Did you know that even certain brokers were scammers?
Believe it or not, there are some brokers who “cheat” their clients.
One way they do so is by manipulating bid/ask spreads.
Normal spreads between brokers would be around 2-3 pips but scammers would have spreads around 7-8 pips.
Seven pips might not seem like a lot, but it does add up.
Imagine each time a client trades, he has to pay a spread of 7 pips. Imagine if he takes a just a few trades per day.
Multiply that with hundreds of other clueless clients, you’d be rakin’ in the dough!
Another way is by stop-hunting.
Remember, brokers know where clients place their stops.
Sometimes, they’ll make a run for those stops, causing their clients’ positions to close out.
Fortunately, many, but not all, broker shenanigans are considered old school.
You should choose a broker that is registered with a regulatory agency.
In the U.S., check out brokers registered as a Futures Commission Merchant (FCM) with the CFTC and a NFA member. Be wary of those brokers that are not regulated by the CFTC and the NFA.
You should know that the CFTC and NFA were made to protect the public against fraud, manipulation, and abusive trade practices.
Be careful, it’s often difficult to distinguish between regulated and unregulated forex brokers!
According to the NFA Web site, there are about 2,000 retail forex brokerages and solicitors of accounts that are not subject to the new rules.
Out of that 2,000, the NFA has only 24 registered member firms! If you do the math, that’s just 1% of all forex brokerages!
You can verify CFTC registration and NFA membership status of a particular broker and check their disciplinary history by phoning NFA at (800) 621-3570 or by checking the broker/firm information section (BASIC) at the NFA’s website!
If you’re trading forex outside the US, you’re in luck! Other countries have regulatory agencies as well and protect individuals as well. More will be mentioned about them later.
If the broker in question is not registered or regulated by any national agency, then DO NOT deposit your money with them. We warned ya, so don’t complain to us if you don’t get your money back!
Stay away from non-regulated firms!
The NFA is stepping up their efforts in educating investors about retail forex trading. They’ve created a brochure fit for a Pulitzer Prize called, “Trading in the Retail Off-Exchange Foreign Currency Market“.
The NFA recommends you read it before taking the forex plunge.
Once you have verified the membership of a broker to a regulatory agency, it’s time to do real research.
A good place to start is at our Broker Guide. We help you break down brokers so that you can easily compare among them.
Also, don’t be shy to also ask around in our forex forums. It doesn’t hurt to get personal opinions.
Finally another super duper helpful resource you can use is ReviewPips.com’s forex broker reviews.