in excessive trading to get commissions and having built in systems that makes the trader’s lose money.
Red flags about a forex investment opportunity
- The biggest red flag an indicator that an offer is a forex scam is the promise of guaranteed returns with little or no risk
- Persons or groups that promise to make you a lot of money within a brief period of time.
- Legitimate forex brokers/traders will not pressure you to join them. If you are being pressured into investing, it is probably a scam.
- If you are told to just invest and do nothing else, that is a big red flag. Scammers are fond of telling their victims that all the need to be rich is by investing without doing anything else.
- Fake bonuses and promotions. Fraudsters often promise bonuses and promotion for investing with them.
- Forex Brokers operating from country, territory or state which maintains a system of financial secrecy and little or no financial regulation
Conclusion
Forex trading is not as easy and straight forward as it might seem. Before you decide to trade or invest in forex, get a considerable knowledge in forex trading. Also, before choosing a forex broker, there must be proper background check and due diligence to determine the legitimacy of such broker, past records, and history. Avoid brokers who are not willing to provide complete information of their trading practices and history. Always remember, since the risk of loss is high you should only put in funds you can afford to lose.
Contributors
- Iheanacho Obinna
- Emmanuel Akinyemi
- Uduakobong Innocent Okon