The other day, I was on a popular Forex trading thread on an online forum, when someone interrupted the flow of trading ideas and strategies we had enjoyed for three days straight to spit out a heart-rending story of how he had been ripped off by a Forex broker based in Seychelles (he only found out the broker’s location after the incident; how naive could traders get?).
The poor fellow had apparently been taught the rudiments of Forex trading and by all accounts, he was doing well for a first timer (probably ticked off the scam market maker broker he was using). Then from out of the blue, he got an email from his broker, accusing him of using a third party access to trade his account (supposedly against their rules). He was branded a cheat and as punishment, his account was suspended and his funds seized. Now the broker could have their own rules regarding account access, but if you have a problem with a trader, why not at least return the trader’s original capital instead of using some cheap excuse to brazenly steal the trader’s money? The community of traders is presently contemplating sending representatives to Seychelles to take legal action, a process that will cost a lot of money without a guarantee of success. All this could have prevented if the trader had done his homework. In the next few sentences, I will briefly outline what I would have done from the get-go after coming across the broker’s web page, which had lured the unfortunate trader in with a 100% bonus.
Step by Step Process of Conducting Due Diligence of a Forex Broker
The first thing I would do on coming across this broker is to find out the true location of the broker. Some unscrupulous brokers maintain bank accounts in countries that have strong regulation, maintain a skeletal office there but site their main office somewhere else. It gets worse; the main office could be the cellar of a building in some far flung island on the earth, or some country with very lax financial and banking rules. This system of structured deceit is difficult to unravel. For this information, I would head over to some popular Forex review sites to check the broker out. This serves many purposes. Not only are you likely to get the actual location of these guys (and therefore their true regulatory status), you could stumble on some precious information. More often than not, you will get reviews of such a broker from others who have used their services. The bad ones do not hide.
If I visit the forum of a group like ForexPeaceArmy, there is a structured review system that tracks the complaints against any broker and how the brokers respond to the complaints. Complaints range from withdrawal issues to trading practices such as stop hunting. It is not unusual to see scam brokers paying off people or using multiple IDs to write good reviews about themselves. It is not long before they are caught. If you see this, you are better off running away from such a broker.
My next stop would be the websites of the regulatory agencies. This is assuming the broker in question passes the location test. Find out the status of each broker. Regulated brokers are assigned specific registration numbers and it is not hard to find out if a broker is a scam broker.
Usually, these steps are enough to fish out scam brokers. You can also add some good old commonsense to the mix. Personally, I do not use brokers that offer bonuses. That 100% bonus may just be a sign that the broker is getting desperate for money to steal or settle other clients in an elaborate Ponzi scheme.
Article provided by Alexander Collins. To learn more about smart ways to choose a Forex broker and unethical practices scam brokerages use, visit Alexander Collins blog.
Happy Trading!
