To recognize forex broker scams, we need to know how scams could be done, then discern characters of forex brokers who might be scammers.
For several months now, clients of forex broker 4XP have been complaining everywhere that they've been experiencing difficulties on withdrawing their funds and that their complaints went unanswered. This is not the first nor, I am sure, the last problematic brokers in Forex Market.
Extremely liquid market, 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 maneuver on our part. And so, for us, the question is how to recognize forex broker scams?
To detect forex broker scams, first, we need to know how scams could be done, and second, discern characters of forex brokers who might be scammers. Common scammers lure clients with high profits, and then after you deposit some amount of money and trading with them for some time, you find out that you are unable to withdraw any of your deposit nor the profit you've made.
Or, they repeatedly make deliberate mistakes on opening/closing transactions until you lose your money bit by bit. Another way to do this is to advertise locally and recruit people who are then have to recruit others to be scammed. In the second scheme, you might be recruited to refer your friends to join a broker. You spend your own money to promote them but then found out that it is just a scam.
To avoid from getting involved with such scams, we have to detect them as early as possible. At a minimum, there are four things we could check in order to assure safe forex trading:
Sensational Ads: Big Profit, Zero Risk
I am sure you've heard that there are con men who promise us 60% or more profits from certain business ventures. That's how it is in the forex market too. There are brokers who 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 small, you have to experience it first to get the lay of the land. Therefore, losing your money is practically a sure thing, but profit is not.
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.
See also: Exposing Forex Broker Secrets
Regulated and Unregulated Brokers
Almost every country in the world have an authority in place to regulate financial institutions, and some of them specifically regulate brokers who deal in forex, futures, and commodities. Some of the most well-known regulators are:
- National Futures Association (NFA, USA)
- Financial Services Authority (FSA, UK)
- Australian Securities and Investment Commission/ASIC (Australia)
- CySEC (Cyprus)
- Seychelles International Business Authority (SIBA, Seychelles)
- Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin, German)
- Financial Service Providers Register (FSP, New Zealand)
- International Financial Services Commission (IFSC, Belize)
- Financial Services Commission (FSC, Mauritius)
- Financial Conduct Authority (FCA, UK)
- Markets in Financial Instruments Directive (MiFID, Eurozone)
Some regulators are more bonafide than others, like US NFA and CFTC, UK FCA, European MiFID, and Australian ASIC. While some others are known as much laxer in doing their job. And so, simply 'regulated' brokers do not guarantee that said broker will not leave you in the gutter. However, 'regulated broker' means that some authority has checked them out and considered them as qualified brokers according to their criterion.
Another thing you should note in regard to regulation is that some scams could claim to be regulated somewhere when in fact, they are not regulated, so check carefully. As in the case of 4XP above, they are also involved in some confusing tangle on regulation. Beware of fake 'regulated' claims.
Contact and Communication
Every legitimate company should have an address, and this is one of the first things you should check. It might be difficult to personally visit the address (particularly if it is a foreign broker), but the availability of a specific address is basically enough. After all, we can check them out through Google.
As in any other service provider businesses, contact and communication are exceptionally urgent. 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? Check the contacts given on the brokers' website, and try them out.
Read the Review
When you choose which broker you are going to join with, read reviews about them in the net first. However, you should have a care, because there are fake reviews planted by those scammers. Don't be easily led by over-the-top reviews (sometimes with a copy of bank statements and such). Choose independent sites that provide reviews as well as 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 is one that has a good history. In the case of forex brokers, most of the best are the ones who have been on the field for three years or more. Testimonies on their performances made up their track records, and this is what you should observe carefully. There are those who continue to provide good services, but there are also those who 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.
A good broker is one that is properly regulated, has a good track record, provides excellent supports, and tells us that any gains we will take from this business will be up to ourselves. A good broker can't guarantee that we will not lose any money, but he can guarantee that he is truthful, will give us as much support as he is able to, and offer a smooth withdrawal process.