Forex Frauds

Forex Frauds

Forex is trading foreign currency in order to make money. Forex frauds come in many flavors; each promising too good to be true returns. The reality is that two out of three retail foreign exchange traders lose money each quarter. Regardless of whether the profits come from frauds involving trading platforms, pump-and-dump or Ponzi schemes, you can help avoid these scams by making sure you understand the underlying asset and how the supposed profits are to be made.

The Setup

Maybe you’ve seen the ads, video posts, or group chats about foreign exchange trading. They tout high returns or even offer lucrative employment opportunities in forex trading.

The frauds typically center around a trading platform you’ve never heard of, or someone online willing to share their secret trading signals or strategies, software that will trade for you, or the opportunity to trade with a proprietary trading firm’s money and share the profits.

The Fraud

It is highly unlikely that any of these offers will live up to the hype. 

In most cases, customers who send money — typically via crypto assets — to fraudulent, offshore, unregistered forex platforms never get their money back. 

In fact, most people who trade forex lose money. According to quarterly profitability data from registered foreign exchange dealers in the United States (see below), about two out of three retail foreign exchange traders end each quarter in the red.  You might lose less money by copy-trading someone else’s moves, but if you add up subscription costs, fees, and taxes, you’re still unlikely to make money. In addition, past results do not guarantee future success. An amateur trader who is successful this month, may not be successful next month. 

The same is true of automated trading programs, or artificial intelligence enabled “bots,” that are pre-programed to use specific ratios or indictors. Even if they can be tweaked to correlate to past market activity, there’s no way of knowing if the same market conditions will persist going forward. Automated trading programs that provide “buy” or “sell” signals or execute trades at specific prices may help with trading discipline, but no technology can consistently predict the future. 

Be especially cautious of anyone who approaches you on social media, dating apps, messaging apps, or through unsolicited emails and wants to discuss forex trading. Common warning signs to watch for include:

  • Pushing you to move the conversation off-platform to a private messaging app.
  • Promising outsized and often guaranteed returns in a short amount of time.
  • Directing you to an unregistered dealer with no physical presence in the United States.
  • Offering you leverage that is higher than legally allowed in the United States (2 percent for major currency pairs or 5 percent for other pairs).
  • Accepting only bitcoin, ethereum, or other digital assets as payment.
  • Having a website that does not display a physical headquarters address or branch locations, or the addresses do not exist when you do a street-level map search.
  • Using a messaging app as a customer service number, or having no phone number at all.

If you still want to trade forex, then trade with a CFTC-registered dealer. There are six, listed here alphabetically with links to their disciplinary profiles maintained by the National Futures Association:

Working with a regulated dealer is important because when you trade over an electronic trading platform, mobile app, or a dealer’s website, you are not connecting to a registered exchange. You are connecting to the dealer, which controls the information you see on your screen, including prices and spreads. In many cases, unregistered offshore dealers have used popular trading software to provide a veneer of legitimacy, but have manipulated trade data to steal from customers. 

Do's and Don'ts
The Do's The Don'ts
  • Do verify that anyone who offers to trade forex for you is also registered by searching the National Futures Association BASIC database. Registration alone won’t protect you from fraud, but most fraud is conducted by unregistered people and platforms. 
  • Do verify that dealer firms are registered with the CFTC and National Futures Association, see the list above. 
  • Do make sure you receive, thoroughly review, and understand all account and risk disclosure documents. If you do not receive disclosure documents, that should be considered a red flag that you are likely dealing with a fraudulent dealer. 
  • Do determine how much risk capital you can use to trade. Do not use funds needed for living expenses, or for short-term or long-term savings needs like retirement. Only risk money you can afford to lose.
  • Do develop a risk management plan. Once you know how much risk capital you can afford, you can then determine how much you could risk per trade. Putting together a plan and sticking to it will help you avoid emotionally charged decision making.
  • Don’t pay attention to tips, testimonials, or recommendations you receive online. Whether it’s for a no-name trading platform, charting service, trading signals, or someone selling classes or software, many of the people touting products in this space are paid affiliate marketers – wannabe influencers who convince inexperienced traders to buy questionable products or services. They are selling products not trying to help you.
  • Don’t trade with dealers that only accept crypto assets such as bitcoin, ethereum, or some stable coins. This is another significant red flag of a possible fraud.
  • Don’t let someone you met on social media, dating apps, message boards or other platforms convince you to trade in products or markets you don’t fully understand. Learn the markets first and know the risks involved before committing your money. You can even find demo platforms that will let you paper trade and practice without the risk of losing money.


For More Information

Be Smart: Check Registration & Backgrounds Before You Trade

Customer Advisory: Eight Things You Should Know Before Trading Forex

Customer Advisory: Avoid Forex, Precious Metals, and Digital Asset Romance Scams

Customer Advisory: Beware of Fee Scams Targeting Workers Sidelined by COVID-19

Fraud Advisory: Foreign Currency (Forex) Fraud

Article: Four Things That Can Help Reduce Your Risk of Forex Fraud

CFTC/NASAA Investor Alert: Foreign Exchange Currency Fraud

Brochure: 10 Signs of a Scam Crypto or Forex Trading Website