Forex broker scams are decreasing as the industry becomes more regulated worldwide and if you deal with a regulated broker, you should will avoid them and have protection. There are however many brokers, who even pretend to be regulated when there not. Below you will find a check list on how to spot and avoid Forex broker scams but first let’s look at two supposed scams which are not.
“the most common scams you will see with unregulated brokers…”
Traders Complaints on the Web
When traders lose, they will blame their broker even if the broker is regulated and has treated them fairly. You should always view ex clients who bad mouth a regulated company with caution because in most instances, the client is simply upset that he lost money and cannot accept he was to blame. They simply got the markets wrong and this has nothing to do with the broker, they need to look at their strategy. A common complaint is the broker, hunted their stop but in most cases, the fact is they had their stop to close and got taken out by normal market action.
Market Makers Steal Money From Traders
There is a big myth that market makers steal money from clients or use other underhand tactics) and this is because they make money when the client losses. While this is true, it doesn’t mean the broker went out of their way to steal the clients money – why? Because they don’t need to.
A market maker knows that 95%, of all traders are going to give their money to the market and therefore, they don’t need to do anything – they just let the traders lose. While this sounds harsh, the facts are only 5% of traders win and so the market maker doesn’t need to cheat – he is going to make 95% of all deposits onto their trading book and there really just like a bookmaker who has the odds in there favour.
Now lets move on to how to spot the real Forex trading scams:
#1 – Company Regulation – Is Not Forex Regulation
Many companies say that they adhere to the company regulations of the country and many people think, this is regulation by a Government regulatory body but its not. All it means is the company adheres to normal company law which all companies in a country have to adhere to. If a broker is in a country which does not have Forex regulation, don’t deal with them. Your funds can be easily stolen or the company can just go into liquidation and disappear and you will never see you money again.
#2 – The Confidentiality Trick
You get brokers who say there are on some island in the Caribbean or other non regulated destinations due to confidentiality of funds but this is not true – there in these destinations so they can avoid regulation.
#3 – Managed Forex Accounts
Again you will find this off shore a lot and they normally present track records which present huge profits with very few (if any) periods of losses. These track records of course are just projected figures or made up in hindsight i.e. simulated backwards knowing the closing price data which is very easy to do. When you deposit your funds you quickly lose them, because there traded to make commissions and churned over until there is no money left.
You can get Forex managed accounts with regulated brokers and while there not scams, your best off to avoid them unless – the broker presents a real time track record of profits over 3 years or more and they are only compensated from a set management fee or even better, a percentage of the profits made by the trading account.
#4 – Unrealistic Profits
We just looked at managed Forex accounts and unrealistic profits and the same applies to any claim that a broker or you can make huge amounts of profit easily and with low risk. Trading currencies by its nature is risky and the facts are the majority of traders lose so beware of the claims of easy wealth. You know the old saying – “if it looks to good to be true it probably is” so don’t be tempted by claims of easy money
There are a lot of scams out there still despite the rise in regulation of the Forex industry around the world and the above are the most common scams you will see with unregulated brokers and the simple way to avoid them is – don’t deal with a brokerage who is not regulated.