In the forex market, there have been numerous reports of fraudulent brokers. “Bucket-shop” businesses entice consumer cash and then either keep them for themselves or set up unfair trading circumstances that result in repeated losses for all traders. Those are undoubtedly scams and are against the law. They should have their own topic, as they are widely discussed online. Unfortunately, legitimate (licensed and regulated) Forex brokers have created a toolkit of immoral ways to extract more money from their clients.
Ways in which forex brokers cheat traders
Typically, commission fees or spreads from client transactions are how forex brokers make money. Still, some brokers engage in dishonest practices in an effort to boost their income. Although it sounds awful, it is a genuine problem in the forex brokerage industry. Although we often hear in advertisements that there are “No fees, no commission, no hidden costs” every broker is legally permitted to take a few extra pennies or dollars out of your position.
Here are some of the most frequent forex broker scams, out of the many methods such forex brokers might deceive you.
All Forex brokers’ all-time preferred strategy is spread widening. Spread widening typically takes place during times of extremely high volatility. Even though a quote is totally current, a broker may choose not to assign your position at that price. To protect itself, the broker charges its clients a higher spread than typical. If the broker acts honestly, there is nothing wrong with that.
Actually, there is nothing that prevents brokers from using a greater spread than is required in order to gain several pip from traders. How do you stop the spread from getting wider? Select a broker with low spreads and a reputation for not expanding them, or simply try to avoid trading during times of severe volatility (important news releases).
Slippage isn’t always dishonest in and of itself because the broker’s liquidity sources may quickly modify their rates, leaving the broker with no choice but to execute your order at a marginally inferior price. Some brokers, on the other hand, take use of slippage to their own advantage and offer you the chance to buy (or sell) a currency pair for a little bit more than they could. Their immediate profit makes a difference.
Although it is impossible to locate a broker without slippage, you might attempt signing up with the one who has the least amount of slippage such as an ECN broker. Limit orders are a better option if you want to avoid trading using market and stop orders. If you utilize expert advisers, you can also add decreased slippage parameters to your orders.
Overnight interest rates that are not fair is another way in which forex brokers can cheat traders. The difference between the short-term interest rates tied to the currencies in the pair and those set by central banks is what brokers charge and pay for overnight swaps. Sadly, the distinction isn’t always clear-cut; if the broker should collect the swap from the trader, it will do so for a higher fee than necessary, while if the broker should pay the swap, it will do so for a lower fee.
The trader will have to pay swaps both ways, regardless of whether they are long or short on the pair, when the difference is fairly little. By trading only intraday, selecting a no-swap account, or selecting a broker by looking at their trading conditions for better swaps, you can avoid this broker’s gimmick.
Overleveraging typically results from traders falling for higher trading volume, not the broker. And since brokers with high leverage can raise their earnings, the brokers are only too happy to do provide it to users who do not always know what they are doing. Do not overleverage your trading positions and keep this in mind. If you have the money, you could wish to choose to trade without any leverage (1:1) or at least practice on a demo account to begin with,
One of the most important factors in ensuring the success of your trading is dealing with a reputable broker. Imagine having a prepared trading technique and a controlled mentality, but your broker was deceiving you behind your back. Your entire effort and hard work will be in vain. You can see my best forex brokers for some inspiration if need be.
The broker offers all of the essential trading tools, including the trading interface, price quotes, and order execution tools. No matter how successful their trading tactics or how composed their mental states, their capital will always be in danger if the broker intends to manipulate their clients’ trades. Not because there is a market-based risk of loss, but rather because the broker takes steps to covertly steal money from clients.
Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading! Read more about me.