The Internet is full of get-rich-quick scams, trading strategies, and other dangerous traps. Not only that, but you will also find quite a lot of dodgy brokers that promise no transaction fees and instant profits if you use their copy trading features.
In short, even though the trading market is highly regulated throughout the world, it is still very easy for someone to fall victim to a trading scam. However, let’s not go as far as to believe that Forex trading is a scam. If you learn how trading works exactly, you can easily find out that all types of trading are legit and can round up a profit if managed carefully.
But, that aside, how do you really spot a trading scam?
The Different Types of Scams
There are quite a lot of scams that you can be subject to, especially while trading online. It goes without saying that this particular environment is ideal for scammers to operate their shady businesses.
Here are some of the different types of trading scams and how you can spot them:
- Point-Spread Manipulation – this scam was used to modify the bid-ask spread, via computer manipulation, to favor the broker. The good news is that the US has been able to completely shut down those that were applying to scam. However, offshore brokers might still try it on beginner traders.
- Automated Trading Programs – a lot of new brokers on the market advertise their platform as being robot trading integrated. By shady definitions, robot trading implies having a system take on your trades and managing your account automatically. In most cases, such robots are not verified, not vetted, and not approved by trading entities. Legit ones do exist, but they still require a lot of trading knowledge to operate properly.
- Signal Sellers – these are basically traders that you subscribe to in order to enjoy trading signals that you can use to make some nice profits. Basically, you trust them and their experience and make a trade according to their signals – a trade that you expect to be profitable. Before following a signal seller, it’s better to check whether their signals are consistent and if they’re still active after some trades. Usually, they vanish after making enough money.
- Unscrupulous Brokers – there are more than enough fake brokers out there. The good news is that it’s quite easy to identify them. To put it bluntly, never trade with a broker that is not regulated by an official authority. Also, don’t interact with a broker that’s barely been on the market. It’s always better to go for the big guys, so to speak, that people you know trade with and those that have a reputation to keep clean.
- Copy/Social Trading – last but not least, you should be aware of copy/social trading. Some platforms will put in place dummy traders that are seemingly good at what they do. You will make some profit, but not before the dummy trader loses a trade that will cost you your portfolio. Just as we mentioned above, if a platform offers you copy/social trading features, make sure the platform is reputable, first of all, and then that the trader you decide to follow is legit.
The Bottom Line
In short, any scam can be identified if you do some background checks and some research. A dummy trader that you should follow or copy trades from can be easily unmasked if you decide to ask around on reputable forums and so on.
When it comes down to it, all scams can be avoided if you choose the top brokers in the world.