It’s an unfortunate truth, but wherever there’s money, there are those who will try to get it out of your pocket. And we’re not talking about a computer salesman who is convincing you to buy the useless extended warranty — we’re talking about actual criminals.
And so it means that the forex market is particularly treacherous territory for those who need to use it the most – like expats.
It’s not all bad news. The world gets smaller every day and that means more adventures and more opportunity. We’re continent-hopping to build better lives, investing overseas for wealth and even sending our children to other countries for study and a rich life. But the world of foreign currency exchange must be taken very seriously, or it could cost you a lot. It could even cost you everything.
What is a forex scam?
First, it’s important to understand that the forex market itself is not a scam – it’s just the exchange of one currency to another, which is done routinely every single day. Whether you’re exchanging money from one bank to another or buying something from overseas on the internet, you’re a part of the forex market.
Where it becomes risky is when you know little or nothing about forex scams – and how to avoid them. Unfortunately, more and more people including expats are getting conned out of an awful lot of their hard earned money, so here’s what to look out for:
- If it looks too good to be true…
… It probably is. It may be an old adage, but it’s definitely true for the wide world of forex. If a forex trader is offering the world and easy money, that’s a bright red flag – because while doing your homework pays off with good deals, there’s no such thing as a free lunch.
- Look for detailed information
Another sure sign of a forex scam is a service that boldly and loudly promises a lot – but explains very little. Get even more suspicious if your enquiries for more information are met with dodged or obviously dodgy answers.
- Look for recommendations
If even the people who are offering the forex product or service to you aren’t willing to talk much about the specifics, chances are they’re hiding something significant.
But if you’re confident about proceeding, ask around and see if your family and friends have used it or heard of it and find out what they think. Do your own online research and find genuine reviews from actual people – and if you get a funny feeling that something isn’t right, turn your back.
- Do the ‘scam’ check
An easy way to associate your product with a potential scam is to put some faith in Dr Google. Enter the forex service’s name into Google along with the word ‘scam’, and see what comes up. You may find an awful lot of people who wish they’d done the same but are now doing the only thing they can – warn others of their mistake.
- Use comparison services
These days, checking and comparing services of all kinds is much easier thanks to comparison services and websites. They’ll do a lot of the leg-work in terms of not only identifying and isolating the scams, but also directing you towards legitimate operators who are the most professional and offer the best deals.
- Check in with LinkedIn
If you know the name of the people behind the forex product, service or brokerage you’re considering, check their personal profile at LinkedIn – the highly respected social network site designed specifically for business professionals. If they’re not there, rest assured it’s a scam. If they are there and people aren’t recommending them, that’s another loud alarm to listen to.
- Check with regulators
The forex market is made up of individuals and businesses from all around the world, but in just about every jurisdiction, there are still pretty strict regulations. So a clear red flag is a service that is based on an exotic island that isn’t regulated at all.
In Australia, the forex market is closely regulated by the Australian Securities and Investments Commission (ASIC), who issue licenses to forex brokers based on whether they’ve got a current Australian Financial Services Licence (AFS). The regulations are different elsewhere, but proper regulation is an easy way to stay fairly well protected.
- Try before you buy
Most decent forex brokers will allow you to ‘try before you buy’. In many cases, this will involve setting up a demo account so you can get stuck in without actually putting any of your actual money on the line.
- Use a major player
There’s an easy way to pretty much guarantee you’re not going to get forex scammed – and that’s by using a major player like the Commonwealth Bank of Australia. But that may come at a cost, because you’ll definitely find it is forex operators other than the CBA that offer the best exchange rates.
Luckily, there are plenty of equally trustworthy forex players out there whose main mission is to find foreign exchange services for you that are both reputable and will give you something better than CBA exchange rates.
The final word: Guilty until proven innocent
When you’re in court, the maxim is ‘Innocent until proven guilty’. But when it comes to the forex market and your duty to yourself and your family to avoid being scammed, it’s exactly the other way around. So be diligent, double and triple check, and enjoy safe, happy trading!