If you do a quick search on the internet and type ‘forex broker scams’ you will be able to see almost immediately that the results are huge. Now, even if the forex market is getting more and more regulated, there are still some rogue brokers out there which should be stopped before they can make damage.
‘If you are looking to trade forex it is very important that you do identify brokers that are reputable and regulated and that you avoid the ones that are not.’ said Ethan Rowe editorial chief at Top Trading Platforms. ‘If you don’t have experience, always rely on experts reviews or aggregators - independent sites which can help you reduce the risk of ending up with a rogue broker. Even when you are sure that you have made the right decision, you should go through a number of steps before you go on and deposit a large amount of capital.’
Trading is already very difficult and only once you have acquired good skills you can expect some positive outcome. If you use a broker that is implementing practices which work against the trader, then making a profit becomes impossible.
Separating Forex Fact from Fiction
When traders are looking for a forex broker they need to make sure they do separate the fact from fiction. If we look for example at forums posts and reviews comments, we find lots of disappointed from traders who complain about brokers. If we assume that those are correct, then we can come to the conclusion that all traders are failing and nobody is making a profit. Most of the times, traders fail because their strategies are not good enough and they tend to blame the broker online.
The most common complaint from traders is that a broker is intentionally trying to cause a loss. We can see lots of statements like ‘as soon as I placed my trade, the market changed direction’. Those types of situations do normally happen in markets and most likely the broker is not at fault. It is a lot more likely that the new forex traders are failing to follow their strategy or trading plan. As we can see from lots of comments, people trade based on psychology (ie. feeling that the market has to move in one or another direction) and when they do this, there is basically 50% chances that they will be correct. A rookie trader tends to enter a position when their emotions are waning. This is a clear signal for experienced traders to step in and take the trade the other way. This situation frustrates the rookie traders and makes them think that the market (or their broker) are simply taking the money out of them. The vast majority of the times this is not true and it is traders' lack of strategy and understanding of the market dynamics that is not good enough.
There are situations when a loss can be the broker’s fault, though. This can happen when a broker tries to rack up trading commissions at the client’s expense. There have been situations when brokers have arbitrarily moved quoted rates to trigger stop orders when other brokers’ rates have not moved to that price. Fortunately for traders, those types of situations are the exceptions and are not common. Let’s remember that fundamentally brokers make their commissions with increased trading volumes. It is therefore in the broker’s interest to have clients who are with them long term and who trade regularly.
Most of the time, the slippage issue happens to inexperienced traders who go into panic selling or buying (colloquially known as FUD - fear, uncertainty, and doubt or FOMO - fear of missing out). They start to feat that they might miss a move so they hit their buy area or they do hit the sell area. If the market is very volatile such as in case of cryptocurrencies, the broker cannot always ensure that an order will be executed at the price determined. This sometimes drives sharp movements and slippage. The same situation is for stop or limit orders. Some brokers do guarantee stop and limit orders fill, while others don’t. Even with the most transparent broker, slippage can occur but obviously, this should be the exception and not the norm.
Communication Between Broker and Trader Is Key
If the communication between a trader and their broker start to break down, then problems can occur. This is even worst when the trader does not get answers to their questions or the broker do only give some vague responses. This kind of behaviour will immediately raise a red flag to the trader who will start questioning whether the broker is doing the client’s best interest.
The broker should be as transparent as possible and explain to the trader any potential issue like the slippage. The relationship between traders and brokers gets deteriorated fast if a trader is not able to withdraw money from his account.
Conduct Broker Research to Protect Yourself
It is very important to spend some time to avoid ending up with an unscrupulous broker. Following those steps should help:
- Research the broker for reviews or use trusted and independent broker aggregator sites normally a very generic search on the broker will provide lots of insights on the broker's positives and negatives. From there, you should dig deeper to see if a disgruntled comment is just coming from an experienced trader who is blaming the broker, or if it is something more serious.
- Ensure there are not complains about not being able to withdraw funds if there are, it is important to contact the user who posted the review and see what experience they have and if the problem has been solved.
- Read all the terms and conditions when opening an account even if it does take time, make sure you read through all the fine print of the documents when opening an account. Having everything clear from the start will avoid disappointments down the line, especially in regards to withdrawals.
- When you are happy with your research, open a mini account or even better a demo account when you are completely satisfied with a broker, then you should open a very small account that will not require too much of an investment. You should then try the trading platform and also to make a withdrawal. If everything works as expected, then you should be in a rather safe position to deposit more funds. In case there are problems, you should discuss with the broker and see if they are able to resolve them fast. If they fail, move on and post your experience online so that others can see it and avoid the same problem.