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Is your Forex broker a scam?


While you can certainly find a reputable forex broker to trade in the mostly unregulated forex market, forex scams are also more common than you might think. Therefore, it may be a good idea to do some research before opening an account with a forex broker.

Knowing what to look for in a broker can help you avoid falling into the trap of a forex broker scam. Suppose you have never traded in the forex market and want to become a successful forex trader. In this case, knowing how to choose a forex broker is an important step towards success in this highly competitive field.

In this article, Benzinga examines the signs of an unsavory forex broker and offers information to help you avoid falling for forex scams when looking for an online forex broker to trade with.

What is a Forex Broker?

A forex or foreign exchange broker is a financial intermediary company that offers a margin trading service to allow retail clients to trade currency pairs online. An online forex broker usually provides access to the forex market through one or more supported trading platforms.

What to look for in a broker

The main consideration when choosing an online forex broker is whether your trading capital can be safely deposited with the company. You will want to ensure that your money will be held securely by the broker in a separate account from its own funds and that your funds can be easily withdrawn by you on demand.

Before depositing money with an online forex broker, you should first carefully research the broker to ensure that the company is creditworthy and has a good reputation with its customers. You will also want to check that the broker is properly regulated and operates in a jurisdiction that gives you legal recourse in case something goes wrong when you want to withdraw your money.

This means that you will probably want to open an account with one of the largest online regulated forex brokerage firms that are overseen by one or more major regulatory agencies operating in a highly developed country.

How to Choose a Forex Broker

Benzinga has compiled some helpful tips below on how to choose a reputable forex broker so you can avoid falling for most forex broker scams.

Research brokers

You can research forex brokers using moderate independent review sites like ForexPeaceArmy, which specializes in honest online forex brokers. Trustpilot is another possible source of customer reviews for online forex brokers, although it lacks the careful monitoring needed to prevent companies from giving themselves good reviews. You might also be able to check on a forex broker that serves US clients by using the BrokerCheck service offered by the Financial Industry Regulatory Authority (FINRA) to check its licenses and pending legal actions.

Check complaints about withdrawing funds

One of the major customer complaints that fraudulent forex brokers receive is that of significantly delaying or not allowing customers to withdraw their trading funds. This action is a major red flag that you should take very seriously as it suggests that your margin deposit may not be safe with this broker.

Read the fine print

Online forex brokers operate in many different jurisdictions, so they are not consistently regulated. This means that you will have to read all the fine print when signing an agreement with them to open a margin trading account. You will also want to read the details of any promotions offered to ensure you qualify for account opening incentives and research how the process of withdrawing funds works.

Open a mini-account

If you’re happy with the research you’ve done on a broker, you can usually open a mini account with them. You can then only deposit a small amount of trading capital so that you can trade in the account for a short time before attempting to withdraw funds. This practice will allow you to test if the broker is legit without risking the full amount of your trading capital.

Watch out for churning

Excessive trading to generate commissions is known as “churning”. This action is a possible risk if you give your broker or an account manager who enjoys increased trading activity authority over your forex trading account, so be careful in such situations.

Already working with a bad broker?

If you think you are already working with a bad forex broker, read all the fine print of your account agreement first to make sure you didn’t miss anything when you signed this document when opening a account.

If you still feel aggrieved, tell your broker in writing what legal action you will take if the outstanding issues are not resolved quickly. These actions may include posting negative comments online, reporting illegal or unethical actions to the broker’s regulator, and taking legal action in a court of competent jurisdiction.

Best Forex Brokers You Can Trust

Even though many online forex brokers operate legitimately, you cannot trust just any broker that offers to open an account for you. Benzinga has simplified the search for a reputable online forex broker by compiling the following comparison chart of reputable forex brokers.

Claim exclusive offers

  • CedarFX is not regulated by any major financial agency. The brokerage is owned by Cedar LLC and is based in St. Vincent and the Grenadines.

Frequently Asked Questions

A

Forex trading involves exchanging currency pairs. This type of trading is a perfectly legitimate activity that retail traders can engage in through a variety of online forex brokers. However, not all of these brokers are legit, so it is recommended that you do thorough research before opening and funding a trading account with a forex broker you are unfamiliar with.

A

The foreign exchange market is the largest financial market in the world and is not a scam. Despite this fact, some unsavory people or companies might try to scam unsuspecting retail forex traders, so it is strongly advised to exercise caution when depositing your trading capital with unknown companies.

Q

Can a forex broker steal your money?

A

Not legally, but not all online forex brokers operate legally. Make sure a forex broker is not a fraudulent company by doing thorough research before making a margin deposit.


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