Fraudulent Forex Brokers: How to Identify Them and Stay Away

Regulation in the Forex market is constantly improving, with crackdowns on disingenuous and fraudulent brokers now more commonplace, but unfortunately numerous currency trading scams and instances of Forex fraud are still reported by victimised traders on a daily basis. Therefore, it is not surprising that beginners interested in online trading often wonder “is forex trading legit?”. The truth is that trading in commodities such as Forex, Shares and Indices, with a regulated company, is indeed a legitimate way to invest your money and make a profit. However, before depositing your hard-earned capital, ensure you are diligent in your research and educate yourself on the various broker scams out there, and how to avoid them.

Most Common Forex Broker Scams

Unfortunately, there are an immeasurable number of scams that unscrupulous brokers and individuals use to commit Forex fraud, and take the money of innocent and unsuspecting traders. As such, it is difficult to provide a comprehensive review of the various ways a trader can be duped, so instead we will be focusing on the most common methods that have been reported.

Price Manipulation

Many fraudulent Forex brokers scam their clients by manipulating the prices they charge. An example of this is overcharging on spread markup. Brokers usually add small amounts of markup to the spreads received from liquidity providers as a charge to traders for using their platforms and services. As an example, a legitimate broker will usually have spreads between 1 and 3 pips on the major Forex pairs during regular trading conditions, with increases expected in times of volatility. Any broker showing unusually high spreads on these same pairs, in regular market conditions, may be trying to scam their clients.

Stop Hunting

Stop hunting is another way in which unreliable Forex brokers scam their clients. Careful traders employing sound risk management are likely to use stop-loss orders to restrict their potential losses. Brokers know where their clients have placed these stop-loss orders, and when wanting to defraud them, can drive asset prices to the appropriate level to trigger the orders, taking their clients’ money.

Bonus Schemes

Although regulators are slowly cracking down on the use of bonuses, they are still offered by many brokers in the industry. Bonus schemes aren’t always indicative of fraud, but illegitimate brokers can use them to scam their clients in a variety of ways. These include misrepresenting how the bonus works through false advertising, adding them to traders’ accounts without permission, and not providing the full terms and conditions regarding their use. Bonuses are often falsely advertised as ‘free money’, insinuating the amount could be withdrawn similarly to a client’s own funds, which is usually not the case. They are also frequently added to a trader’s account without their permission, locking them into previously undisclosed terms. Examples of this include an inability to withdraw any funds until certain lot sizes have been traded, or until the trader has made a certain amount of profit. In this way, Forex brokers scam their clients by refusing withdrawals and forcing them to trade, with the expectation they will lose their money.

Promising Unbelievable Returns

Most people are familiar with the saying “if it seems too good to be true, then it probably is”, if not, it is a good one to take to heart, especially when dealing with financial investments. Many fraudulent brokers will advertise their services by promising unbelievably high profits, or offering the assistance of one of their ‘professional traders’ who will earn ‘amazing returns’. This is another common method of Forex broker fraud, with companies even going so far as to manipulate early trading results to reassure investors of the potential for profit. They then push clients into depositing larger amounts, only for the market to ‘unexpectedly go against them’, leading to a significant loss of invested capital.

Hard Sell Tactics

Another of the currency trading scams employed by illegitimate brokers is the adoption of hard sell tactics. This is when a broker constantly badgers their clients with phone calls, messages and emails, to convince them to invest more money. Representatives of the broker will constantly pressurise their clients into depositing more funds, promising greater profit, and questioning a trader’s commitment if they seem hesitant or worried about the idea. In extreme circumstances, the representatives may even suggest clients take out loans or mortgages and borrow from friends and family, to accumulate the funds needed for the ‘guaranteed profit’ they are promising.

Magical Trading Software

Years of innovation in online trading technology has enabled savvy investors to create algorithms, often referred to as Expert Advisors (EAs) or Robots, that will automatically carry out their trading strategy. Unfortunately, this innovation has also become a common method of Forex broker fraud, used by companies, so-called ‘professional traders’ and other third parties, to scam unsuspecting investors. A quick search will uncover a myriad of websites selling the ‘ultimate’ EA, with promises and guarantees of the unbelievable profit this algorithm can make, and ‘reviews’ from ‘real’ traders who have used it successfully. This is another situation where traders should revert to the ‘too good to be true’ mantra from earlier. Although real, profitable EAs do exist, anyone thinking about automated trading should do extensive research before spending their money.

We have covered six of the most common ways that fraudulent Forex brokers scam their clients, but there are many more. A new trader willing to do the work can find a wealth of information about how to identify Forex fraud, and avoid falling victim to it. It is important to note, however, that although broker scams are a legitimate concern, would-be investors should always employ a degree of scepticism about what they read. Trading financial commodities is not devoid of risk, and many traders jump straight in without doing their due diligence. Investors that enter the markets completely unprepared are likely to experience losses, and many choose to blame this on their brokers. To avoid being misinformed, it is recommended that traders collect research from various sources, conduct their own investigations, and come to their own conclusions.

How to Protect Yourself from Forex Fraud

For would-be investors looking to avoid broker scams, comprehensive research and rigorous testing is recommended before deciding to deposit large sums of money. A few things that new traders can look out for in an effort to avoid Forex fraud are explained below:


When looking for a legitimate, respectable and reliable broker, the first thing an investor should pay attention to is regulation. Each country has its own regulating body which oversees companies that work within the financial industry. Based on the location of brokers and the countries in which they offer their services, they are required to register and follow the regulations of respective local authorities. Some of the main regulators to look out for include:

  • The Financial Conduct Authority (FCA), United Kingdom
  • The Cyprus Securities and Exchange Commission (CySEC), Cyprus
  • The Markets in Financial Instruments Directive (MiFID), European Union
  • The Commodity Futures Trading Commission (CFTC), United States
  • The National Futures Association (NFA), United States
  • The Federal Financial Supervisory Authority (BaFIN), Germany
  • The Autorité des Marchés Financiers (AMF), France
  • The Australian Securities and Investments Commission (ASIC), Australia
  • The Financial Services Agency (FSA), Japan
  • The Financial Services Board (FSB), South Africa

Finding out if a broker is regulated by one of the above, or another well-regarded and reputable regulator, is a good first step to ensuring they are legitimate and trustworthy. It is worth noting however, that just because a broker says they are regulated, it doesn’t mean they are. Any regulated entity will be provided with a registration, licence or authorisation number, which is something investors should request if the information is not readily available. This number will allow traders to confirm whether the broker is in fact regulated, and any refusals or excuses given for not providing it should be seen as a red flag. In addition, investors should be wary of brokers regulated in exotic, previously unheard of locations, as regulations there may be much more lenient, providing reduced protection to clients.


As mentioned previously, through diligent research, new traders will be able to find a wealth of information to help them find a genuine and reliable broker. Talking directly to traders who have had either positive or negative experiences with the brokers you are researching can also provide significant insight. Once again however, you must bear in mind that opinions are subjective, or may hide ulterior motives, so ensure you collect information from multiple sources, and come to your own conclusion.

Rigorous Testing

Most genuine brokers will provide some form of a demo account for new traders to test their strategies. These accounts usually mirror real trading conditions, albeit with certain chart delays, and provide would-be investors with the opportunity to try trading the markets without risking any of their own capital. You can use these demo accounts to review a broker’s platforms, and conclude whether or not they are trustworthy. Additionally, opening demo accounts with multiple brokers will allow you to check the services each has to offer, and which suits you best. You will also be able to compare the pricing and quality of execution available.

Beware of Bonus Schemes and Other Incentives

We mentioned earlier that bonuses and other incentivised schemes are a common method used in Forex broker fraud. It is recommended that new investors be wary of such schemes when beginning to trade. No matter how attractive the offer, there may be some catch buried deep in the terms and conditions that could work against you. Although some do offer incentives, legitimate and reliable brokers are usually able to attract clients simply by providing superior service, high quality trading conditions and good customer support. If you feel that the opportunity to receive a bonus is too good to pass up, ensure you ask for and read the full terms and conditions relating to its use. Additionally, as with all documents you may have to sign before beginning to trade, if there is something you don’t understand, ask for it to be explained, or seek legal advice.


Navigating the world of online trading can be a daunting task for beginners, or those less experienced in the industry. There are a multitude of fraudulent brokers, operating a wide range of currency trading scams that investors should be aware of before risking their capital. However, there are also a large number of reputable, reliable and regulated brokers whose interests are directly aligned with those of their clients. Being able to tell the difference between a genuine and legitimate company, and one that is trying to scam you, is simply a matter of research. Through comprehensively investigating all the options that are available to you, listening to others that have been in a similar position, and keeping an eye out for any of the red flags we have mentioned, you should be able to find the right broker for you.

Did you know?

Many consider the year 1880 A.D. to mark the beginning of modern foreign exchange. The reason for this is that it was during this year that the gold standard was first introduced.

Word of the day
"Wedge" - A chart pattern that indicates trend reversal.
Pro Tip

Always keep a record of all your transactions.