Forex Broker Scams – Fact vs. Fiction

A search for forex broker scams on the Internet will bring up a large number of pages. Though the regulatory framework for the forex market is becoming more stringent, there are a number of unscrupulous brokers out there in the market. If you are planning to do forex trading, you should be able to identify reliable and viable brokers so that you don’t lose your hard earned money.

Fact vs. Fiction

During your investigations about a forex broker, you may come across negative comments about the broker in forex trading forum posts, articles and reviews. However, you must remember that the comments could have been written by disgruntled traders who have tried and failed in making profits through forex trading. Such traders often blame the brokers for their failure. It is, therefore, important that you learn segregate fact from fiction.

forex trading brokers scamIn many cases, it may seem to a trader that a broker was intentionally trying to cause a loss. Complaints such as: “As soon as I placed the trade, the direction of the market reversed;” “The broker stop hunted my positions;” or “I always had slippage on my orders, and never in my favor” are not uncommon. These types of experiences are common to all traders, and it is quite possible that the broker is not at fault.

In many situations, a trader may feel that the broker is responsible for the losses incurred by him/her. If you come across some of the following comments about brokers, you should remember that all traders go through these experiences and that the broker may not have been at fault at all:

“The moment I took a position, the market direction changed”

“The forex broker stop-hunted my positions”

“My orders always worked against me”

People who are new to forex trading seldom use a time tested strategy. They are often driven by emotion. The chance that the market will move in a direction that you expect is only 50 percent. Rookie traders frequently enter a position when their emotions are on the wane. Traders with experience are aware of the way in which newbies behave and take the trade in the opposite direction. This confuses new traders and they start believing that their brokers are taking away their profits. They don’t realize that it is their failure to understand market dynamics that has cost them money.

Sometimes, brokers are responsible for losses incurred by traders. Such situations arise when brokers attempt to increase trading commissions at the expense of clients. Brokers also resort to moving rates arbitrarily so as to trigger stop orders. You must remember that brokers are in business to make money that increased trading volumes give them. Ultimately, brokers should have clients who trade with them on a regular basis in order for them to make profit in a sustained manner.

The slippage problem is often a psychological phenomenon. Inexperienced traders often panic when trading currencies. The fear of losing money forces them to press the sell button and the fear of losing a move forces them to press the buy button. Brokers cannot guarantee to execute clients’ orders at the specified price in volatile market conditions. It is the volatility that causes the slippage. This is often the case with limit or stop orders. Some brokers provide limit and stop order fills, but slippage occurs even in transparent markets. This is to say that a trader who does not have a clear understanding as to how the market works perceives slippage as the broker’s ploy to take away his/her profits.

What is the Real Issue

Problems start cropping up when the communication between the broker and a client is not proper. Brokers that do respond to traders’ emails, telephone calls or provide vague replies to queries may not be the right brokers to work with. Clients’ best interests may not be a matter of concern for such brokers.

The best forex brokers often resolve issues as and when they arise, give clear explanations to traders and offer helpful and effective customer relations services. One of the key issues that can strain the relationship between traders and brokers is the inability of traders to withdraw money from their trading accounts.

How to Protect Yourself from Unscrupulous Brokers

#1: Read through reviews of brokers that are available online. Keep in mind the various aspects discussed in the article when reading the reviews. Find out if there are any legal actions against them.

#2: Ensure that there are no complaints against the broker you want to work with as regards withdrawal of funds. If there are, try to contact some of the users who have had withdrawal problems and get an idea about their experience.

#3: Read through the fine print of the brokers’ documents, especially those related to withdrawals, prior to opening an account. Incentives offered for opening accounts may be used against traders when trying to withdraw funds.

#4: If your research shows that a particular broker is okay to work with, first of all open only a mini account. Trade currencies for a month or so and then try to withdraw funds from your account. If your experience is good, you can consider depositing more funds. On the other hand, if you face problems, you can make an attempt to discuss the matter with your broker. If you are not able to establish any kind of contact, it is a good idea to move on. You can also provide a detailed account of your experience with the broker so that others do not fall prey to the designs of the broker.

What to do If You are Stuck With an Unscrupulous Broker

Unfortunately, you are left with very limited options at this stage. However, you can do some of the following:

#1: Go through all of the brokers’ documents to ensure that it is the brokers’ mistake.

#2: You can be stern with the broker, but never be rude. Tell the broker that you will be force to take action if they do not adequately answer your queries or allow you to withdraw funds.

Final Thoughts

Scams are often nothing serious, they occur because many traders do not have a clear understanding as to how the markets and brokers operate. They blame the brokers for their losses. Brokers are also at fault at times. Therefore, the best way to start forex trading is to research the broker, open a small account, trade for some time and depending on your experience you can deposit more funds.

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