Identifying and Avoiding the Common Forex Broker Scams
Do you know why sharks are drawn to blood? That is because it reminds them of food, so they just can’t help themselves. Just like the those sharks in the ocean, we also have the sharks in the Forex market who are drawn to the four trillion dollars that changes hands in the market. They are not prepared to sweat it out in the market, so they look for gullible prey: you. They know you want to make it, and if you can spend a few hundred dollars in order to earn thousands more, you would gladly do it. Instead of taking time to develop products that add value to the trader, they develop junk and come up with all manner of funny schemes with the sole aim of taking your hard earned money. The Forex business is good and clean, but many of the players are not, and you need to be aware of the various ways they take money from traders.
We summarize a few cases taken from the Traders Court in the ForexPeaceArmy Members’ Area, designed to show you the kind of scams we see in this market, and how you can avoid being a victim.
THE SCAM BROKER
Scam brokers are fake companies that claim to be Forex brokers, but in actual fact are very elaborate scam operations which only accept deposits and never pay out when you make a withdrawal claim. They take advantage of the geographical distance between themselves and a client, and use cunning means to attract clients. One of the ways they do this is by offering insanely high bonuses. Why traders never seem to consider the statement that “if something is too good to be true, it almost certainly is”, is certainly beyond me. Once they are able to lure you in with such bait, you are effectively caught!
Case Number 1: Non-Payment of Withdrawals to Traders
This is a common complaint with unregistered and unregulated brokers. Take this typical case in the Traders' Court: a company known as FXGRANT snared a trader called Ravi, and after 8 months of a non-completed $700 withdrawal request, used a fake address somewhere in London as their office. It was later found out that the “broker” was not registered, not regulated and did not have an office, after claiming that they operated in Cyprus and the UK.
Lesson: Always be wary of brokers who offer high bonuses, and whose regulatory status is ambiguous. Any broker who is based in the UK must be registered with the Financial Services Authority (FSA) and the registration number of such a broker and all the information pertaining to that broker will be clearly displayed on their website.
Case Number 2: Cancellation of Duly Acquired Trading Profits
Read this here. This is not the first time the broker in question has been involved in controversy. In my country of origin, their partners are currently involved in a massive fraud investigation after monies from hundreds of trading accounts were mysteriously siphoned by this brokerage. To be fair, they are not the only ones who have been caught with their fingers in the pie so to speak. Another Seychelles-based broker sucked out $1000 from the account of a trader I know, putting it down to “trading irregularities”. Again, these companies lured in traders with bonuses and started playing games with traders' accounts. This is another example of why it is always better to stay with truly regulated brokers.
Case Number 3: The Stop Hunters
What is “stop hunting”? This is a practice of brokers pushing prices to trigger traders's stop losses even when the real market price is nowhere near those levels. If you visit your trading platform and see what looks like a sudden spike in the candle that triggered your stop when another more transparent platform shows nothing of the sort, then you have been stop hunted. The NFA fined FXCM $2million for slippage malpractices while the Commodities and Futures Trading Commission ordered the same company to pay a total of $14.2 million in fines and restitution on similar counts. It is a crime for a broker to stop hunt a trader. Plain and simple. This is very common with market makers whose business model means that they are trading against the trader.
There you have it. When choosing a broker, you have to watch out for these things. You must be extra vigilant to make sure that thieves masquerading as brokers do not get hold of your hard-earned money.