The forex market has become increasingly popular over the past several years as more and more traders migrate from other markets. There are a lot of reasons for this, like the promise of large profits and the great accessibility to the market.
As more traders are moving to forex, an influx of uneducated traders has filled the markets. Many of these new traders are not familiar with the warning signs found with CFD brokers and are more susceptible to the lurking scams present across broker websites. These scams are designed specifically to attract inexperienced traders and cause them to lose money while the broker profits off their losses. Although regulations have been put in place to eliminate the old-style scams, new ones continue to develop, and traders should be highly aware of them.
Older scam styles
Older scams were often conducted by adjusting spreads to increase risk of loss so that brokers can gain profit from the commissions. The differences in spreads simultaneously steal from the trader’s profits. In previous years, spreads were commonly as high as 7 pips, while in recent years, they have dropped to 2 or 3 pips or less. Nevertheless, questionable brokers will still have hidden high spreads for smaller accounts when they advertise their low spreads, which are exclusive to bigger accounts. Because of these scams, regulators such as the Commodity Futures Trading Commission (CFTC) and the National Futures Association are keeping tabs on retail trading. These regulators have done a lot to curb some of the older scams, but newer scams have formed in their place.
This type of scam operates daily among current brokers by withholding the true whereabouts of client funds or restricting the client from tracking their investments. Brokers can then move funds at their will and essentially steal from their clients. Because the clients cannot monitor this activity, brokers are able to get away with this behavior. This type of scam targets many unsuspecting traders, but it can be avoided when you know the signs. Any unusual activity on accounts and secrecy from a broker should immediately signal a warning. Unrealistic promises and guarantees should also be seen as signs of a potential scam.
Technology has brought about trading robots, or Expert Advisors (EAs), which are a more advanced form of automated trading. These robots are programmed to monitor trends and place trades on behalf of traders. They are a popular addition to trading strategies, but these robots come with their share of risks.
These bots restrict traders from controlling their trades and are not as trustworthy as they seem. Companies advertise their EAs as being foolproof, but traders cannot realistically test this for themselves. The robots do not always follow professional methods, providing false signals that result in losses on the trader’s part and gains for the broker. This is how traders are scammed, as their trades are out of their hands to a large extent and brokers can manipulate the amount of information available to them.
These scams, particularly in forex trading, are especially beneficial to the brokers because they profit from their clients’ losses. If they are able to increase risks and cause more failures, they can create more opportunity to benefit from the losses.
When choosing a broker, traders should analyze every aspect of the features being offered and beware of grand promises of profits and success. Every trader should also stay educated on the latest scams and be suspicious when these signs appear. Increasing your knowledge of risks can save you from losing large sums of money and making detrimental mistakes.