Forex scammers will exist as long as the Forex market exists. When a fraudulent scheme is revealed, scammers find new loopholes to take your money. Forex trading always comes with a risk, but if you decide to play in the forex market through a legal forex broker, the probability of losing money will depend only on your skill and luck. If a forex broker works illegally, then the chances of losing all your investments rise to 100%. We will tell you how to distinguish unscrupulous intermediaries, what arguments they use, and what will happen if you still believe them.
Is there no solution to forex fraud?
Forex scammers prey on the uninformed. This means that your best weapon against them is education. Learn the basics of the Forex market and familiarize yourself with best practices. Once you become familiar with the market, you will no longer be an easy target.
How to distinguish a legal Forex broker from an illegal?
Let’s explore how to gauge the legitimacy of a forex broker and how to catch a fraud broker.
Regulation
The best solution to find a legal forex broker is to look for the regulation of the broker. If the broker is regulated, then there are very few chances of being scammed. However, this is still not enough. You may need to look for the regulating body.
Offshore brokers registered at some tax haven countries like Belize, Seychelles, and the Caribbean are not highly regulated. Although many legit brokers are regulated in those tax haven destinations, brokers do not solely rely on these regulations. They are also regulated in Europe, UK, or any other destination where financial compliance rules are very strict. Some of the high esteemed regulatory bodies are discussed below:
US regulator
The United States has two major regulators – the Commission for Futures Trading and the National Futures Association. Japan has its counterpart – the Financial Regulation and Supervision Authority. These organizations are the most demanding of their brokers. Therefore they are referred to the first level.
UK and Australian regulators
The UK Financial Conduct Authority and the Australian Securities and Investments Commission are tier two. It is also very difficult for a forex broker to obtain a license from these organizations, and control over its activities is comprehensive.
European regulators
The Cyprus Securities and Exchange Commission and the Malta Financial Services Authority also have serious requirements for forex brokers to be licensed. But their reporting is easier, and control is generally weaker, so they are referred to the third level.
Belize regulator
The BVI Financial Services Commission and the Belize International Financial Services Commission are tier 4 regulators. Their registration is much easier, and the audit is not so deep.
Offshore commissions
The fifth and sixth levels are all other offshore commissions, they also control the activities of forex brokers, but a license is not required. The Seychelles Financial Services Authority and Saint Vincent and the Grenadines Financial Regulatory Authority refer to these levels.
Local authorities
Forex traders in Pakistan should also consider if a forex broker is registered with local tax authorities like FBR. This may help if you find an issue with your broker and the broker denies resolving it.
Huge profit guarantees
The main weapon in the arsenal of fraudulent forex brokers is the guarantee of large profits in the absence of financial risk, as already mentioned. You should always remember the adage, “no risk, no profit.” The relationship between risk and return has long been known in financial theories.
Traditionally, it is believed that higher returns are associated with higher risks. The relationship between them is directly proportional, not inversely proportional. Or a second red flag on the other side’s intentions should come on when you hear a high potential 100 percent return with minimal risk.
Think of it this way – even if there is something 100% certain, it is unlikely that any entity will share it with you, much less someone with whom you have no direct relationship. Don’t forget another Wall Street phrase “There’s no free lunch.”
What is the risk in trading with an unlicensed Forex broker?
If you start forex trading with an unregulated broker, you are exposed to the non-trading risks and high probability of manipulation. An unlicensed broker may not pass your orders to the market and trades against you. Eventually, you may find delays in order execution, or your orders may not get filled at the best prices. A scam broker mainly earns from your losses. Such brokers do not disturb you unless you are incurring losses in your trading.
A crook broker may create a complicated set of terms and conditions that they can use later against you. They can cancel your profit or even block your account, stating that the trader didn’t comply with the rules.
Another probability is that an unlicensed broker may not process your withdrawal and may play delaying tactics with you. You may get deprived of your entire deposit if the broker turns off the website and disappear.
What to do if I am scammed?
If you have become a victim of a fraudulent broker and your funds are not returned, we recommend that you immediately seek help from a lawyer. For those who decided to act independently, we suggest using these instructions.
1. Report the fact of fraud to the nearest investigating agency in your place of residence. Investigating officers are required to accept and register it. In your application, state the situation in as much detail as possible, indicate the contact details of the fraudster, and attach screenshots of the correspondence with him from instant messengers or e-mail.
2. Apply with a complaint about the fraudsters to the Prosecutor’s Office of your place of residence. Its employees will be required to conduct an audit.
3. Apply with a complaint to the regulatory body through the Internet reception on the website. If the broker company has a license, the regulatory body will send an order to it or revoke the license depending on the nature of the illegal actions.
How do I get my money back?
Suppose the fraudulent broker refuses to return the money to you, or it disappeared. In that case, the refund is possible through the chargeback procedure – opening a dispute against the transaction through the bank. To do this, you should apply to the bank that issued your card or opened an account. In it, you need to write that you want to return the money and justify this requirement, indicate your contact information, card, or account number.
Copies of your passport or other identity documents proving the fact of fraud must be attached to the application. This can be information about the lack of a license for a brokerage company, correspondence with a fraudulent broker in messengers or by e-mail, recordings of telephone conversations, a copy of an application to the police with a mark of its acceptance, a copy of an application to the regulatory body.
You need to apply to the bank with an application no later than 45 days from the transaction date. Some banks accept the dispute over longer periods. It depends on the requirements of payment systems like MasterCard, Visa, MIR, etc.
Bottom line
Be firm and don’t fall for false promises. Always be suspicious of brokers that claim to have discovered the secret formula for market success. Most importantly, always check the regulation of the Forex broker who is calling you. Do not fall prey to a broker who is solely registered in offshore countries. Always prefer a broker who is registered with your local tax authorities in Pakistan.