Forex Trade – Intelligent Forex


Shocking Forex Broker Frauds!

Posted in Uncategorized by intelligentforex on January 7, 2010
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Forex broker fraudKnowing your broker intimately is very important for you as most of the time the broker might be trading against you without you ever realizing it. Forex is an over the counter unregulated market. This means that there is no central agency like that in the futures markets that can function as a clearing house.

What this means is that most of the time, forex brokers are free to quote currency rates of their own. Most of the retail forex brokers get rates from the interbank market and add 1-2 pips to the spread when quoting rates to their clients. Especially in times of high volatility, forex brokers can suddenly widen the spreads. The higher the spread, the more your trading cost.

All brokers tell their new clients that they charge no commission. This is portrayed as a plus point of forex trading as compared to stock trading where brokers usually charge commission per trader. What they don’t tell is that their commissions are hidden in the form of bid/ask spreads when they quote currency rates. You see the 2-5 bid/ask spread is your trading cost whereas it is the broker’s profits. Each time, you buy or sell a currency pair, you will pay this spread to the broker. The more you trade, the more the broker will make.

Brokers encourage their clients to trade more. There are many games that forex brokers use to make you trade more. A broker will invite you to take part in a trading competition with the announcement of something like $2000-$2500 as a prize for winning the competition. Most of the new traders lose 99% of the time. The more you lose, the more the broker makes. Now this has also got something to do with the nature of the retail forex market.

Retail forex market is different from the interbank market that is highly regulated. But as a retail trader, you don’t have access to the interbank market. Your only means to access that market is through the middleman in the form of your forex broker. Most of the retail trader have small account sizes. So when you open a trade, keeping in view the small size of the trade, the broker is forced to take an opposite position just to provide liquidity. This provides the forex broker to trade against you. Since, most of the new traders are inexperienced, they lose a lot. Your loss, your broker’s profit!

Add leverage to this. Your broker will entice you to use a high level of leverage by saying that it will increase your profits. You are new, you don’t know how to use leverage. You end up losing. The more you lose, the more your broker will make.

Your broker can easily turn your winning trade into a losing trade. Many traders keep on losing without knowing the fact that the broker is using sudden spikes in the price feed to periodically trigger your stop losses. This is also known as stop hunting. When a broker finds many stop orders close to a price level, they can generate a sudden spike or blip in the price feed to take out most of these stops. Most traders never find out that the spike was artificially generated by their broker.

If you have an independent price feed, you can compare the two price feeds. You will be astonished to find that there was a spike in the broker price feed whereas in the other price feed there was none. Forex brokers can play many games with their clients. They can make the excuse of slippage to suddenly widen the spread upto 10 pips when they quote rates to their clients. So before you start trading seriously with your hard earned money, know the shocking forex broker frauds!