Unfortunately, due to the decentralised and unregulated nature of the foreign exchange market, scammers have been known to take advantage of unsuspecting individuals who are looking to enter the forex trading world.
Here are some tips on how to spot a forex scammer before you fall victim to their tricks:
- Limit your trading activity to reputable brokers that have solid reputations and are properly regulated by official organisations such as the Financial Conduct Authority (FCA), National Futures Association (NFA) or Australian Securities & Investment Commission (ASIC).
- Be wary of promises from individual traders or automated systems that seem too good to be true. If something sounds too good to be true, it probably is. Stick with brokers whose performance track record you can trust and verify using third-party sources.
- Never invest in any managed account or give away control of your funds without verifying the provider’s legitimacy and checking references first. Pay attention to red flags like excessive fees or commissions, unprofessional or suspicious behaviour, or lack of transparency around the terms of the agreement.
- Stay alert for firms offering unrealistic returns that sound impossible given the current market conditions. No legitimate trader will promise guaranteed returns above normal market averages, nor will they guarantee success regardless of economic circumstances.
- Monitor your investments diligently and look for strange patterns in trading movements – such as spikes in volume at unusual times – that could indicate illegal activities taking place behind the scenes. Don’t hesitate to contact regulatory authorities if any suspicious activities arise, and always withdraw profits immediately when found due diligence has been satisfactorily fulfilled.
- Be aware of common tactics forex scammers use, such as offering free trading robots or automated systems that claim to generate high returns with little risk. These often are Ponzi schemes and will only leave you out of pocket. Common tactics also include cold-calling traders, sending bogus investment opportunities via email, or pressuring traders into investing quickly in order to take advantage of a ‘limited time offer’.
At best, these schemes are likely to be scams, while at worst, they may involve criminal activities that can leave you vulnerable to huge losses.
It’s always worth researching before spending your hard-earned money in the forex market.
There have been several high-profile forex scams over the years. One of the most notorious cases was that of Nick Leeson, a derivatives trader who brought Barings Bank down in 1995 after incurring losses of more than £800 million due to unauthorised transactions.
Bernie Madoff, who allegedly defrauded thousands of investors, is another infamous example.
Other well-known scammers include James Paul Lewis Jr., who was found guilty of running a $285m forex scam through his companies, as well as John David McAfee (co-founder of McAfee Security) who was accused of promoting fraudulent ICOs through his Twitter account.
If you suspect you may be a victim of a forex scam, it’s important to take action quickly!
Firstly, write relevant details about the business or individual in question and contact your local financial regulator. You should also report the incident to the police or other law enforcement authorities if criminal activity is suspected.
Additionally, keep evidence of all communications you have had with the scammer, as this could help your case should you report them.
Finally, consider seeking professional advice from a legal or financial expert to give you the best chance of recovering any losses incurred through the scam.
One notable example of a forex scam in Africa is the Bernie Madoff-style investment fraud orchestrated by Gabriel Nduka in Nigeria. In 2011, he ran an illegal Ponzi scheme which promised investors up to 40% returns monthly.
He managed to con hundreds of victims out of more than $7 million before his arrest and conviction in 2017.
Similarly, Kenyan businessman Edwin Burundi allegedly ran a complex network of fraudulent schemes involving brokers in Europe and offshore accounts with losses bracketing in at $8 million for several dozen investors.
South Africa has seen its share of forex scams. In 2018, several individuals were arrested in connection with an alleged Ponzi scheme that lured investors with promises of high returns from foreign currency trading.
The alleged perpetrators purportedly collected more than R30-million in capital investments under the guide of a legitimate forex trading company, but it was later found to be a scam.
They were able to swindle unsuspecting investors out of their hard earned money by offering them false promises and illusory profits.
Forex trading is not for the faint of heart. It’s a very complicated market with many players hoping to take advantage of the inexperience of others.
Any investment involves risk, and forex trading is no exception.
In spite of that, the risk is manageable if you are careful, and hopefully, you now know the things to look out for and how to avoid these scams.