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Beware of Forex Broker Scams

By:   Forexpros.com
  • 14-04-2008
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Unfortunately, there will always be a minority of unethical brokers trying to scam their customers.

A bucket shop does not always enter trades into the general market by finding an opposing position. Instead, they take the opposing position, relying on the fact that most forex traders lose. Not only do they get the spread, they also keep their clients losing trade. Because that trade exists only on their internal systems, they can distort the market by widening in the spread. In a country with poor regulations, brokers could simply prevent trades from closing, to ensure they don’t lose.  In addition, a bucket shop tends to take additional risk when camper to a regulated broker as it does not have to hedge its customers trading positions. Hence, it may reach a point that it is “open” with a very large loosing position against its customer base, reaching a point that the bucket shop can not pay the wining trades to its customers. In other words the bucket shop goes bust!!!

Most trading platforms will allow you to put in “stops”; when a currency hits a pre-determined price, your trade is sold out. This is a helpful tool to minimize losses. However, an unscrupulous broker can see your stop and move the price to that point, sell out your trade, make a quick profit and then return the price to the previous position.

Finally, unregulated brokers carry higher levels of risk over funds deposited with the broker for example: frauds and schemes, a bucket goes bust and unregulated brokers that do not want to pay wining customer its due funds. In effect, you may end up loosing ALL OF YOUR DEPOSTED FUNDS at a broker without loosing over your trading activity!!!!

To avoid this and other pitfalls, do your research, make sure your broker is credible and get the account and trading platform that suits your needs.


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