To recognize forex broker scams, we need to know how scams could be done, then discern characters of forex brokers who might be scammers.
Extremely liquid markets, high trading volume, and high potential gains have made a lot of people interested in defrauding others through forex broker scams. It is not surprising that safe trading needs careful maneuvering on our part. We must detect them as early as possible to avoid getting involved with scams.
There are four things we could check to recognize broker scams:
- Sensasional ads: They tend to promise a big number, sometimes unrealistic.
- Unproven regulations: Check out whether they are regulated and whether their regulations are legit.
- Untraceable contact: Find out if they have a legit communication line or real address.
- Bad reviews: Look at what people say about them.
By checking these signs, you can easily protect yourself from getting scammed. How exactly do those signs help you identify broker scams?
1. Sensational Ads: Big Profit, Zero Risk
You've heard that con men promise us 60% or more profits from certain business ventures. That's how it is in the forex market too. Some brokers advertise by mentioning that you could get rich fast by trading forex. Or even promising 100% turnover. Suspect those who said that.
It is quite impossible to gain profit without risk (100% profit alluded to zero risks), and forex trading, for one thing, is a high-risk venture. The possibility of gaining extremely high profit since the beginning is quite slight; you must experience it first to get the lay of the land. That's why legit brokers like FxPro and Pepperstone frequently add such a disclaimer to not mislead their clients.
Another way to scam is by offering large benefits if you sign up within a specified period. It is common for brokers to offer deposit bonuses (a certain amount of money you will get after you post your initial deposit) or give you 5 to 10 USD when you sign up with them. But more than that, well, not every extraordinary thing are good.
2. Unproven Regulatory Claims
Almost every country globally has the authority to regulate financial institutions, and some specifically regulate brokers who deal in forex, futures, and commodities.
Some regulators are more bonafide than others, while some are known as much laxer in doing their job. Regulated brokers do not guarantee that said broker will not leave you in the gutter. However, being "regulated" means that some authority has checked them out and considered them as qualified brokers according to their criteria.
What you should note regarding regulation is that some scams could claim to be regulated somewhere when they are not, so check carefully. As in the case of 4XP above, they are also involved in some confusing tangle on regulation. So, beware of fake 'regulated' claims.
Normally, a regulated broker will have a license number. Traders can check out the legitimacy of the number through the official website of the said regulator. If the number doesn't exist or is registered under a completely different company, there is a chance that it might be a scam.
Well-regulated brokers are usually listed under the authority of the US, UK, and Australian regulations. They can be found in the following lists:
- List of Brokers Regulated in the US (CFTC)
- List of Brokers Regulated in the UK (FCA)
- List of Brokers Regulated in Australia (ASIC)
3. Untraceable Contact
Every legitimate company should have an address, one of the first things you should check. It might not be easy to personally visit the address (particularly if it is a foreign broker), but the availability of a specific address is enough. After all, we can check them out through Google.
Contact and communication are urgent, as in any other service provider business. What if you experience difficulties and need to ask customer services? Are they able to give satisfactory support? Or they don't even reply to your emails?
Legit brokers would provide contacts that are easily accessible to clients. For example, brokers like IC Markets and Exness would clearly inform their clients about their correct office addresses, phone numbers, and email addresses to receive clients' questions and complains.
Meanwhile, forex scams would not disclose their true contact information since they don't want to be held responsible for their client's problems. After all, their purpose is to get away with their client's money.
4. Fake and Negative Reviews
When you choose which broker you will join, read reviews about them on the net first. However, you should take care because those scammers frequently plant fake reviews. Don't be easily led by over-the-top reviews (sometimes with a copy of bank statements). Choose independent sites that provide reviews and space for anybody to write their testimonies. Besides that, it is also advisable to visit forex forums where more experienced traders talk freely about brokers.
A good company has a good history. So, bad testimonies could indicate a forex scam too. Some brokers could provide good services initially but regress with time (4XP is one of the last). Particularly suspect those with unclear history, which means they are new in the game. The longer and clearer their history, the more you could be assured of safe trading with them.
To avoid brokers with negative testimonies, you could also filter carefully so there are only brokers with good testimonies in your selection.
A good broker is properly regulated, has a good track record, provides excellent support, and tells us that any gains we will take from this business will be up to us. A good broker can't guarantee that we will not lose any money, but they can guarantee that they are truthful, will give us as much support as they can, and offer a smooth withdrawal process.