Watch out for forex broker scams!
Believe it or not, there are some brokers who “cheat” their clients.
One way they do so is by manipulating bid/ask spreads.
Normal spreads between brokers would be around 2-3 pips but scammers would have spreads around 7-8 pips.
Seven pips might not seem like a lot, but it does add up.
Imagine each time a client trades, he has to pay a spread of 7 pips. Imagine if he takes a just a few trades per day.
Another way is by stop hunting.
Remember, brokers know where clients place their stops.
Sometimes, they’ll make a run for those stops, causing their clients’ positions to close out.
Fortunately, many, but not all, broker shenanigans are considered old school.
Thanks to new rules from regulatory agencies such as the Commodities Futures Trading Commission and the National Futures Association, these old scams have been cracked down upon.
You should choose a forex broker that is registered with a regulatory agency.
In the U.S., check out brokers registered as a Futures Commission Merchant (FCM) with the CFTC and an NFA member. Be wary of those brokers that are not regulated by the CFTC and the NFA.
You should know that the CFTC and NFA were made to protect the public against fraud, manipulation, and abusive trade practices.
Be careful, it’s often difficult to distinguish between regulated and unregulated forex brokers!
You can verify CFTC registration and NFA membership status of a particular broker and check their disciplinary history by phoning NFA at (800) 621-3570 or by checking the broker/firm information section (BASIC) at the NFA’s website!
If you have a forex trading account outside the US, you’re in luck! Other countries have regulatory agencies as well and protect individuals as well. More will be mentioned about them later.
If the broker in question is not registered or regulated by any national agency, then DO NOT deposit your money with them. We warned ya, so don’t complain to us if you don’t get your money back!
Stay away from non-regulated firms!
Also, don’t be shy to also ask around in our forex forums. It doesn’t hurt to get personal opinions.