January 3, 2013 at 6:47 am | 6 comments

3 Signs that Your Forex Broker May be A Con Artist

All investors must always be wary of scams when they are placing trades. Forex traders need to be especially careful, because they are placing trades in a largely unregulated, international market. Many Forex investors claim that they have been swindled by their own brokers.

Make sure you understand the warning signs that you may be working with a dishonest broker.

Scams May Not be As Common as They Seem

Many traders blame their brokers for their losses. The truth is that many people don’t want to take responsibility for their own losses. Broker scams may not be nearly as common as you might think.

Don’t get lost in all dismal rumors. Make sure you understand the truth about Forex broker scams and know whether or not your broker is legitimate.

Signs of Potential Fraud

Understand the signs that your broker may be taking advantage of you. Here are some common signs of a Forex broker scam.

Unusual slippage

Slippage occurs when the trade goes through at a much different rate than the one shown by the broker. Some slippage is inevitable. Major news stories can create volatile fluctuations between exchange rates. Slippage can also be fairly noticeable at certain times of the day or week. For example, most traders have observed a fairly high level of slippage on Sunday nights.

Don’t jump to the conclusion that your broker is scamming you because there is a high level of slippage. This is a common mistake many new investors make.

You need to know whether the slippage you are experiencing is part of the normal course of trading or due to possible maleficence by your broker. Compare the amount of money you are losing due to slippage to the average trader. You should be wary if your trades are executed at more than 20 pips from the price you ordered. You should also be concerned if you have an unusually high amount of slippage during periods where there is little market activity.

Lack of Communication

Your broker should always try to maintain close communication with you. Signs of unusual slippage can be an indication that your broker is trying to rack up commissions. Communication problems on a broker’s end can be a much bigger problem. Make sure you stay in contact with your broker and know why they may not be getting back to you.

Goldbricking Your Transactions

Scam brokers have used a variety of strategies to prevent investors from placing trades. These can involve any of the following:

• Closing your accounts
• Freezing your trades
• Outright seizing your funds

Learn the ropes

Before choosing forex broker read:

• 5 types of Forex brokers you need to know about
• Is your Forex broker a scam
• Search for customers reviews of ForexPeaceArmy

There is seldom a valid reason for any of these issues unless your funds are being frozen or seized by a regulator or a serious incident arises. Research your broker ahead of time and see if they have any reports of conducting any of these problems.

You should always be on the lookout for signs that your broker may be scamming you. The majority of brokers have received good ratings, but there are plenty of crooked ones out there as well.

Andrew Mitchel is a financial blogger who writes tips for aspiring investors. He shares tips on spotting forex scams.