What are the key signs of a scam Forex prop company?

Prop trading companies are popular among Forex traders as they offer experienced and capable traders the opportunity to obtain funding and trade with a much higher buying power, while keeping a majority of the profits generated.

Proprietary trading is not subject to very stringent regulations and licensing requirements and while this allows prop firms to have an international coverage, it may also lead to a few scam companies here and there.

But how do we identify a scam Forex prop company and what are the key characteristics to look for when evaluating a prop firm and its offerings? – While there may not be a definitive answer that fits every single prop firm, there are a few key signs that a firm is either not legitimate, or lacks the core features that a prop firm would otherwise have.

We can discuss these signs and what to look for in greater detail in the sections below.

Red flags to look out for when choosing a Forex prop firm

Some prop firms go above and beyond to show a face of legitimacy with a flashy website and walls of text promising you millions of dollars in funding and how easy it is to obtain it.

However, what truly differentiates legit and scam Forex prop companies is the availability of reputable information online that explains how the firm operates and what it offers without the use of lofty promises and fluff.

Unrealistic promises

The marketing materials of most Forex prop trading firms include promises of high funding limits and amazing returns. However, if a prop company is going above and beyond in their hefty promises of making you rich, you should take this as a sign of caution.

When a firm focuses its marketing efforts on advertising the results, instead of what it actually offers, there might be a catch, or the firm might not be as trustworthy as it wants you to believe.

When reading the contents of the official website of a prop trading firm, make sure to take mental notes of how forthcoming the company is with its offerings and whether the most important pieces of information are hidden away on an obscure page.

No license and regulation

While it may be true that prop trading is not subject to much regulatory scrutiny, there are still some regulatory measures that they need to take in order to maintain integrity and keep their clients safe.

When signing up with a prop firm, note if the firm has KYC policies and requires you to verify your identity and place of residence.

You can also look up the legal name of the prop company in the registrar of the relevant regulatory authority in your country, as well as the country where the firm is registered.

If there are no licenses to speak of, chances are that the firm is either not legitimate or in the very early stages of its business and does not have a long track record of performance to look back on.

A good recent example of lax regulations in the prop trading industry and issues with existing firms is the controversy surrounding ‘My Forex Funds’, which was accused of fraud and a lawsuit was launched by the U.S. commodities regulator. Such cases often raise the question of the regulatory oversight of prop trading firms and the need for added safety nets in order to protect clients.

Unusual fee structure

Perhaps the most important part to take into account, a proper description of every fee charged by the prop firm is a must.

If the company does not have a fee breakdown on its official website, this can be seen as a major red flag, as there may be hidden fees that deplete your balance over time.

Alternatively, they may charge above average fees while providing little to no added value when compared to competing firms. This is another good sign that the firm is not legitimate and does not conduct its business ethically.

Typically, prop firms will charge monthly fees in exchange for a funded account and these fees will vary depending on the total amount of funding applicable to the account tier.

For instance, a prop firm may charge a monthly fee of $200 for a $50,000 account and you can compare this fee to other prop firms that also offer $50,000 funding options.

Some Forex prop companies charge one-time fees and have no recurring charges after that.

It is important to make sure that the prop firm of your choice is transparent with their fees and funding levels.

Unresponsive customer support

First-time clients are likely to have many questions or technical issues that will require input from the customer support team.

One of the most evident indicators of a shady prop trading company is an unresponsive or rude customer support.

If you are having trouble contacting customer support, whether this is via phone, email, or live chat, this can be a clear sign that something is not right with the firm.

Conversely, if the customer support representative is rude or dismissive of your questions and issues, this can also be interpreted as a company that either has something to hide or does not hold itself to a particularly high standard – both of these being valid reasons to avoid them altogether.

Bad reviews or lack of reputable reviews

Prop trading firms are often available in numerous countries around the world, which means that prospective clients can find reviews on them online, on platforms such as ForexPeaceArmy.com, and others.

When a Forex prop trading firm has predominantly negative reviews, this can point to a whole host of issues. It is important to skim through the reviews to see what existing and former customers have been complaining about and to decide whether these are major issues or simply minor gripes with the company.

If reviews are generally missing, this could mean one of two things:

• The company is very young and has not yet established a substantial customer base that would have insight into its services and quality
• The company is actively trying to hide critical reviews to maintain a neutral facade in front of prospective clients

In either case, it is best to avoid such prop trading companies as they are unlikely to provide superior terms compared to other, more established companies on the market.

No risk disclosure

Risk disclosures are common among companies that offer financial trading services and serve as a warning for clients that positive returns are not guaranteed and that they could lose a substantial amount of money due to market risk.

The absence of a risk disclosure may be a prelude for a lack of more basic features and information down the line.

Having no risk disclosure also typically shows that the company is not licensed or does not adhere to the standard practices that exist among industry peers, which is not a positive sign for prospective clients.

Difficult withdrawal terms

Certain terms and restrictions apply to clients of Forex prop trading firms that are in palace to ensure the long-term financial stability of the prop firm.

However, an overly strict withdrawal policy may point to the fact that the firm does not have the required capital to match the funding levels they are offering to their clients and only exist to generate revenues from evaluations, which provides little to no value to clients and is indicative of a scam company.

Prop firms may employ restrictions on the minimum number of trading days over a month, or keep a larger share of the profits generated by their clients (the typical split is 90/10 in favor of the client), which can also raise concerns regarding the legitimacy of the company.

Key Takeaways from what are the key signs of a scam Forex prop company

• Prop trading firms offer clients funded accounts in exchange for one-time or monthly fees
• Some Forex prop trading companies may be scamming their clients with high fees and very little value for money
• There are a few safety precautions traders can make to identify if a firm is a scam or raises any red flags
• Negative reviews, no license, and unresponsive customer service are some of the key indicators of a scam Forex prop trading company

FAQ on signs of a scam Forex prop company