How brokers scam investors
As a forex trader, it’s critical to understand some hidden tricks brokers may use to fleece you. You can get a deeper insight into these by regularly reading trading brokers reviews, but here’s a summary of the most popular ruses:
- Disappearing with deposits
Some brokers masquerade as legitimate companies and advertise their brokerage services to the public. However, once you decide to invest with them and deposit some cash into your newly created account, you won’t hear from them anymore. They take your money but deny you the chance of making even a single trade. - Withdrawal red tapes
Other brokers successfully credit your deposited funds into your account and allow you to trade as much as you can. But problems start when you try to withdraw your profits. Upon making a request, you’ll wait for ages as they take you round and round until you get tired of following up on your money. - Abnormal spreads
It’s a fact that brokers generate revenue by charging you spreads or commissions for every trade you make. But others untruthfully widen their spreads to the extent that it doesn’t match the advertised averages. Huge spreads mean you make less profit on any given trade. Also, your stop-loss orders get triggered prematurely, while take-profit orders take longer than usual to get filled. - Slippage
Slippage occurs in currency, crypto, and commodity trading when your orders aren’t filled at the predefined price. So, for instance, if you’d intended to cut your losses at USD 100, slippage may cause you to lose, say, USD 150 for that particular trade.
- Market Making
Some brokers earn a profit when you lose a trade and make losses when you win a trade. This fact makes them do all that’s within their means to ensure you lose most of your trades, including stop hunting.
Tips to avoid false bokers
Havingunderstood some of the shady devices that false brokers employ, you now want to know how to identify them to avoid becoming one of their victims. Here are three practical tips for your consideration:
1. Confirm whether they’reregulated
There are several financial regulatory agencies worldwide tasked with ensuring the honest dealings of brokers. Some of the most notable regulatory bodies include:
- National Futures Association (NFA)
- Commodity Futures Trading Commission (CFTC)
- Cyprus Securities and Exchange Commission (CySEC)
- Financial Conduct Authority (FCA)
- The International Financial Services Commission (IFSC) (3)
These regulators set rules by which brokers must abide. They also periodically review the brokers’ dealings to ascertain that they’re not up to any illegal business. Non-adherence could result in the revocation of the operating license. By investing with a regulated broker, you’re more confident that your profits will be withdrawable and that they will protect your balance.
2. Check online reputation
The chances are high that you’re not the first client to open an account with any given broker. So, the question is: What was the experience like for the previous clients? Suppose they encountered significant challenges with the broker. In that case, it might be a warning for you to tread cautiously with that broker or entirely abandon the thought of doing business with them.
Nowadays, there are numerous online review sites for virtually any business type, including forex trading. So, roll up your sleeves and get to reading as many stories about a particular broker as you can. Then, make a point of sticking to those sites with honest reviews. Usually, the reviewers pose as customers and thoroughly test the broker’s platform before making a conclusion. But do note that some sites are purposefully set up to soil the reputation of some companies in a bid to promote others. These make unverifiable claims against certain brokers and usually include spammy comments from non-existent customers.
3. Trust your instincts
On top of these tell-tale signs, try speaking with the customer support team and evaluate their readiness to help. If they seem overly unfriendly, you better think twice because the same might happen when you try to make withdrawals.
Choose your broker wisely
You now understand how to determine the reliability of a forex broker. So, don’t take any chances when it comes to investing your hard-earned cash. You deserve a trustworthy broker that’ll allow you to grow your portfolio. So, follow the highlighted tips above to help you avoid cunning brokers and choose the right one wisely.