Forex or the Foreign exchange market is a platform where investors and institutions trade currencies. The forex market is the largest financial market in the world. Nearly $6.5 trillion investors trade forex every day on the forex market, on the basis of the 2019 Triennial Central Bank Survey.
However forex trading is legal, the market is full of scams and the worst actors. There are various types of forex broker scams in the foreign exchange market. Investors need to concentrate more before investing moving into what can be the Wild West version of global financial markets.
How does Forex Trading Works?
FX stands for Forex. Forex trading takes the benefits of variation which takes place in the currency exchange rate. As per Robert Johnson (professor of finance at Creighton Univerity’s Heider College of Business): The Forex market does not set a currency’s perfect value but only decides the value of one currency connected to each other. You can place virtually any major currency in place of another major currency in the FX exchange.
If you are looking for quick results, two currency pairs are the best: first, bet on the U.S.Dollar versus the Japanese yen, and the second one is the yen versus the Mexican peso. On the other hand, the majority of activities in the forex market are taking place via multinational corporations to protect natural positions, and individual investors dependent on currency movement.
Investing in currencies either we talk about traditional currencies or cryptocurrency, is essentially different in comparison to investing in stocks, bonds or real estate as per Johnson. Long term investing in the stock market is a positive-sum game because the value of stocks increases over the long goals.
But as per Johnson, Both short and long term investing in currencies is a zero-sum game. When the U.S. dollar strengthens then the yen, Investors who are holding the U.S. dollar positions win and those holding yen positions lose similar and opposite amounts. Because of this reason, he says investors who want to build long term wealth should be connected to the stock market.
If you are thinking about entering into forex trading, although you require a forex brokers account. But the problem behind it is not all forex brokers provide you with the best in their efforts. Learn in detail about how to start forex trading.
Key Factors for Avoiding Forex Broker scams
In the given points below, we are mentioning factors that put huge effects on trading. Must consider these factors before stepping into the forex market.
Either the broker is regulated or not?
It is the most important point for security purposes. Must check whether the broker is a regulatory body or not because unregulated brokers do not have to answer any government body. This means if they try to scam you in any condition, either it will be “glitches” or “malfunctions” that create difficulties in their system or if you apply for a withdrawal request and the broker will not process it which means they are trying to steal your returns. All these factors will be considered a scam.
All these things are very common with unregulated brokers because they do not have to answer any authority. Even they don’t care about negative comments which you posted online due to no legal authority involvement.
But in regulatory bodies cases, they do not perform these types of scams because they provide their service under the financial conduct authority.
Almost every legal broker is regulated which means if they try to do any scam, you can file a complaint against them. But regulatory agencies do not perform these types of tricks with clients. They have to maintain market reputations so that they can attract experienced traders.
How to Check If the broker: regulated or not?
The simplest way to check whether the broker is regulated or not is to go on the broker’s website and check their details. Most of the brokers mention their regulatory details at the bottom of their website. In the footer of the broker’s website, They always mention their official company name and regulatory details. Such as most of the top brokers are regulated by Cyprus Securities and Exchange Commission.
You can also collect these details from the “About us ” page where you will get complete details about the broker authority and regulation with license number or registration number. It may also contain rules and regulations which are followed by the broker. Investors must read rules and regulation details before opening an account on the broker’s platform.
How trustworthy is the regulatory body?
The biggest problem with the regulatory agency is they claim to be regulated or registered by a governing body which is true but they are not registered with the authority that handles or regulate forex brokers. They are registered by other instruments handling authorities which will be harmful to investors in some cases. By this trick, brokers can easily win the trust of new investors. In some cases, the broker mentions false claims and warnings under their website, So must check their details from their license number and registration number.
Check here List of Legitimate forex regulatory bodies
Always look for forex brokers that are regulated in a major hub and are always trustworthy. Brokers in emerging hubs can also be considered trustworthy. As per experts advice and annual study, we make the list of some regulatory bodies.
- FCA Regulated – Financial Conduct Authority – United Kingdom
- CySEC Regulated – Cyprus Securities & Exchange Commission – Cyprus
- ASIC Regulated – Australian Securities & Investment Commission – Australia
- SFC Authorized – Securities Futures Commission – Hong Kong
- MAS Authorized – Monetary Authority of Singapore – Singapore
- FSA Authorized – Financial Services Agency – Japan
- IIROC Authorized – Investment Industry Regulatory Organization of Canada – Canada
- FINMA Authorized – Swiss Financial Market Supervisory Authority – Switzerland
- FMA Authorized – Financial Markets Authority – New Zealand
Is the broker providing profits and discounts on an account opening?
These are the tricks of scam brokers they always pretend to claim like “make $50 a day from a $250 investment”, ” make 70% return on profit signals” and “90% success rate”. All these types of statements are scams unless they are being made for forex, CFDs, or binary options. Trusted Forex brokers never claim returns neither small nor large.
So it is a simple trick, to find either the forex broker scams or not. If the forex broker is promising any type of money-making which means the forex broker is a scam. Some other tricks of making people fool are like the broker offering expensive cars that are given to the lucky customers.
Many binary options brokers have been detached as fraudulent operations. In these cases, No real brokerage is present, The Client is betting against the broker, Who was pretending to be a bucket shop. The most common scam is a manipulation of price data which makes a customer lose.
In other cases, if the client is going to withdraw funds due to some genuine reasons, the broker will simply stop picking their phone calls. With the help of binary options sometimes traded on a regulated brokerage platform we find that they are unregulated, prone to fraud, and trading on the internet consists of high risks.
Important credible information about the brokerage
Important credible information about the companies are included on its website like company history, financials, headquarter’s address, or similar. Scam brokers do not require any names, locations, or contact details linked back to them at the time of trouble. If you do not find honest and real clients’ reviews on the broker’s platform in which you are interested, do not open an account on that broker’s platform. It may also be necessary to check disclosure documents, which consist of important information about the company.
Automated Trading Programs (Robot/Expert Advisors)
Automated trading is targeted at new traders at the forex trading market and is generally referred to as robot trading or expert advisors. These robots can undertake investors without human intervention which is simple to use and mostly sell at a few hundred dollars.
These systems will never submit for any form of formal review or independent testing. On the other hand, it can be demonstrated on the basis of historical data. There is some suggestion that many robots have been highly optimised or designed to arrange the data.
Before looking at robots along with an attractive win rate, be well informed about scalping. It is used by multiple trades for small profits that the robot is widely successful, but any good size loss would wipe out returns fastly. Without Algorithmic knowledge, traders are not so sure that the robot is not only sending general buy and sell signals which is totally not possible to trust.
Just like EAs and robots, Signal sellers provide a system to find when to buy and sell currencies pairs to generate high returns. The particular seller can be retail investors, pooled assets managers, retail investor accounts and retail company accounts. They provide long term experience and excellent trading abilities, powerful testimonials, and guarantee of big profits to alternative the inexperienced traders
Signal Sellers provide tips in exchange on a daily basis, weekly bases, and monthly basis. This process will take place manual or automatic which is dependent upon technical analysis, breaking news, and a merger of both. Signal sellers may also provide trading tips at the time of account opening with a particular broker, getting a commission from the broker. These scams signal sellers will take your money and fade away. It may also offer you a good few reddy tips which you have never heard before.
Fake/ Unscrupulous Brokers
It is not necessary that unsuccessful brokers are scammers. Some misunderstandings and technical issues create a bad situation between broker and trader relationships. Sometimes investors pursue emotional investments which may not consist of any trading strategy without understanding the market. On the other hand, the broker is competent rather than unscrupulous, making mistakes in place of scamming traders.
Fake brokers and those who are not making money through trading without providing anything in return, mostly fall into the following categories:
- Price Slippage: In terms of trading, price slippage is taking place when the expected price of a trade is not similar to the actual price at the time it is sold. Sometimes it shows good results for the traders but other times it loses money.
- Liquidity: It happens when the broker does not consist of enough capital to cover trades. We can’t say this thing is a scam but it enhances the high risk for a trader to lose money. Due to this the chance of bankruptcy has increased and also risking the investment of the trader. It may also create problems for various withdrawals. Brokers who do not consist of enough liquidity to move their business efficiently.
- Churning: Individual brokers always provide their services on commission which is dependent on the number of trades that they make. This takes you to unnecessary buy or sell actions to generate more commission which is known as churning. Negative effects of churning affect the trader. Sometimes due to this, it leads the broker to legal action which is being taken against the broker if the broker is regulated.
- Commingling of Accounts: When the trader’s lose authority of their accounts management and control of money. This enhances the risk that your account will be commingled. This means traders will not be able to trace the activity and performance of their funds as they are connected with others.
- Unable to Withdraw: Having instant access to any funds which are being managed by the broker is necessary. Traders must be aware of their money at all times. It has a negative impact if you aren’t able to access your money when you need it. It means that the broker is not as liquid as it is trying to show, or that the account will be commingled.
High-Yield Investment Program (HYIP)/ Percent Allocation Management Module (PAMM)
Check, A similar way to management funds, traders are invited to start with a small minimum investment in a high yield program that guarantees high pay-outs.
In model Ponzi scheme fashion, initial traders are paid via current investors, and the system depends on the stable stream of new investors to make the money moving. Generally in these schemes, No actual trading will take place, but when there is a shortage of new investors, big losses are noted and the HYIP owners simply fade away with the remaining funds.
How to notice a Forex Broker Scams?
If any forex broker or forex investment opportunity is providing guarantees on their services to make money, you can easily understand that the broker is a scam. This type of statement is only ticked to attract investors only. Anything, as they are told, will not be going to happen in future because forex is one of the complex instruments which consists of high risks and currency movements.
Forex is a good trading choice and can generate money but it is not a trusted source for making millions overnight and it may also not advise such things. If any brokerage, EA or trader puts efforts to sell you something that provides 100% guaranteed to make you a millionaire. It is a scam. Here we provided you with a list of some facts that you should look at before starting forex trading.
- Eye-catching profit claims
- Performance-based uniquely on historical data – no live trading data
- No prior performance information
- No named contact in the brokerage
- Asking for a large amount of money
- worst high win/loss ratio
- Negative original (independent) reviews
- ‘Secret formula’ claims
- Offshore HQ & Unregulated
- Provide Demo accounts
Trading foreign exchange consists of so many chances of losing money rapidly. The forex market has been containing forex broker scams which takes place when investors make mistakes in the selection of brokers for currency trading. Mostly this mistake is done by inexperienced traders. The easiest way to find a scam broker is they ask for a small initial investment which consists of huge commissions. You can’t withdraw money easily from scam brokerage platforms. Must check past performance, broker’s registration and regulation details, monthly fee, etc before opening an account on their platform. Do not miss lead yourself in the greediness of high profits. Trading CFDs may also have effects on the forex market. Read this article carefully for complete details about Forex broker scams.