Over the past decade, the popularity of forex has rapidly grown, resulting in thousands of new forex brokers appearing and flooding the market. All are looking for one thing – traders’ patronage. What happens when there are so many players out there? Well, you’ve guessed right – some of them won’t be as genuine as they seem. A simple Google search of “forex broker scams” will give you a clear idea of how many unscrupulous and questionable brokers are out there.
- How are they even in business?
- How do they manage to scam traders?
- How can you make sure your broker is trustworthy?
We will try to answer all of these questions in this article.
Once you’ve decided that you’re ready to become a trader, it’s up to you to identify the brokers that are reliable and those that are not. We, however, are here to help you do that by going through the steps you have to select a trustworthy and regulated forex broker to trade with. To sort out the reputable brokers from the shady ones, we have collected a list of things you should do when you’re looking for your new broker.
1. Check with Professional or Regulatory Organizations
Open an account with a regulated broker. Check the affiliation of the broker. The regulatory information should be listed on the official homepage of the broker.
Another step you might take to secure yourself is to go directly to a regulatory organization, as legitimate brokers are required by law to register with the SEC in the US or the FCA in the UK or ASIC in Australia. There, you might be able to check out record information on broker registration, status or whether they had any disciplinary action against them.
Such databases can’t be manipulated and will allow you to get a clear picture of the broker’s past.
2. Check out Independent Review Sites
Review sites like Trustpilot and ForexPeaceArmy contain a lot of information about all kinds of companies, including forex trading brokers. The good thing about these independent review sites is that the comments left there are generated by users only so you’d definitely be able to get a good overall picture of the broker you’re considering.
Also, you can check out the average rating of the broker, calculated based on all the reviews left by the customers. This can further cement your final decision.
While going through the reviews, make sure you carefully read through the negative experiences of others and try to spot the patterns. If many people complained about the same thing (hidden fees, trouble with trading signals, inability to withdraw funds, etc.), you should probably avoid the broker.
If the majority of the reviews are positive, go for it. There will always be people who complain on the Internet or have had a bad experience because of their lack of trading knowledge, not because the broker was scamming them so you may have to take some reviews with a pinch of salt.
3. Personal Recommendations
Many novice traders get interested in the forex market because they know someone who’s been trading and told them about it. Nothing can beat the word of a friend or a family member as they have no particular interest in misleading you with false information. They can surely point you in the right direction even if they are using another broker.
Seeking out the help of an investment adviser is also an option. Since their reputation is on the line, it’s highly unlikely that they will lie to you and lead you to an unregulated, questionable broker.
4. Check the Website / Social Media Channels
Go directly to the source.
Devote some time to checking out the website.
If you see a suspiciously large amount of testimonials, explaining how “great” the broker is, right at the very front of the website, you might want to think twice about how genuine they really are.
Also, it’s advisable to check out the various sections of the website and read carefully. Lack of essential information and big chunks of unnecessary paragraphs that explain how “secure”, “trustworthy” and “amazing” the broker is, might be a big red alert for you.
Did the broker list their address or telephone number?
Legit companies list their company name and ways to reach them very clearly. If such information is missing, the broker is probably not trustworthy.
Check out the year of establishment as well. If the broker has been out for a short period of time you might have to think twice before investing your money there.
Remember, it’s easy to build up a website with good content for a short period of time but it’s not that easy to build a good reputation that’s been steadily proven for years.
It takes time for traders to figure out that a broker is a scam and spread the word.
Once the community discovers the scam, the broker will likely be shut down.
If the broker is still running after many years, most likely they are a legit broker.
Next thing to do is check the official social media channels of your broker, usually provided on their website. Be cautious of signs, including:
- Number of followers vs. engagement rates
- Social media reviews left by customers
- Comments left by the customers under publications
- How adequately the company responds to comments (if they do at all)
- The quality and type of content they publish, etc.
Remember, checking out the official social media pages (Facebook, Twitter, etc.) of your broker is important. You would be surprised how much you can tell just by the way a company structures and manages their social accounts.
Forex trading is hard. When a broker is against you and only tries to steal your money, things become even harder.
You don’t want to be part of the next scam story or spend months and even years trying to get your money back or proving that you were lied to by your broker.
Do your homework and verify that your broker is legit.