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Avoiding Forex Scams

As Forex trading continues to gain popularity, Forex scams are likewise becoming more prevalent. Although there are many reliable brokers online, some dishonest ones continue to lure traders into scams. How then can a novice trader choose a reputable broker? Educating yourself on all aspects of currency trading is one effective way. Traders who are alert and knowledgeable about the Forex market will recognize an online scam once they see it.

What is a Forex Scam?

A Forex scam is a scheme used to deceive traders who are seeking to gain high profits in the Forex market. Forex scams can take many forms, often involving a failure by the broker to deliver on its promises. A scam can mean lack of transparency in the pricing and/or execution of transactions, failure to disburse funds payable to traders (fund withdrawal or account termination), and/or lack of response to complaints.

How do I detect them?

Here’s a checklist to aid you on how you can detect a suspicious broker:

1. Unreasonable Commissions

Forex brokers charging large commission like $20 per lot or higher can only lead its clients to lose their investment. A large part of investors’ funds will be used to pay commissions to brokers.

2. Unfair Spread

Be cautious of the spread mark-up from certain forex brokers. Mark-up is the extra spread added to a raw spread. A large spread means higher costs for investors, resulting in losses for the clients.

3. Unrealistic Promises

Forex brokers that guarantee high or instant profits and returns if you invest with them is often a tell-tale sign of a forex scam. This is rampant nowadays especially in online advertisements that pop up everywhere. If a proposition sounds too good to be true, then it most likely is.

In addition, your broker must meet these criteria: (see Choosing a Broker)