Hello again, my name is Rimantas Petrauskas, and I am going to show you what Forex scams look like and how they work. In the introduction, Scams are everywhere, not just in Forex, I presented an overview of common Forex scams, as well as legitimate products. Before I delve into a detailed discussion, I want to present five steps you can take to determine whether a product, service, or software may be a scam.
Step 1: How did you find out about the product?
The first step is simply asking yourself how you learned about the product. For example, did you find out about it from a spam email, or from an article in a reputable magazine?
If the source was reliable, like a trusted website or magazine that you’re known for years, that’s a good sign. But if you learned about it from a scammy-looking banner or a spam email that claims you’ll turn $250 into $3,000 like in the picture below, it would be insane to believe that the product is legitimate.
While this is a no-brainer, I wanted to mention it because some people may be fooled, especially if they are beginners.
Please continue reading or watch How to Identify Forex Scams in 5 Easy Steps Video #2
Step 2: Are there only backtest results?
The next step is to check whether the seller is giving only backtest results because backtest results alone cannot be trusted. You should ask for Myfxbook verified results. The two graphs in the picture below are a good example:
The top graph is a backtest done on Expert Advisor in “every tick” mode. Above the graph it says, “Every tick (the most precise method on all available least timeframe to generate each tick)/90%),” indicating a 90%-accuracy rate. In other words, it’s the best accuracy that a regular backtesting method on MT4 can get, and many people believe this is an excellent indication that the strategy is worth using on real trading accounts.
However, I have built my own testing environment, which can achieve 99% accuracy during the backtest and incorporate a real variable spread that actually took place in the market. When I tested the same trading strategy in my environment, I arrived at the result shown in the graph on the bottom. As you can see, the two are completely different. In my backtest, the strategy keeps going down and ends up losing the account.
In short, don’t rely only on the backtest – it’s just one piece of the puzzle, and you need more information. Also, keep in mind that the backtest should be very accurate: you need to see a 99% accuracy rate in “every tick” mode; you need to know that the testing environment was real and set up properly; you need to know what history price data was used and so on. All these things matter.
Unless you do your own backtesting at 99% accuracy, any backtest you find online is not a reliable indication that the product is good. I’ve even seen brokers uploading backtests that were not true, claiming 99% accuracy, but when I look at the picture, it said 90%. It seems that even brokers are lying – it’s very sad to see such things.
In addition to Myfxbook results, you should find out whether robustness tests have been performed and ask to see them. The picture below is a good example:
In the top graph, you can see a nice-looking equity curve – it started in 2003, ended at the end of 2015, and it was always going up. Yes, there were some drawdowns, but that’s normal in every strategy. This looks good.
However, I ran a robustness test, basically, one thousand simulations of the same strategy using different parameters for each one. As you can see in the bottom graph, each simulation made less profit than the original one, the blue one at the top; in addition, a large number of simulations ended up in loss. Since the robustness test failed, it’s unlikely that this strategy will work in real trading conditions. Therefore, it’s not worth considering.
So, always ask for a robustness test but, even if they give you one, you should know how the test was performed because it’s easy to fool people with false tests.
For this reason, I always advise people to create their own strategies – these are the things that we teach at the Autotrading Academy. Nowadays, you don’t even need a program to create these strategies. If you create your own strategy, you’ll know how it works, that you’ve tested it properly, which robustness test you performed, and what forward analysis you did. Basically, you’ll know whether the strategy is worth trying.
If you’re going to trust someone else’s trading strategy, make sure that they ran a good, legitimate backtest, robustness test, live trading test, and so on.
Step 3: Are Myfxbook results public or private?
The third step is to check whether Myfxbook results are public or private. Do not trust private results with hidden data.
In the picture above, we see a trading strategy taken from a website. It shows astonishingly good results, a profit of 1500% and equity of 98% but, on the right side of the page, it says “balance chart is private.” Maybe they have 100 trades open, and they’ve held it for 5 years already. Maybe it’s a Martingale strategy trading 100 lots, and your account would not be able to do that. It doesn’t make sense to trust results like this.
Step 4: Did you get an investor password with IP address?
The fourth clue is whether you’ve received an investor password with an IP address. If you have, don’t trust it. Although this is not as common nowadays, I still see some websites giving out IP addresses and logins to MetaTrader.
If you get an IP address from your broker, that’s fine – you can trust that, if your broker is regulated, well-known, and reputable. But if you get an IP address from a seller that tells you “just log into my account to see the trades,” God-knows-what trading server you are logging into. They can create a trading server to show false results. And, once you log in to that server with your MetaTrader platform and their login details, you will get that information from their false server, which may not even be authorized. Most likely you’ll be looking at fake trading results which will look very promising.
As you can see in the picture on the right side, legitimate brokers typically have server names instead of IP addresses. These you can trust; they are always okay. You simply select the broker server you want to connect to, and you’re good to go. But if you get an IP address like the one pictured on the left, you can be easily fooled by fake results.
In short, don’t trust IP addresses that you get from anyone other than a legitimate broker.
Step 5: Check reviews on ForexPeaceArmy.com
Step number five is to always check the reviews on ForexPeaceArmy.com. I know this is another no-brainer, but many people neglect this. They may even think that scammers don’t build rip-off websites because anyone can test them and write a report on ForexPeaceArmy.com. The reality is that scammers don’t care! They will build 1, 2, 3, 100 websites to peddle their scammy products; they can have a new website up every day.
The domains shown in this picture, 1PipFix.com, and 2PipFix.com, are good examples. It looks like this guy created 1PipFix.com and, when he got busted, he created 2PipFix.com. When he got busted again, God-knows-what other websites he created to keep scamming people.
Always look on ForexPeaceArmy.com because they have a huge database of Forex scams. Even if you have already researched the product, take a few minutes to check the database.
In closing, let’s recap the five steps and clues that will help you identify scams:
- How did you find out about the product? Was it from a spam email or from a reputable website/magazine?
- Are there only backtest results, because backtest results alone cannot be trusted. You need to ask for Myfxbook verified results and robustness results, if possible.
- Are Myfxbooks results public or private? Do not trust hidden results.
- Did you get an investor password with an IP address? If you did, don’t trust it.
- Always check the reviews on ForexPeaceArmy.com.
I hope you have found this information helpful. Please join me in the next article where I will discuss repainting MT4 indicators.Editor's Note: The original video on this page was produced by Rimantas Petrauskas. The text version was prepared by the FPA. The text follows the primary concepts in the video, but has a number of differences in wording.