Forex trading is highly popular online and another advantage of the online arena is that it can be 24/7 since all of the markets around the world trade across multiple currency pairs and for that reason there is always a market around the world that is open somewhere. However, the popularity and subsequent boom of this online trading industry has led to many scam artists coming in and taking advantage of people that had nothing but good intentions on their own part with respect to training. You need to be aware of the different scams that are out there and plan to avoid them if at all possible.
The dine and dash scam
The dine and dash scam is the most common Internet Forex Scam currently taking place and it is of course an ancient scam that has replayed itself millions of times over the course of time. In this scam, a Forex company will establish a brokerage online, giving potential clients some great introductory deal to get them sucked in. Then, when they develop a reputation and get a lot of money into their bank account, they suddenly disappear, taking the money of their clients with them and leaving everyone that trusted their internet Forex website confused and bewildered with potentially their entire bankroll for this activity gone.
This is a very common scam as previously mentioned and just about every industry has had this type of behaviour at one point or another. It is unfortunately easier to pull off online because of the freer market that the internet represents, but of course that same market has given us the amazing choice of legitimate brokers as well and that is always going to be the double-edged sword that the free flow of ideas and information across the internet represents.
Dealing with this scam in Internet Forex is very similar to dealing with it in any other context. When you are new to the online Forex game, make sure that you stick with companies that have positive reviews and a great reputation. It is highly unlikely a profitable reliable company with years of experience will suddenly pull this scam, but it is more likely that a company that has only been around a few months might try. Just exercise some common sense and you’ll decrease the chance that you get sucked in by the dine and dash scam.
The milk scam
Not all of the scams online have to be overt scams in order to still be counted as scams. For example, Forex brokers make their money through what is called a pip spread. A single pip is the movement of a thousandth of a dollar in a currency base pair comparison. Most reputable Forex traders these days will go with brokers that create a 2-pip spread on every trade. In this way, they are able to guarantee that they make money on each trade while still giving their traders the chance to profit from a trade if it makes them more than 2 pips (something that should be easy to do for a seasoned trader).
The milk scam is done by Forex traders that invariably demand more than this amount of pip spread for each trade. Some reputable companies will still do this if they are full featured, but no basic company for beginners should offer higher fees. You should already be suspicious of that, but you should be even more suspicious of companies that combine those higher pips with even more fees for things that seem to be outside the realm of what fees should be charged for. Once again, use your common sense and if it is telling you that a particular situation might be bad, listen to it and get out of that situation immediately.
Risk Warning: Trading in forex and Contracts for Difference (CFDs) is highly speculative and involves a significant risk of loss. Such trading is not suitable for all investors so you must ensure that you fully understand the risks before trading.