Unfortunately, scams have been a part of life for traders since trading first became popular and possible many decades ago.
In recent decades, scammers such as Bernie Madoff have manipulated the financial markets to the tune of tens of billions of dollars. However, it may surprise you to learn that the figures are still high: according to one study, just under £30m a year is lost in the UK to foreign exchange and cryptocurrency investment fraud.
Why is it the case that foreign exchange scams are still so common despite the fact that the market is now properly regulated by professional bodies? A whole host of factors have sprung up in recent years, including the rise of web trading, the role of social media, and the deregulation-fuelled ‘get rich quick’ idea that is prevalent across the Western world. In their own way, these have all contributed to an increase in scams. This article will share more detail.
The opening up of foreign exchange trading to the internet has, in many ways, been a good thing. It’s democratised what was previously a largely exclusive industry and has meant that most adults can get involved – even if they only have a small deposit, or if they are unable to deposit in a traditional way (such as via bank transfer). It’s also important to mention that many legitimate web trading brokers have taken steps to enhance security and combat scams – such as by instituting ‘know your customer’ rules, which give the wider community confidence that people using their sites are not on the same books as money launderers or other criminals.
However, web trading also has its downsides. The changing role of the broker has meant that it’s now no longer necessarily the case that someone placing a foreign exchange trade will interact with a human at any point in the process, meaning that crucial moments to spot something amiss are now gone. It’s possible for scam forex brokers to develop highly sophisticated websites that appear on the face of it to be believable, but that are, in fact, not. This is why it’s always a good idea to check out websites such as Forex Fraud that contain lists of scam brokers that definitely ought to be avoided, come what may.
While the supply of scam forex brokers is sadly high, it’s also worth looking at why there are so many people who are vulnerable to becoming victims. Of course, nobody sets out to be deliberately scammed by a foreign exchange broker – or wants to go through that experience. However, it is the case that demand for broker services has skyrocketed in recent years, and scammers have noted this rise in demand and taken advantage of it.
Since the deregulation of the financial markets in the mid-1980s, there has been a rise in the idea that it is possible to ‘get rich quick’ by trading foreign exchange or other asset classes. This has been fuelled by the media and film industries, and movies such as The Wolf of Wall Street just go to show how common the perception is that anybody can make money by trading.
For fraudsters, this creates a captive market that can then be exploited for financial gain. Forex fraudsters know that it’s simply not possible for everybody who enters the forex world to walk away with a profit. However, they also know that this information is not widely acknowledged, and that many still believe in the ‘get rich quick’ dream. And with tools such as Instagram available to produce an image of a rich, perfect life created by what appear to be forex profits (but which are in fact fake), it’s unlikely that this will be changing any time soon.
Ultimately, there are several reasons why foreign exchange scams are still happening left, right and centre. The internet plays a big role in perpetuating forex scams: while it has its upsides when it comes to opening up access to trading, it has also removed the human interaction that previously facilitated trading – meaning that savvy traders may now no longer pick up on signals of fraud. And with the ‘get rich quick’ meme continuing to take hold in new digital environments such as Instagram, there’s little hope that forex scamming will be tackled in earnest in the coming years.