The forex market has seen an influx of automated trading systems and forex robots. These automated trading platforms provide undeniable benefits to many traders who use them efficiently and successfully. The programs can essentially be left to their own devices as they are based on algorithms, allowing traders to set out their own rules when entering and exiting a position.
Forex robots and other automated trading platforms are undoubtedly ideal for those working with time restraints. It allows traders to trade “on the fly”, allowing them to employ more of a hands-off style as compared to other manual traders.
However, with the growth of such automated trading platforms come the chances of encountering a fraud, with scammers taking advantage of the concept to swindle people of their money. Thus, it becomes absolutely necessary for novice traders or newcomers, to take precautions, to navigate around such fraudulent trading platforms.
Signs to Detect Fraudulent Automated Trading Systems and Forex Robots:
- Checking what’s on Offer: Scams and fraudulent Forex platforms often disguise themselves and look like some tried and tested models of existing forex robots or automated systems. The concept automated trading platforms which generate money even when the trader is asleep is considered widely as a “con”. Traders should thus examine what is on offer and conduct some in-depth research to confirm its legitimacy.
- Unachievable promises: Many unverified and untested systems have the tendency to execute trades incorrectly. They often programme their software with a deliberate bias, negatively affecting the outcomes for traders. Thus, any offer or any company making promises of generating large volumes of profit with a low initial investment should be approached with caution and scepticism.
- Looking at Third-party reviews: There are several authoritative, legitimate sites that offer formal reviews and testing conducted by independent researchers. Traders should thus check reviews for the selected platform on such sites for affirming its legitimacy. However, this is also not foolproof, as many fake or clone review sites also exist to mislead novice traders.
- Co-Mingling of funds: Another trick used by such fraudsters is the co-mingling of funds. As a result, individual investors are prevented from maintaining a record of the exact performance of their own investments. This allows such scam or fraudulent platforms to take advantage of unsuspecting traders, extracting more in the name of “high outgoings” from the particular trader.
- Checking for regulations: It is always a good idea to check whether a particular platform is regulated by a major regulatory body or not. Many criminal and fraudulent activities are carried out under the guise of a newly formed brokerage company which traders can fall victim to. Regulatory bodies are thus entrusted with the task of licensing and supervision, and making sure that the company is compliant with all the directives in place. A list of regulatory bodies is mentioned below along with the country they operate in.
ISA – Israel Securities Authority
MFSA – Malta Financial Services Authority
SEBI – Securities and Exchange Board of India
ASIC – Australian Securities and Investments Commission
BaFIN – The Bundesanstalt für Finanzdienstleistungsaufsicht (Germany)
CFTC – Commodities and Futures Trading Commission (United States)
CySec – Cyprus Securities and Exchange Commission
FCA – Financial Conduct Authority (United Kingdom)
FSB – Financial Services Board (South Africa)
Financial Services Commission – British Virgin Islands
Financial Services Commission (FSC) – Mauritius
IFSC – International Financial Services Commission
FSP NZ – New Zealand Financial Service Provider
FINMA – Swiss Financial Market Supervisory Authority
FMA – Financial Market Authority of Austria
- Other Warning Signs: There are some other “tell-tale” signs that a particular forex robot or automatic trading system is fraudulent. For instance, if the broker doesn’t allow the subsequent withdrawal of funds on a trader’s request, it should definitely be regarded as a red flag. Other signs include slow or non-existent communication with platform users; even if the platform is operational.
- Checking Verified Results: Another way to confirm the legitimacy of a particular forex robot or automated trading platform is to look at some verified results from third parties. For Forex robots, authoritative sites such as Myfxbook and Fxblue, provide verified results, including back testing, and publishing them in detail for users to review. It is usually advised to conduct a back test on a forex robot before investing any real capital on it. Back testing results reveal information on areas such as the number of trades conducted, the profit factor involved along with the drawdown percentage, all of which are essential to determine whether the robot is legitimate or in fact a scam or fraud. Reviews attached to the back testing results can also offer additional insight.
- Conducting Due Diligence: Traders are always advised to conduct due diligence when dealing with suspected fraudulent platforms. Important steps such as allowing asking questions before making an investment, researching the history of the company behind the platform, and conducting background checks on the team involved are almost a necessity.
Forex trading robots and automated trading platforms have undeniably helped a lot of traders to make their mark on the forex market. The sudden rise in popularity of these platforms is caused by the ease of online connectivity and portability, allowing even more traders to take part in the market.
As more and more legislation comes in to protect unsuspecting traders from the latest tech scams and frauds, we are moving towards a safer trading environment. However, with the steady influx of new, more elaborate frauds and scams, it is up to the individual trader to take the steps to prevent from being victimised.