Forex Trading like any other investments is never risk-free. Forex market is volatile and there is always a chance that things will not go as you have predicted. The currency movements are something you have no control over. However there are things that you can control in order to decrease your risk of losing the invested money.
Is My Forex Broker Registered With Financial Authority?
One of the things that can protect your investment is financial authority your forex broker registered with. Regulated forex broker is under the watchful eye of the law. It has to meet and keep the financial standards set by the financial authority. Failing to comply with the rules of financial authority may result in either big fine or regulation membership cancellation. Therefore regulated forex brokers are much more reliable then those who aren’t supervised.
Regulated forex brokers openly and clearly state their financial authority on the website. If you have trouble locating this information, you should contact the broker support and request to know who their regulator is. Reviewing your broker regulator is not enough. It is wise to recheck that your broker is indeed registered.
Once you know the name of the financial authority you can simply search it online. Then all you have to do is enter the website and use their database to search your forex broker up. If the database is not available, you can always contact the regulator by email or phone and request information regarding your forex broker. This is just a precaution but why risk it when you can make sure that you are protected by law? When it comes to scammers you are responsible to protect yourself and the best weapon against scam is your knowledge.
How can financial authority help you?
When forex broker misbehave you can take action in your own hand. Financial authority is your online police station. When things go wrong you report the criminal and press charges! Most regulators allow you to file a complaint either via email or fax. The most effective means of filing a complaint is to explain the situation with as much detail as possible. If you know any other similar incidents involving other forex traders, this is the time to include this information in your complaint. Including proof is also favorable. By proof, I mean screenshots or saved email or chat conversations with the guilty forex broker. Just like in real court, when filing a complaint you have to provide evidence.
Apart from filing a complaint and finding the details about each regulated broker you can also check complaints filled by others. In my opinion, this is the best way to find out your forex broker reputation.
What is considered Scam when it comes to Online Forex Brokers?
First trick is called bucket shop. There are forex brokers that simply do not put trading orders through the interbank forex market. How does this influence you? Well, the trades stay in brokers system and therefore the broker is able to control the spreads (the difference between the bid and the ask prices) and even distort the market. This trick is used by forex brokers that depend on forex traders losing. Trading with such broker is extremely difficult – make profits and withdraw money can simply turn into nightmare.
Another trick is to “play” with stop positions. When forex trader puts a stop on the trading system, forex broker can deliberately move the price quote to hit the stop and once trader is “robbed”, the quote goes back to where it started from.
There is no simple formula to detect fishy broker. However, in my opinion, trading with registered forex broker is the least you can do to protect yourself.