How are forex markets classified and how to identify forex scams?

Markets exist in the world for different commodities. Similarly, even for foreign exchanges, markets exist. In the foreign exchange markets, activities like purchasing, selling, exchanging, etc of currencies occur on a large scale. The participants in this market are banks, foreign exchange tradespeople, investors, commercial firms, investment management companies, etc. 

 

Forex scams are taking place in large numbers, and more and more forex traders are affected by it. As a result, forex traders have to take steps to prevent themselves from forex scams. Learning about the forex market, how it operates, and its threats can be the first few steps towards securing your Fx trade.

 

Classification:

Similar to how other goods and services have several classifications,  forex markets are also classified into various types of markets. They are as follows:

• Spot forex market:

Spot forex market is also known as Spot FX. Here, in this type of market, the purchase or sale of foreign exchanges occurs. While performing trades in the forex market, you purchase and drive sales with the pairs of currencies at the current market rate. This rate is known as spot rate. Several people like to trade in a spot market because the price for opening a position isn’t very high, due to low spreads. Transactions in the spot forex market are fast. It allows immediate payment to the purchasers and sellers according to the current exchange rate. 

 

• Forward FX Market:

In this market, two trading parties come to a trading agreement to trade a currency for a price and quantity set some time in the future. It is the Forward FX market. When the trade commences, currency exchange activity does not take place. The trading parties could be companies, individuals, governments, etc. Trading parties in the forward FX market negotiate on transaction terms, and the terms agreed on can be bargained and changed according to the requirements of the trading parties. 

 

• Future forex markets:

In future forex markets, the purchasers and the sales-people come to a contractual agreement for making the forex trade in the future. Then, the agreed parties decide on the exchange rate, and also perform the activities related to payment and delivery with the same decided exchange rate. The exchange rate is also the future rate. No one can modify the future contracts as they are already the standard ones. 

• Swap FX Market:

In the swap forex market, two distinctive currencies are lent and borrowed, and it is done between the investors. These transactions carry out this lending and borrowing activity between currencies. The contract exists between two or more parties for money exchange, depending upon the principal amount determined beforehand. Moreover, There exist two kinds of swap transactions in the swap foreign exchange market namely currency and interest swap.

 

Functions of a forex market:

Foreign exchange market drive the below-mentioned functions:

• Transfer function:

Foreign exchange markets provide the facility to transfigure from one currency to another. It means gaining the buying power in one of the two countries involved in the transfer. The transfer of purchasing power is affected by various credit instruments like foreign bills, telegraphic transfers, and bank drafts. While utilizing the transfer function, the FX Market carries out the international payments and settles it for both the parties at the same time, as compared to domestic clearings which takes much longer. 

 

• Hedging:

The hedging function is a forex trading methodology that helps reduce foreign exchange risks. The participants involved in foreign exchange are deeply concerned about the frequent changes in the foreign exchange rates, which show the price of one currency based on another. It may result in a gigantic gain or loss for the concerned party. Instead, hedging aids forex traders in trading strategically, making room for more profits and less risks. 

 

Red flags of forex scams:

In forex scams, the scammers defraud forex traders and traders lose their money. Therefore, it is crucial to spot the red flags or the warning signs of forex scams. 

1. If a forex broker who is unknown to you keeps calling or contacting you about their forex investment offers, then it is a warning sign. For example, if B receives a call from some random unknown so-called forex broker regarding a forex investment opportunity, then B must not acknowledge that call, instead B can check out their official site and investigate more before moving ahead with the broker. 
2. If a forex broker contacts you about an investment chance in forex trading and guarantees high returns on your money by investing through them, then it is not a real broker but a fake one. It is not only applicable to the Forex market but other investment opportunities also cannot guarantee high investment returns. 
3. It is crucial to seek out an extremely qualified forex broker but avoid the forex brokers who lack the  skills and knowledge required to be a forex broker. You often need a talented and trusted person to handle your forex account. 
4. To get the victims to invest in their forex investment opportunities, scammers often exhibit their knowledge of the forex industry using complex language. 

 

Things to do if you are a victim of a forex scam:

For example, A fell for a forex scam. Here are the following things that A could do to recover funds from the forex scam. 

1. First, A must report the forex broker he has dealt with if he believes it is a scam. 
2. Apart from that, A must also inform the bank about the fraud.
3. A must also ensure that any card or assets that may be vulnerable to a scam must be frozen so unauthorized parties cannot access them.
4. After getting the assets and funds frozen, A can start claiming the lost money with the help of a recovery firm or team of specialists. 

 

Kinds of forex scams:

There are several types of frauds taking place in the foreign exchange market, and they are classified as follows:

• Fake signal fraud:

In a fake signal fraud, the cheaters say that they can advise the forex traders on the best time to purchase or sell their forex, depending on their expert analysis. But, often they ask for a premium payment on these services or a subscription fee. Therefore, they mostly charge you money for fake services since their signals are never accurate. 

 

• Forex broker Fraud:

In this type of fraudulent scheme, the fraudsters act as though they are forex brokers or come up with a fake forex investment platform as a strategy to get the people to put their money into their forex funds/investments which seem too nice to be true. But when coming to the real picture, these funds/investments offered by them are non-existent. 

 

For example, A is a new forex investor and needs a forex broker to start investing. So, a random person who claims to be a forex broker contacts A stating about their fantastic forex investment platform. The so-called forex broker promises a huge return on investments to him. Then A invests money in that platform. And the forex broker runs away with the money. In the end, A realizes that the person is a fake forex broker and that he has invested his money in a phony forex trading platform. 

 

• Forex Instagram frauds and forex facebook frauds:

In these types of frauds, the forex scammers use social media to post a forex investment opportunity. New and inexperienced forex traders come across these so-called forex investment opportunities on Facebook and Instagram. Scammers trick the forex traders into investing in their fake forex investment fraud.

 

Conclusion:

Forex fraud occurrences are growing more overtime, and forex traders must take essential safety precautions to avoid these frauds. People interested in foreign exchange trading should educate themselves about forex scams, and it will surely work towards protecting them from forex scams. 

 

Frequently asked questions:

• Define foreign exchange.

Foreign exchange is the procedure of changing one country’s currency to the currency of another country.

 

• Why are the forex traders being targeted by the forex scammers?

Since the forex scammers use several tactics to persuade the forex traders to trade in the foreign exchange through them, most traders fall easy victims to these scams. As a result, the forex traders put their money into these forex investments. Then, scammers run away with the money invested by these forex traders.

 

• Is it essential for forex traders to know about the red flags of forex trading scams?

Yes, forex traders must know about the red flags of forex trading scams because it helps them to trade forex safely, and they can also save themselves from forex fraud. 

 

• What should people investing for the first time in a forex trading platform do?

The people who are investing in the forex trading platform for the first time must get in touch with a broker who has excellent expertise in forex trading. But when it comes to investment, people must thoroughly research the forex trading platform they are going to invest in. Then they must conclude their decision regarding the ideal platform that can hold their forex trading investment.

 

• What do you think you should do if you want to avoid being the victim of forex fraud?

To avoid being a victim of a forex scam, forex traders should research and evaluate all aspects before coming to a decision. Then you can also consult an expert forex broker when it comes to the aspects of  deciding which forex platform to choose and invest your money through.