Are forex brokers for real or they are a scam

Forex is a scheme that has benefited a lot and more than that, it has devastated a lot of traders. The idea of trading currency pairs looks golden from far but when the trader gets inside the whole system of forex trading, there are a few things that stand between success and the trader itself. 

The most prominent cause of a trader being washed out of the forex market is the presence of scam brokers and that too, in huge quantities. The trailers are lured in by these brokers and they do get attracted. 

Getting infatuated with handsome schemes is natural because that is what these brokers do, lure in investors and then suck them dry. But what a trader can do is, that he or she can look around and research before getting involved with any tom dick or harry that says that it’s got a website and is a legitimate broker. 

Forex brokers are not always a scam, but when they are, its a problem for most of the traders because one, nobody knows first hand that they are involved with a scam and two, no one also knows that the involved broker can scam them in not one, but multiple ways. 

Let us understand what are the key factors that differentiate a scam broker and which broker can be a scam.

Leverage:

The first and foremost thing that a trader has to look upon is the leverage that the broker is providing. To understand how leverage can harm a trader and how brokers leverage the leverage itself, let us first understand what it actually is.

Leverage is something that can be of huge use to the trader and of a great financial threat as well. 

Leverage or “margin-trade” puts the trader and the broker both under a sort of an ‘arrangement’ where the trader can use borrowed money from the broker to enter a market that was otherwise inaccessible due to lack of the right capital. Most of the scam brokers put forward their leverage providing schemes like this:

“Enjoy leverage up to 1:500”. Sometimes this is as high as 1:1000. 

The math behind leverage is, that the trader, with one dollar, can access the market that is worth five hundred dollars. Or, with a hundred dollars, the trader can control a trade worth a hundred thousand dollars. 

Just like every story, this also has two faces. Being able to control a trade worth a hundred thousand dollars is good here but let’s be real. What are the chances that the trade will be correct? Pretty slim, right? exactly. But what happens if the trade goes wrong? Then, the trader is liable to pay the broker a sum of a hundred thousand dollars, not the hundred dollars he or she used to enter the trade.

This way, the chance of a broker making a profit is much more than the trader making a profit. Although, there are specific traders who trade just on leverage. But it has to be kept in mind that those traders have spent a decent amount of time in the market and they know what movies it. For them, making money off of a hundred thousand dollar trade is nothing. But not everyone holds such a level of expertise. 

The traders who know probably nothing about the whole idea of making money in the market, are subjected to leverage by the broker. The brokers achieve this by serving the traders a sword, telling them that it will eliminate their current financial condition and lead them to a new one. The fact is true but with one single catch. Yes, it will take you to a  new financial condition but that place can be far more worse than the one the trade is currently in. 

Regulation:

The brokers that pose a threat to the traders can be a lot different in terms of regulations. Let us understand this in detail. 

There are instances where brokers tell the traders that they are actively working overseas. This means that apart from the regulations of the home-gound, they also have to have the regulation in the country where they are either working under the same name or there is a subsidiary that is working under them.  While a lot of brokers have this sort of regulation, a lot of them do not possess even one legal document that says that it is legal for that particular broker to do business overseas. 

The traders think that since the broker is working overseas, it might have a lot of reputation and there is a slight chance of it being a scam. The thought is correct in a sense, but even if there is a slim chance, why take it?

If the trader cannot find a particular document that is enough to verify the legitimacy of the broker, then he or she should not get financially involved. Period. 

Regulatory authorities like the SEC, IFSC, CySEC to name a few, are there just to keep such scam brokers at bay and if the regulation from one of these is not present, then the broker is 100% dangerous. 

There are also instances when the broker is doing business in the home-ground but is still, unregulated. The fact that they have been hiding such crucial information should sound more like an alarm to the trader and he or she should move elsewhere. 

The liquidity game:

Ever heard the words SP or NDD before? NDD stands for non-dealing desk. What it actually means, is that the broker is getting its liquidity from another provider. These are generally big banks, the people who are already in the game of manipulating the market and moving it on their own terms. Such brokers after a point of time, start acting as the liquidity providers broker, not the broker for a trader. The provider will decide for the trader, not the trader. The trader won’t even have an idea that the provider is making movies for him or her.

Copy-trading:

This is by far the most stupid thing that the brokers or scam brokers can come up with. In this, the trader is ensured with the fact that the broker already has a better trader and that trader is making loads of money. The broker says that the novice traders can blindly copy the trades and make money off of the fact that there is a trader sitting somewhere else, making trades that are based on his or her personal strategy and that can be beneficial for anyone. 

This doesn’t even sound legitimate let alone it being of profit potential. The traders are advised to stay away from brokers that promote copy trading or for that fact, any other sort of fraudulent practice to its traders.

Customer and support:

 A far more subtle way where the brokers can make bad movies and make the traders pay for the deeds of themselves is lagging customer support. There are brokers who provide customer support for more than five days a week and there are also brokers who do not even have customer support with a span of fewer than four days a week. Forex is a market that is practically open forever. With such a market, customer support being available for less than four days a week is a big no-no. 

Commission based trades:

There are traders who take a commission on each trade. No matter how many trades a broker places, they do need to pay a commission, sometimes there are instances where swing traders have t pay almost all their profit in the name of the commission. That is not a very healthy practice for any trader no matter what level of expertise they hold. 

Let us have a look at a legitimate forex broker. The broker HFTrading has been making a lot of noise in the market because of all the above-mentioned facts and an additional fact too. That is, it does not entertain any of the above-listed things in any manner. The broker does not provide a lot of leverage, the minimum balance is actually minimum or, well below three hundred dollars. The broker is also completely regulated and has a strict no-no policy for commission-based trades. 

Conclusion: 

Forex brokers are legitimate, but there are also brokers who are a scam. We have mentioned almost all the facts that can indicate that the broke si a scam and the traders should have a look at the broker accordingly.