4 Red Flags to Pass on a Forex Broker

by Redeeming Riches on September 16, 2016

As a forex trader, much of your success will depend on the broker you choose. Before you do so, it’s important that you consider as many candidates as possible. When you do this, keep a weathered eye out for any of these promises or sales pitches. They’re red flags that you can cross a forex broker off your list.

Regulation Just Gets in the Way

bulls-and-bears-for-redeemingrichesA legitimate forex broker may not be in love with all the regulations that affect them, but they’ll appreciate that they’re to protect account holders. However, the Internet has given way to countless forex brokers all over the planet. Sadly, many of them aren’t overly concerned with your account. Instead, they’re just there to take your money.

As such, they may try to convince you of the benefits of working with an unregulated forex broker. Being a trader, some of what they say may even make sense. After all, government agencies tend to make unnecessary problems for us too.

The truth, though, is that if they were a legitimate brokerage, following the law wouldn’t be a problem and they’d get registered and submit to regulation.

We Charge Only Fixed Spreads

If this was actually true, it would be great. Every forex trader on the planet would be clamoring to open an account with this broker. Well, the bad news is, there’s a lot of fine print that goes along with this kind of statement. Generally, it will mean one of the following:

  • Fixed spreads will change during a volatile market
  • The fixed spread only applies to a micro lot; for a mini lot, you’ll be paying significantly more

Remember, if it sounds too good to be true, it most likely is. This is one of those times.

Free Money Bonuses!

Read that last line once more and you can probably just skip this section. The same rule applies. Just rest assured that if a forex broker is offering you “free money” it’s because they have no intention of paying up. It’s not like they’re just throwing a few bucks at you. These brokers promise hundreds or even thousands of dollars to attract customers; that would not be a winning business model.

There are many ways forex brokers will ensure their “free money” comes right back. One common method is fine print that basically says you need to make so much in profit before you can withdraw that original sum. By then, the forex broker already made plenty from your investing, so what do they care?

Accounts Available for Minimum Amounts

Another way a forex broker will try to get your business is by claiming you can open an account for just $100 or some other extremely low number. Again, it doesn’t take much imagination to realize this wouldn’t work for a business. It costs money to keep these accounts open, process trades and provide customer support. They’re not going to do all this just to keep your account open if it’s hardly got anything inside.

The fine print comes into play here too. One way that forex brokers turn this offer into an advantage is by requiring your account get to a certain point before you can withdraw unless you pay a penalty. Sadly, this trick ropes in lots of rookies who don’t know any better. Their only choice is to cut their losses, pay an exorbitant penalty or keep trading just to get their money back (usually a losing proposition).

Forex brokers are supposed to be there to help. Provided you choose the right one, they will be. However, before that happens, you need to watch out for the four red flags we just described.

 

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