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Is It Easy to Identify Forex Broker Scam?

Nov 30 2011

Forex is a $4.2trillion daily business. No financial trading hub can boast of the kind of money that circulates in the Forex market. Given that a few years ago, the daily Forex turnover was just about 30% of today’s values, it is safe to say that in the next five years, we may see the daily turnover reach almost $10 trillion. With so much money floating around in one financial hub, it is not surprising that the Forex market will naturally draw out the human element of greed in some of its participants.

Of all the participants in the Forex market, the brokers are in a better position to profit financially. They make money from spreads and commissions generated by traders, irrespective of the market conditions. In a situation where there is a quest and accompanying pressure by humanity to live well and have the best that life can offer, it is not surprising that some brokers engage in practices that short-change clients and scam money off them.

Many market players do not fully understand the business of Forex trading from the broker’s side before they delve into it. Let’s face it. A trader can only participate in Forex trading through a broker, and most of the time, the trader has to use a firm located far away from his location; possibly in another country. In these circumstances, a trader cannot afford to give his money to just anybody. The situation is not made any easier when you consider that many traders come across brokers through search engines on the internet. Usually it is the glamorous sales pages or the lucrative incentives such as bonuses that attract traders, and there is no room for a physical assessment of the broker’s assets to determine if they are worth what they claim they are.

Forex brokerage business is a bit like banking business. A brokerage needs to have segregated funds to be able to handle settlement of client orders. There has to be lots of liquid cash, distinct from whatever money traders have in the market or what the firm uses for its operations. After clients are settled, the Forex brokerage firm can then harmonize its accounts, know which trader has lost or which trader has made money and work it all out. Harmonizing up to 50,000 trading accounts daily is not an easy job, and deposits will not always cover withdrawals, and that is why a regulatory requirement (where brokers are well regulated) is that a Forex broker must have liquid cash, lodged in a segregated escrow account in a major bank for client settlement. Anything else will be equivalent to running a Ponzi scheme where money from one client is used to pay another client’s settlement.

So if your broker is having problems satisfying withdrawal requests, or out rightly refuses to payout large sums of money that have been accrued by traders as a result of trading profits, then it is almost assured that your broker is a scam broker. Non-payment of profits is the major complaint of scam brokers.

There have been cases where Forex brokerages which eventually folded and ran off with traders’ funds turned out to be businesses run from a kitchen by two or three individuals. No one would like a situation where you work hard and hand over your money to such an arranged brokerage, only for the operators to disappear to some remote island and live anonymously well with your money. One way to avoid this is to use online Forex trading forums to gather as much information about a broker before you commit.

Author: Alexander Collins. Stay safe, use your head and re-evaluate your broker now before it is too late. And last but not least visit my Forex trading blog. As I have many years trading experience, I know almost every unethical trick scam brokers use. On my blog, you can read about their 5 scam methods and identify your Forex broker scam.

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