How to spot unreliable Forex brokers

It is more likely that new traders; rather than experienced traders; will get caught out by bad Forex brokers. This is because they have no experience in dealing with Forex brokers and in one sense; they don’t really know what they are looking for. So rather than taking time to find out, they get dragged in by phrases such as ‘no commission’ or ‘fixed spreads’ and open their first Forex trading account. However, everything is not what it seems in this business so a bit of research goes a long way if you want to use your hard earned cash to trade the currency markets. To make it easier, below are a few points new traders need to consider in their search for reliable Forex brokers.

Market makers

This is not necessarily a bad thing but a lot of brokers use this as a strategy to gain extra profits. Here is a short explanation:

All Forex brokers receive their spread costs from the Interbank market which is basically a selection of top banks and hedge funds who have the power to do this. This rate can be 1 pip (for example) depending on the currency pair. The brokers then take this 1 pip and mark it up on the bid and the ask to then ‘supply’ it to traders on their trading platform at 2 pips. So, even though the official rate is 1 pip the customer always pays an extra pip within their Forex trading. This is not illegal but some brokers really take this to the next level and charge extortionate prices for simple trades. So, the ‘market maker’ part literally means that the brokers make their own markets. It is as if you are trading in their own financial market where they are in charge of market prices when realistically, they are merely a re-seller of those prices. It would be wrong to get ‘put off’ by this as some brokers really do operate this function humanely, but it would be worth being cautious throughout your search.

Promising sales techniques

The worst mistake you can make is to be sucked in by clever marketing and sales strategies that brokers throw in your face. These included promises of making loads of money because they are the best in the market or a promise of leading market spreads when in fact, they can be changed by the broker at any time. Once you have signed up and the broker goes quiet, you know you might be in trouble.

The fact is that your success in the markets completely depends on you and your own standard of Forex trading. If you are a world class trader, you will succeed. If you are not, you won’t. It doesn’t matter how much money their other customers have earned or how much they paid out in profit last month. If your strategies don’t work, you will be giving money to them.

In summary, it pays to be just a little careful when choosing a broker for what could potentially be the best job you have ever had. But, if you are too eager to get started with no prior knowledge of the mistakes you could make then you may be swallowing a lot more than you could chew. Do yourself a favour and protect your money by giving it to reliable brokers only.