What are forex broker scams? How to recognize dubious providers!
Table of Contents
The forex industry is free from third party interference like governments and banks. Forex traders can buy and sell assets directly to one another. The forex broker facilitates the transactions between two forex traders. It acts as an intermediary which provides access to the trading platforms. The trading platforms like Meta Trader 4 and 5 have access to the forex market.
The trading platforms give traders access to the market. But, some forex brokers use unfair methods to steal from forex traders. Others charge high fees and have hidden costs that traders pay. It has caused concern in many countries. Countries where its citizens actively trade forex have come up with regulatory bodies. Their function is to try and control the activities of forex brokers. All these efforts are to reduce the cases of people losing investments to scams in forex.
What methods do forex brokers use to scam forex traders?
There are many ways forex brokers scam naive traders, techniques they use are like;
Changing Forex spreads
Many fraud brokers like to use this method. Their victims are forex traders who never take the time to look at the market prices when trading. The forex broker charges a higher amount for the spreads, and the trader pays without suspecting.
A standard forex spread falls at 2 to 3 pips between the bid and asks the price. A forex broker will manipulate the forex spreads to 6 or even 7 pips. That is double the standard price if you multiply the number of trades in a day. Together with the number of forex traders, they make a fortune.
Forex traders should check the market prices and compare them. To reduce the chances of getting scammed through this method.
Managed accounts
It happens when a forex broker has the feature of managing client accounts. The scammers promise to make millions for their unaware clients. They charge a fee for a premium account and tell the forex trader that an expert will trade on their behalf.
When the forex trader has funded the account, they can see that their forex account is doing well. But, if they are unable to withdraw the profits when they want. They get excuses, and others lock their clients away. It is a method scammers use to make money from unknowing investors. Traders should pay more attention when t choosing a forex broker to avoid such issues.
Hidden fees
There are forex brokers with the low initial investment, forex trading fees and commissions. They have competitive forex spreads, convincing forex traders to register accounts.
When traders start trading using these brokers, they realize some fees they did not know. These fees are like account maintenance cut from the total account balance.
It forces forex traders to lose more than they have made trading. It is a method that many unregulated forex brokers use. These fees are costly to a forex trader as they are unplanned.
Slippage
When forex trading, there are chances of a negative or positive slippage. Slippage is when the price order of an asset you want to purchase changes during the execution of the order. It causes you to acquire it at a lower or a higher price.
An example is when you order to buy an asset at a price, the order gets executed at a higher price. It costs you more to buy that asset, known as negative slippage. In forex, there is positive slippage, where the asset goes at a cheaper price than the original order.
Forex brokers take advantage of the slippage. They buy the asset at a lower price and sell it to you at your order price. It is unethical, especially if the forex trader purchased a higher volume. Slippage often happens in a volatile market where the prices are unstable.
That is why forex traders account for the negative slippage that could occur. It is fair that they also profit from the positive slippage.
Trade forex with the best conditions and a regulated broker:
Broker: | Review: | Advantages: | Free account: |
|---|---|---|---|
1. Capital.com  | # Spreads from 0.0 pips # No commissions # Best platform for beginners # No hidden fees # More than 3,000+ markets | Live account from $ 20: (Risk warning: 78.1% of retail CFD accounts lose money) | |
2. RoboForex  | # High leverage up to 1:2000 # Free bonus # ECN accounts # MT4/MT5 # Crypto deposit/withdrawal | Live account from $ 10 (Risk warning: Your capital can be at risk) | |
3. Vantage Markets  | # High leverage up to 1:500 # High liquidity # No requotes # MT4/MT5 # Spreads from 0.0 pips | Live account from $ 200 (Risk warning: Your capital can be at risk) |
(5 / 5)Software scams
The forex industry has changed with the innovation of artificial intelligence when trading. Forex brokers have integrated automatic trading software. It initiates and completes trading with specific commands with little supervision.
Some forex brokers have legitimate automated trading robots. Scammers have used it to lie to forex brokers. They claim to have trading platforms that have reliable signals and makes millions. Their trading robots are unlicensed and not tested to prove these capabilities.
So forex traders that trust these robots lose money because the signals are very random. Many forex brokers claim to have superior forex trading software. They claim it benefits forex traders.
Stop-loss hunting
It is the idea that forex brokers are manipulating the market at the expense of forex traders. Forex traders speculate that the forex brokers deliberately go against the forex traders for profit.
The claim is they do it when the forex brokers give a stop-loss order at a certain point. The forex brokers look for a price which most forex traders have placed a stop loss. They manipulate the forex prices to the stop loss price and take the forex traders off the market.
After the stop loss, the market resumes its momentum, and forex traders think they lost. What led to forex traders suspecting is it is frequent, so they sought an answer. This activity gets carried out by co-operations with proprietary forex trading sectors. They do this when looking for liquidity at a cheap cost.
Either way, it is unfair to profit from low volume forex brokers in this manner.
Trade from 0.0 pips over 3,000 markets without commissions and professional platforms:
(Risk warning: 78.1% of retail CFD accounts lose money)
How to spot and stop forex broker scams
Check for license and regulation
It is a simple procedure that can save a forex trader from losing thousands of investments. There are forex brokers that claim to be licensed, yet they are not. Other forex brokers impersonate a licensed forex broker.
The license number and the regulatory body is usually on the forex brokers website. If you can’t find it, then it may be a scam. If you get the license number, open the regulator’s website to confirm it.
Most regulators have a list of the forex brokers that they regulate. Others have a tab where you can input the license number you want to verify. It takes a few minutes to do this task if you have a list. This research will save you from choosing the wrong broker.
It is the most practical way of dealing with scams in forex. All forex broker scams are not registered, so it is easy to single out the credible ones.
Confirm the certification of your account manager
If your forex broker offers account managers, ensure that they give you enough information about your account manager. They need to be certified by a reputable forex trading institution. You can also check their past achievements.
It works for copy traders and social traders too. Before trusting them with your funds, it is crucial to know who you are dealing with.
Research about the forex brokers
Perform a thorough background check before you commit to working with a forex broker. There is a lot of information about forex brokers. Market analysts have written reviews about different brokers.
You can also go to the forex trading forums and ask about the forex broker. The seasoned forex traders know trustworthy platforms. It is critical to look at the about us page on their website to get the people behind the company.
When researching, look at the contacts. If they have no phone contacts or physical address, they are likely to be a scam. Other scams have a persistent agent that could call you frequently. It should raise some concerns, especially if they are persistent.
A forex brokers website can give you a lot of information about the trading broker. Look at the terms and conditions of use and the previous performance records. If the website has little information, then it could be a scam.
New forex traders can look for a mentor or a professional trader. They can guide them through how to choose a forex broker. Make sure that a mentor is a trustworthy person you have seen growth in the industry.
Stay alert and avoid forex brokers that guarantee success
One factor to consider is that the forex market does not offer instant success. Any forex broker with promises of fast profits is a scam forex broker. They use fake testimonies and great reviews about the success of their platform.
These claims tend to lure new forex traders who want to make fast money in a short time. In reality, forex trading takes time to master and produce consistent results. It is why forex traders have to be alert.
Report any suspicious forex broker
Different countries have different regulatory institutions for forex activities. They have a place where forex traders can report instances where they got scammed. They also have ways that you can contact them and report any issues.
The regulatory institutions have the necessary authority to deal with reported cases. This way, the forex industry will become safer for other forex traders. The instances of forex scams will reduce.
Trade from 0.0 pips over 3,000 markets without commissions and professional platforms:
(Risk warning: 78.1% of retail CFD accounts lose money)
FAQ – The most asked questions about report forex broker scams :
How can one report forex broker scams?
In order to report the forex broker scams, one can visit econsumer.gov | Federal Trade Commission.
Is it possible to have forex broker scams? Can one be scammed while trading?
Yes. Investment scams with the use of online trading platforms are generally promoted through online mode and on social media channels. The fraudsters come ahead and promise high returns and even use the fake endorsements of the celebrity and luxury items images to entice people to invest in the scams.
Is it necessary to be so scared of forex?
Within forex, the fear can come in from the increased chances of losing money, which can happen at any point in time and to any trader. To experience fear is quite normal, and in fact, fear has been considered one of the basic survival mechanisms. Without the presence of fear, one will not be able to recognize the danger associated with the trades and would neither be able to respond appropriately on time. However, it is just the opposite if there is fear as for the traders, they will be able to well-perceive the loss and act accordingly.
See more articles about forex trading here:
Last Updated on January 27, 2023 by Arkady Müller
